Crypto Mom Criticizes SEC’s Regulatory Reach: ‘Solving Non-Existent Problems’
The crypto world is debating the SEC’s proposed changes to exchange regulations, which could put additional burdens on crypto platforms and stifle innovation, according to Commissioner Hester M. Peirce (aka “Crypto Mom”).
The US 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 Exchange Act Rule 3b-16. The move has gained attention, particularly in the crypto markets, as SEC Chairman Gary Gensler emphasized that many crypto trading platforms fall under the current definition of an exchange and are therefore obligated to comply with securities laws. However, the announcement was met with dissent from SEC Commissioner Hester M. Peirce, who has a history of advocating 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 on June 13, 2022. The reopening release emphasizes the applicability of existing rules to platforms that trade in crypto-asset securities, including decentralized finance. (DeFi) systems, and provides additional information for systems included in the new proposed exchange definition. Public comments will be accepted for 30 days after the reopening release is published 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 the “Crypto Mom” for her pro-crypto stance, voiced dissent, arguing that the SEC’s approach would lead to stagnation, centralization, expatriation and the extinction of new technologies.
Peirce’s statement recalls how more than 30 years ago the SEC faced a similar challenge as innovative firms developed alternative ways to connect buyers and sellers. At the time, the SEC opted for innovation, allowing these systems to operate without forcing them to register as national securities exchanges. This decision promoted further innovation and eventually led to the creation of Regulation ATS in 1998.
However, Peirce argues that the SEC’s current approach stands in stark contrast to past actions. She argues that the commission is now aggressively expanding its regulatory reach, solving non-existent problems while refusing to change its fundamental approach to stock market regulation. Peirce accuses the SEC of rejecting the ability to make practical adjustments to the registration framework and punish contractors’ good faith efforts with enforcement actions. She sees the reopening of the comment period as a threat rather than a conversation.
Peirce argues that the reopening issue doubles down on the proposal’s deficiencies identified by commenters, stretching the statutory definition of “exchange” beyond a reasonable interpretation to reach an ill-defined set of activities without evidence of investor benefit. She argues that the SEC’s current approach signals disinterest in facilitating innovation and competition in financial markets, rather than seeking to protect incumbents.
