SEC Commissioner Details Dissent on Proposed Crypto Exchange Regulatory Policy

SEC Commissioner Hester Peirce sits down with Yahoo Finance’s Jennifer Schonberger to discuss regulating cryptocurrency exchanges, implementing stablecoins, and whether to classify digital assets as securities or raw materials.

Video transcript

Well, cryptocurrency exchanges are certainly facing increasing pressure as the SEC seeks to craft regulation around some of these big platforms. Our very own Jennifer Schonberger spoke with SEC Commissioner Hester Peirce. And she’s here to bring us that conversation. Jen.

JENNIFER SCHONBERGER: Good afternoon. Last week, Securities and Exchanges Commissioner Hester Peirce opposed an SEC proposal that would seek to broaden the definition of a trading venue. I spoke exclusively with Commissioner Peirce about why she disagreed with this as well as the regulation of cryptocurrencies.

She told me that she sees this proposal as a back door to try to regulate cryptocurrency exchanges. However, she says that the SEC does not currently have any formal plans on file to propose regulations regarding the regulation of crypto exchanges, or crypto in general this year. Listen.

HESTER PEIRCE: I certainly think the expanded definition that is offered for the exchange will cover a lot of potential platforms that didn’t necessarily think they would be covered. And that’s in the traditional security space as well as the crypto space. So I want people to think about it.

And the reason I disagreed is that we don’t give people enough time to think about it. And so I won’t be able to get the feedback I need to decide whether or not this proposal is good or not. So that’s sort of the crux of why I disagreed with that.

Now I will say that Chairman Gensler has said even under our existing rules that he thinks a lot of crypto platforms should come and register with us. So regardless of what happens with this proposal, I think he is trying to bring these crypto platforms into our purview. The proposal, if adopted, will make this much easier.

JENNIFER SCHONBERGER: Do you think this proposal could be adopted? And if so, how long between when it is adopted and when compliance would be required for these crypto exchanges?

HESTER PEIRCE: Well, it’s hard to say now. I mean, we’ll look at comments, I hope, as they come in, even though we’ve given so little time. And so that should inform the rule-making process and the decision to go ahead with adoption as proposed or change it in some way.

If it comes into force, it is unclear what the implementation period will be. Again, this is something we’ll get feedback from people on what they think is a reasonable time frame and then we’ll go from there. So things in Washington usually take a long time. But Chairman Gensler here at the SEC is making us work pretty hard. And he tends to move pretty fast. So it’s all relative, I guess. But for DC, he moves fast.

JENNIFER SCHONBERGER: You mentioned that Chairman Gensler is urging cryptocurrency exchanges to register with the SEC, although it has not been mandated. You haven’t published any formal rules or guidance on this. And speaking with Chairman Gensler last month at a press conference, he told me that he hopes this is the year the SEC puts in place rules to regulate the exchanges. Do you see this happening? Are you directly working on rules behind the scenes for cryptocurrency exchanges or for decentralized finance?

HESTER PEIRCE: Well, Jennifer, your question is absolutely correct in the sense that we don’t have a rulebook in place that works for crypto exchanges as they currently operate. And so, in the absence of adjustments or exemptions, it will be very difficult for these entities to register with us.

If you look at the agenda that Chairman Gensler presented, I don’t see anywhere in that agenda a rule aimed at crypto exchanges and the registration of those exchanges, other than the one we just proposed. But it’s not specifically designed to answer those questions about what registering one of those entities actually looks like. So I think there is a discrepancy.

JENNIFER SCHONBERGER: So, Commissioner Peirce, are there any regulations or rules the crypto community can expect from the SEC this year, whether it’s exchange registration or otherwise? Or should we expect an increase in law enforcement activities?

HESTER PEIRCE: I think that’s what’s discouraging, that we’re pursuing a lot of these charges through law enforcement rather than taking the approach of using our existing regulations, our existing regulations and our existing statutory authority, which tells us that we can make adjustments to the rules to accommodate new things and different things.

So we should be working on creating that kind of framework that works. But I just don’t see it on the horizon from what’s on the regulatory agenda. And that leads me to worry that a lot of that work goes through law enforcement, which is the wrong way to write rules.

You want to do this transparently, involving everyone involved, whether it’s the people running the platforms or the people trading on the platforms. You want everyone to have a say in how these rules look.

JENNIFER SCHONBERGER: The digital asset industry does not have a clear framework from the SEC, as you mentioned, for what actually constitutes a security versus a commodity. How to solve this?

HESTER PEIRCE: I think, again, we sit down and think about what we’re trying to achieve. And we’re trying to make sure that the people who are buying these digital assets, these crypto assets, know what they’re buying and get the information they need to make a good decision. And so it looks a bit different for a crypto asset than it does for ordinary security.

And so what we should be doing is sitting down and figuring out what information people need. Is the SEC the right agency to get this information? If so, let’s write a rule and say, here’s the information you need to provide when selling any of these things.

But so far, we have done nothing but stick security labels on various digital assets. Sometimes we don’t even tell people what digital assets we think are securities. And so people are left guessing.

JENNIFER SCHONBERGER: And stay tuned at 2 for the second half of this interview where Peirce and I discussed his views on how digital assets should be regulated, including looking at NFTs. Guys.

Yes, Jennifer. I don’t want to skip past the clip you’re going to play later. But I guess give us some color on how exactly she thinks about these non-traditional crypto assets, if you will, like bitcoin or stablecoins and so on. Is there any hint that the SEC would want to enter the space regulating things like NFTs or DeFi and what have you got?

JENNIFER SCHONBERGER: Yeah. Hey Brian. So there are two things. When I asked him what it would take for the SEC to finally approve a physical Bitcoin ETF, a spot Bitcoin ETF. And she says there’s really going to have to be regulation of the underlying markets, Bitcoin cryptocurrency markets, like stock exchanges, before the SEC is comfortable with that. So it looks like it might be a while here before the SEC is comfortable giving the green light to this.

Now she also notes that NFTs have exploded, as you know. They are now worth over $40 billion as a market, almost the size of the global art market. And so she thinks it would be up to the SEC to come up with some rules or guidelines for people who deal with NFTs, either partially or wholeheartedly, to see where those would intersect with securities laws.

Jennifer Schonberger of Yahoo Finance. Thank you very much for bringing us this interview.