In a recent appearance at ETH Denver, US Securities and Exchange Commissioner Hester Peirce reiterated her dissatisfaction with her agency’s handling of cryptocurrencies. Peirce expressed frustration with the SEC’s reliance on enforcement actions for regulation and criticized the sluggish approval process for spot Bitcoin exchange-traded funds (ETFs). During a discussion with CNBC’s MacKenzie Sigalos, Peirce pointed out the SEC’s management of the Grayscale case, which resulted in the approval of a Bitcoin exchange-traded product.
“It’s remarkable to me that it took a court to tell us that we had to do that,” Peirce said.
“I started in 2018. That summer, we had our first Bitcoin exchange-traded product come before us as a commission. And I thought back then—which was quite a long time ago now—we should have said yes to it.”
Peirce abstained from discussing the pending applications for Ethereum spot ETFs, indicating that they are presently under review by the SEC.
Hester Peirce Highlights SEC’s “Regulation by Enforcement” Stance in Cryptocurrency Sector
SEC Commissioner Hester Peirce has once again brought attention to the Securities and Exchange Commission’s (SEC) regulatory strategy towards cryptocurrencies, characterizing it as a continued “regulation by enforcement” approach. Peirce, known for her supportive stance on crypto innovation and investor protection, has frequently voiced concerns about the SEC’s tendency to rely on enforcement actions rather than providing clear regulatory guidance.
In her latest remarks, Peirce highlighted the SEC’s ongoing enforcement actions in the crypto space, suggesting that the agency’s approach has not evolved significantly despite calls for more clarity and transparency. “Regulation by enforcement” refers to the practice of using enforcement actions, such as lawsuits and penalties, to shape regulatory standards rather than issuing formal rules or guidelines.
Peirce’s criticism comes amidst a backdrop of increasing regulatory scrutiny of the cryptocurrency industry, with the SEC taking action against projects it deems to have violated securities laws. While enforcement actions can be effective in combating fraud and protecting investors, Peirce believes that they may also stifle innovation and deter legitimate projects from entering the market due to regulatory uncertainty.
One area of contention is the SEC’s handling of applications for Bitcoin exchange-traded funds (ETFs). Peirce has previously criticized the SEC’s slow approval process for Bitcoin ETFs, arguing that it hampers investor access to regulated investment products and impedes the development of the crypto market.
Peirce’s advocacy for a more principles-based regulatory approach, which provides clearer guidelines for market participants while still allowing for innovation, contrasts with the SEC’s current enforcement-heavy strategy. As the crypto industry continues to evolve and mature, the debate over the appropriate regulatory framework will likely intensify, with stakeholders calling for greater regulatory clarity and consistency.
Peirce censured the agency for its reactionary tactics and stressed the significance of establishing transparent regulations that can be adhered to, rather than depending on enforcement measures post hoc.
“If you really want to sort the bad behavior from the good behavior, having rules that are clear to people who want to follow them is a much better approach than doing this, parachute in later with enforcement.”
Peirce recognizes the SEC’s responsibility in prosecuting fraudulent activities.
During the discussion, Peirce also recognized the SEC’s role in prosecuting fraudulent activities.
As per reports, the SEC disclosed that its enforcement actions in the fiscal year 2023 led to nearly $5 billion in fines and reimbursements to investors. The SEC stated that the total penalties obtained between October 2022 and September 2023 were the second-highest amount on record.
However, Peirce stressed the importance of fostering a balanced dialogue on regulation rather than relying exclusively on enforcement measures.
Meanwhile, SEC Chair Gary Gensler has recently been outspoken in his criticism of the cryptocurrency industry, cautioning about its lack of compliance.
In September, he acknowledged that while not all tokens can be pre-judged, a significant portion of the crypto industry falls under securities laws but remains non-compliant. “This crypto space, without prejudging any specific token, much of it is subject to securities laws, yet unfortunately, much of it also operates without compliance,” he remarked.
