The question of the week in crypto regulation is where the balance lies between proactive government oversight and the achievement of legal and policy clarity. At the Digital Chamber of Commerce’s annual Blockchain Summit in Washington DC on March 6–7, the organization offered a National Action Plan that proposed (among other recommendations) increased support for blockchain innovation, a “light touch” regulatory approach, clearer rules, the prevention of a “regulatory patchwork,” and the establishment of an office to coordinate U.S. blockchain policy. In an interesting back-and-forth, SEC Commissioner Hester Peirce offered a cautionary view on that plan, stating that coordinated government regulations have “gotten us into lots of problems in the past.”
Who is right, in our view? Both sides, of course! Peirce’s view that forcing too close a partnership between government and industry would stifle innovation is spot on, as is her belief that the government needs to issue clearer regulatory guidelines to define the rules for the space in which that innovation — and its associated financial activity — happens. The Chamber’s point, which Peirce may not have fully grasped, is that these guidelines cannot be issued solely from the SEC’s perspective, because virtual currencies are a unique new asset class whose development and application cut across multiple federal and state-level jurisdictions.
Does the government need to establish a new office to coordinate blockchain and crypto issues? Probably not — there are several organizations that could step up and coordinate policy in the space. Does it need to explain how existing laws apply to issues such as the tokenization of nontraditional financial assets, registration and licensing requirements as they relate to the classification of virtual currencies (i.e., security or commodity), and the consistent application of KYC/AML rules? Absolutely!
Peirce’s call for blockchain and fintech firms to better convey to the SEC “where the pain points are” illustrates how far apart government and industry still are, and her effort to pitch SEC’s FINHUB highlights why progress is slow to achieve: the site welcomes requests for meetings on “FinTech issues arising under the federal securities laws…” but what happens when it’s unclear whether federal securities laws apply or the SEC isn’t the right agency to weigh in? We welcome Peirce’s advocacy within SEC and applaud the continued communication from industry groups about the issues on which regulators need continued education, but encourage both sides to take a step back to understand the other’s perspective in order to reach a common outlook on how best to help the industry advance.
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