Crypto Mom Criticizes SEC Regulatory Scope: Solving Non-Existing Problems

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According to Commissioner Hester M. Peirce (aka Crypto Mom), the crypto world is debating proposed SEC amendments to exchange regulations, which could impose additional burdens on crypto platforms and hamper innovation.

The U.S. Securities and Exchange Commission (SEC) announced on April 14 that it is reopening the comment period and providing additional information for proposed changes to the definition of exchange under Rule 3b-16. ‘Exchange Act. The move drew attention, particularly in the crypto markets, as SEC Chairman Gary Gensler pointed out that many crypto trading platforms fall under the current definition of an exchange and are therefore obliged to comply with securities laws. However, the announcement was met with dissent from SEC Commissioner Hester M. Peirce, who is used to advocating for a more cautious regulatory approach to the crypto space.

The SEC originally proposed the changes in January 2022 and reopened the comment period in May 2022, with the last comment period ending June 13, 2022. The reopening statement emphasizes the applicability of the existing rules to platforms securities trading of crypto assets, including decentralized finance. (DeFi) and provides additional information for the systems included in the proposed new exchange definition. Public comments will be accepted for 30 days after the reopening announcements are posted in the Federal Register.

In response to the SEC’s announcement, Commissioner Hester M. Peirce issued a statement titled Rendering Innovation Kaput: Statement on Amending the Definition of Exchange. Peirce, who has been dubbed Crypto Mom for her pro-crypto stance, dissented, saying the SEC’s approach would lead to stagnation, centralization, expatriation and the extinction of new technologies.

Peirces’ statement recalls how, more than 30 years ago, the SEC faced a similar challenge when innovative companies developed alternative ways to connect buyers and sellers. At that time, the SEC chose innovation, allowing these systems to operate without requiring them to register as national stock exchanges. This decision spurred further innovation and ultimately led to the creation of the ATS regulations in 1998.

However, Peirce argues that the SEC’s current approach stands in stark contrast to its past actions. She says the Commission is now aggressively expanding its regulatory reach, solving non-existent problems while refusing to change its fundamental approach to foreign exchange regulation. Peirce accuses the SEC of rejecting the possibility of making practical adjustments to its registration framework and of punishing good faith attempts by contractors with enforcement actions. She sees the reopening of the comment period as a threat rather than a conversation.

Peirce says the reopening statement doubles down on the proposals’ flaws identified by commentators, stretching the statutory definition of exchange beyond reasonable interpretation to reach an ill-defined set of activities without evidence of benefit to the investor. She argues that the SEC’s current approach signals a disinterest in facilitating innovation and competition in capital markets, seeking instead to protect licensees.

Hester Peirces’ dissent to the new SEC rule to cripple the challenge is phenomenal.

Rather than embracing the promise of new technologies as we have done in the past, we propose embracing stagnation, forcing centralization, encouraging expatriation, and hailing the extinction of new technologies.

Sasha Hodder (@sashahodler) April 14, 2023

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