SEC Head Says Regulators Should Not Interfere in Development Of New Technologies

Regulation 2 min, 13 sec READ

by Nick Tsakanikas

SEC Commissioner Pierce shared her opinions about regulations in the crypto-industry. She highlighted the importance to enrich their knowledge.

In a very interesting speech this week, Hester M. Peirce, head of the Securities and Exchange Commission, shared her opinions about the future of regulations in the cryptocurrency sphere.

Regulators have thus far struggled to settle on an approach to digital asset regulation as applying existing regulatory approaches seems increasingly inadequate and potentially inhibiting for blockchain innovation.

Peirce highlighted the importance of regulators stepping back to act more as consultants working together with innovators, rather than interfering with the project development. She paralleled the responsibilities of regulators to the duties of a beach lifeguard: “On a beach, the lifeguard watches over what is happening, but she is not sitting with sandcastle builders monitoring their every design decision,” she said.

Peirce admitted that trying to apply existing rules to an innovative market is complicated, to say the least.  "Defining the function of a product or transaction is always essential to determining its proper regulatory regime,” Peirce said. On this level, tokens distributed during Initial Coin Offerings have been highly controversial for the SEC, and there continues to be a major debate over whether they should be deemed as securities.

Presently, the 1946 Howey test is used to determine whether a financial instrument classifies as a security or not. However, in the case of ICOs, securities regulations could prevent innovation as regulatory uncertainty could de-incentivize their development.

“The SEC’s role is not to hand out permission slips for innovation. Innovation happens—organically through private decisions and irrepressible human creativity," Peirce said. 

The Importance of Education

Peirce referred many times to the need for in-depth education in cryptocurrency and blockchain technology for regulators to effectively apply the Howey test. Moreover, she indicated the traps that the SEC could fall in due to a lack of knowledge. Regulators could merely focus on the potential harms of the innovation and overlook how it could improve people’s lives. Additionally, according to Peirce, regulators should maintain a neutral stance towards the entrepreneurs and be careful not to micromanage project development.

"My fear that regulators will grab hold of the shovels and buckets is why I am often wary of so-called regulatory sandboxes."

Peirce suggested that entrepreneurs contact the SEC’s Corporate Finance division directly. She also recommended the creation of an online platform, where entrepreneurs and regulators could exchange opinions about blockchain innovations. Peirce’s speech comes ahead of the Medici Conference and sounds like a positive attitude to many in the cryptosphere.