Clarity for Crypto: Commissioner Peirce wants the SEC to Refine Fintech Regulation
V&E Government Investigations Update, May 15, 2019
On May 9, 2019, SEC Commissioner Hester M. Peirce delivered a speech via video conference to the Securities Enforcement Forum lamenting the Commission’s failure to develop meaningful regulation in the realm of cryptocurrency and emphasizing the need for clear regulation that would be meaningful and not overly burdensome. Commissioner Peirce’s address highlighted several grey areas in the current regulatory landscape regarding cryptocurrency.
Because the SEC is still in the early phases of providing guidance on cryptocurrency, Commissioner Peirce began by echoing a theme of “regulatory sandboxes and regulatory beaches” that she had invoked in similar remarks last year. The ideal regulatory environment she likened to a “regulatory beach,” and a more stifling regulatory environment is like a “regulatory sandbox.” “A beach has the necessary oversight, but offers a lot of freedom. . . a regulatory sandbox, something the SEC had been urged to establish, [however] would tempt the Commission to . . . meddle in the building of sandcastles.” Though she noted that, in her opinion, the SEC has thus far “exhibited appropriate restraint” in using its enforcement powers to police the world of cryptocurrency, she also noted that the SEC has so far “not yet fulfilled [its] duty” to “provide the public with clear guidance as to how people can comply with our law.”
While the Commissioner noted useful steps the SEC has taken to providing more notice to businesses in the fintech space — pointing to the establishment of FinHub (“Strategic Hub for Innovation and Financial Technology”), as a helpful resource for companies and investors in the sphere of cryptocurrency and fintech — she conceded that the SEC’s “other efforts in the crypto area [are] more of a mixed bag.”1 For example, Commissioner Peirce lamented that the SEC’s current framework to assist issuers of Initial Coin Offerings (“ICOs”) “could raise more questions and concerns than it answers.” She noted that while the Howey test for determining what constitutes a security only has four factors, the crypto framework provided by the SEC “lists 38 separate considerations, many of which include several sub-points.” The Commissioner also expressed concern over a “no-action” letter the Commission provided to TurnKey Jet, a private jet company. To Commissioner Peirce, TurnKey Jet’s plan to “effectively tokenize gift cards” was “so clearly not an offer of securities” that she worried that the SEC’s no-action letter might imply a “broadening [of] the perceived reach of our securities laws.”
Commissioner Peirce encouraged those in the marketplace who would seek more clarity from the SEC to aid in the law’s development by “providing greater engagement and offering guidance on which types of solutions are likely to satisfy our regulatory requirements.” However, Commissioner Peirce’s speech also underscored that in this currently confusing regulatory environment, reliance on seasoned securities counsel is particularly important. She said, “A seasoned securities lawyer might be able to infer [what] will likely be controlling . . . I worry that non-lawyers and lawyers not steeped in securities law and its attendant lore will not know what to make of the guidance.”
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1 According to the SEC’s FinHub site, FinHub is meant to facilitate the SEC’s “active engagement with innovators, developers, and entrepreneurs” and to serve as “a resource for information about the SEC’s views and actions in the FinTech space.”