Regulators Sending 'Mixed Signals' About Crypto Regs: SEC's Peirce

SEC Commissioner Hester Peirce. (Photo: Herb Perone/IAA)

Regulators are sending "mixed signals" about crypto currency regulations, with the Securities and Exchange Commission's crypto-exchange-traded product approval process being "very confusing," according to SEC Commissioner Hester Peirce.

In a recent speech, the Republican commissioner stated that in coming to terms with crypto, regulators are not always coordinating, making the U.S. regulatory scheme for such products confusing.

For instance, the Commodity Futures Trading Commission has given the thumbs up to crypto-derivatives markets, "but the SEC so far has not approved any application to list an exchange-traded product based on cryptocurrencies or crypto-derivatives trade on U.S. exchanges," Peirce stated.

The fact that decisions about crypto ETFs "are generally made in the first instance at the staff-level through delegated authority from the Commission is very confusing," Peirce said.

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The agency's five commissioners "have the final say on enforcement and regulatory decisions by the Commission, but because our jurisdiction is quite large, we allow the staff to make certain routine decisions on our behalf," Peirce explained.

"Once the staff publishes its decision, if one of the Commissioners or the affected party does not like the decision, it can be reviewed by the Commission," she said.

The SEC's recent decision to suspend trading for 10 days in two foreign exchange-listed crypto-based products that were being traded in the United States over-the-counter markets "also confused investors," Peirce opined.

The securities regulator "was concerned that there was confusion about just what the products were because they were not being described consistently. Unfortunately, we too confused investors."

The SEC "did not make it clear that even after the ten-day suspension was up the products would not automatically resume trading in the way they had prior to the suspension. Before trading as usual could resume, there would have to be a whole new round of paperwork and a new regulatory approval."

The SEC needs "to do a better job at explaining how and why we make decisions and what those decisions mean to you, the investor," Peirce stated.

As to regulators' "conservatism" about crypto along with "legitimate fear that they will be blamed when investments go wrong to curtail investors' options," Peirce said she's working to convince her colleagues to lighten up.

She favors "an approach that allows investors—informed by good information about the relevant exchange-traded product and encouraged to exercise a healthy dose of skepticism—to choose whether or not to buy the product."

One positive development in the crypto reg space, Peirce pointed out, is the SEC's use of "securities laws to go after frauds masquerading as crypto-ventures."

Said Peirce: "Resources that would have been contributed by eager investors to these fraudulent projects can instead go to those of you who are seeking to build something with real value to society."

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