Commissioner criticizes SEC's ambiguous stance on token classification and regulatory approach during Congress hearing.
Key Takeaways
- Hester Peirce claims that the SEC should draw the lines on its jurisdiction and act within it.
- Gary Gensler doubles down on its standard answer on security tokens.
The House Financial Services Committee conducted a hearing today with US SEC Chairman Gary Gensler and four other Commissioners: Caroline A. Crenshaw, Hester Peirce, James Lizarraga, and Mark Uyeda. That’s the first time the Commissioners testify before the Congress together since 2019.
Patrick McHenry, Chairman of the House Financial Services Committee, questioned Gensler again about the multiple terms used to address digital assets and a potential lack of clarity to define what tokens are securities.
Following Gensler’s standard answer of token economics being more important than “labels” to define what a security token is, Peirce stated that there’s no regulatory clarity to define different digital assets when questioned by McHenry.
“We’ve taken a legally imprecise view to mask the lack of regulatory clarity,” the Commissioner added.
Peirce further elaborated that the SEC is purposely ambiguous when it comes to defining if a token is a security or the investment contract tied to it.
“By using imprecise language, we have been able to suggest that the token itself is security apart from that investment contract, which has implications for secondary sales, which has implications for who can list it. I think we are falling down in our duty as a regulator not to be precise.”
The Commissioner, also known as “Crypto Mom,” stated that admitting that the token itself is not a security is something that should have been done “long ago.”
Therefore, McHenry asks Peirce if clarity over crypto rules is something that the SEC itself can provide the market, with the Commissioner confirming that the regulator has this power in its hands.
“We can provide guidelines and choose not to,” she added.
Regulation by enforcement is not efficient
French Hill, Chairman of the Digital Assets, Financial Technology and Inclusion Subcommittee, was the next Congress hearing member to question SEC’s representatives.
Hill’s first question was about the efficiency of the “regulation by enforcement approach” and was directed at Peirce. The Commissioner said that this is a “very bad approach” to regulating an industry, and not efficient when it comes to protecting investors and using the SEC’s resources adequately.
The best course of action, according to Crypto Mom, is to define clear lines of where the SEC should act and direct regulatory resources to those questions, providing clarity on what is the regulator’s jurisdiction.
The Chairman of Digital Assets then asked Commissioner Mark Uyeda if the SEC could give the clarity urged by the crypto industry in the US.
Uyeda then confirmed that the SEC has a “wide range of existing tools” to address the current lack of clarity, mentioning that the regulator can provide clarity in matters such as what tokens are securities, as well as conformity for crypto-related exchange-traded products (ETP), custodians, and brokers.
