SEC commissioner details dissent on policy proposal for regulating crypto exchanges

SEC Commissioner Hester Peirce sits down with Yahoo Finance's Jennifer Schonberger to discuss regulating cryptocurrency exchanges, implementing stablecoins, and whether to categorize digital assets as securities or commodities.

Video Transcript

- Well, cryptocurrency exchanges certainly facing increasing pressure as the SEC looks to craft regulation around some of those big platforms. Our very own Jennifer Schonberger spoke with SEC commissioner Hester Peirce. And she's here to bring us that conversation. Jen.

JENNIFER SCHONBERGER: Good afternoon. Securities and Exchange Commissioner, Hester Peirce, last week, dissented against an SEC proposal that would seek to expand the definition of a trading platform. I spoke exclusively with Commissioner Peirce about why she dissented against this as well as regulating cryptocurrencies.

She told me she sees this proposal as a backdoor way to try to regulate cryptocurrency exchanges. Though, she says the SEC does not have formal plans right now on the docket to propose any regulations around regulating crypto exchanges, nor crypto overall this year. Take a listen.

HESTER PEIRCE: I certainly think that the expansive definition that's being proposed for exchange will cover a lot of potential platforms that haven't thought, necessarily, that they would be covered. And that's in the traditional security space as well as in the crypto space. So I want people to think about it.

And the reason that I dissented is that we're not giving people enough time to think about it. And so I'm not going to be able to get the feedback that I need to make a decision about whether or not this proposal is a good one or not. So that's kind of the crux of the reason that I disagreed with it.

Now, I will say that Chair Gensler has said, even under our existing rules, that he thinks a lot of crypto platforms should be coming in and registering with us. So regardless of what happens with this proposal, I think he's trying to pull those crypto platforms into our ambit. The proposal, if it's adopted, will make that a lot easier.

JENNIFER SCHONBERGER: Do you believe that this proposal could be adopted? And if so, how long between the time with which it's adopted to when compliance would be required for these crypto exchanges?

HESTER PEIRCE: Well, it's hard to tell now. I mean, we will look at comments, I hope, as they come in, even though we did give such a short amount of time. And so that should inform the rulemaking process and the decision about whether to move forward with adoption as proposed or whether to modify it in some way.

If it does go into effect, it's difficult to know what the implementation period will be. Again, that's something that we'll get feedback from people on what they think a reasonable period would be, and then go from there. So things in Washington take a long time, generally. But Chair Gensler, here at the SEC, is keeping us working quite hard. And he tends to move pretty fast. So it's all relative, I guess. But for DC, he moves fast.

JENNIFER SCHONBERGER: You mentioned that Chair Gensler is urging cryptocurrency exchanges to register with the SEC, though it hasn't been mandated. You guys haven't put out formal rules or guidance on that. And in speaking with Chair Gensler last month, during a press conference, he told me that he hopes this is the year that the SEC will put out rules to regulate exchanges. Do you see that happening? Are you directly working on rules behind the scenes for cryptocurrency exchanges or for decentralized finance?

HESTER PEIRCE: Well, Jennifer, your question is exactly right in the sense that we don't have a rule book in place that works for crypto exchanges as they currently operate. And so, absent some kind of adjustments or exemptions, it's going to be very difficult for these entities to register with us.

If you look at the agenda that Chair Gensler has put out, I don't see anywhere on that agenda a rule directed toward crypto exchanges and registration of those exchanges, other than the one that we just proposed. But that's not specifically tailored to addressing these questions about what does it actually look like for one of these entities to be registered. So I think there's a disconnect there.

JENNIFER SCHONBERGER: So then Commissioner Peirce, are there any regulations or rules that the crypto community can expect this year from the SEC, whether it's exchange registration or otherwise? Or should we expect a ramp up in enforcement activity?

HESTER PEIRCE: I think that that's the discouraging piece of it, that we're leading a lot of these charges through enforcement instead of taking the approach of using our rulebook, our existing rulebook, and our existing statutory authority, which tells us that we can make adjustments to the rules to accommodate new things and different things.

So we should be working on creating that kind of a framework that works. But I just don't see it on the horizon based on what's in the regulatory agenda. And that leads me to fear that a lot of this work is going to be done through enforcement which is not the right way to go about writing rules.

You want to do it in a transparent way, that involves all of the affected people, whether it's the people running the platforms or the people trading on the platforms. You want everyone to be able to have a say in how those rules look.

JENNIFER SCHONBERGER: The digital assets industry doesn't have a clear framework from the SEC as you mentioned, for what really constitutes a security versus a commodity. How do we solve that?

HESTER PEIRCE: I think, again, we sit down and we think about what it is we're trying to achieve. And we're trying to make sure that people who are buying these digital assets, these crypto assets, know what it is they're buying, and get the information they need to make a good decision. And so that looks a little bit different for a crypto asset than it might for a regular security.

And so what we should do is sit down and figure out what information do people need. Is the SEC the right agency to get them that information? If so, let's draft a rule and say, here's the information you should provide when you sell one of these things.

But so far, we haven't done anything other than slap labels of security on various digital assets. Sometimes we don't even tell people which digital assets we think are securities. And so people are left guessing.

JENNIFER SCHONBERGER: And stay tuned in the 2 o'clock hour for the second half of that interview where Peirce and I discussed her views on how digital assets should be regulated, including looking at NFTs. Guys.

- Yeah, Jennifer. I don't want to front run the clip that you're going be playing later on. But I guess, give us a little bit of color on exactly how she's thinking about just those non-traditional, if you will, crypto assets, like Bitcoin or Stablecoins and whatnot. Is there any hint that the SEC would want to get into the space of regulating things like NFTs or DeFi and what have you?

JENNIFER SCHONBERGER: Yeah. Hey, Brian. So two things there. When I asked her about what's it going to take for the SEC to finally approve a physical Bitcoin ETF, a spot Bitcoin ETF. And she says it's really going to take regulating the underlying markets, Bitcoin cryptocurrency markets, like equity exchanges, before the SEC is comfortable with doing that. So it sounds like it may be a little bit of a while here before the SEC would be comfortable in greenlighting that.

Now, she also notes NFTs have exploded, as you know. They're now worth more than $40 billion as a market, almost the size of the global art market. And so she thinks it would behoove the SEC to come up with rules or guidelines for folks that are dealing in NFTs, whether partially or wholeheartedly, to see where these would intersect with securities laws.

- Yahoo Finance's Jennifer Schonberger. Thanks so much for bringing us that interview.