“It’s kind of funny because I don’t have children,” she told Protocol in a wide-ranging interview. She denies being an advocate for the crypto industry and thinks it’s a bad idea for people to think of the government “in parental terms.”
But Peirce is sympathetic to the crypto industry’s key complaint about the SEC: that under Chair Gary Gensler the agency has failed to offer adequate guidance to the industry on the regulations that apply to cryptocurrencies and digital assets.
“A lot of people say to me, ‘Just tell us what the rules are. We’ll figure out a way to comply with them,’” she said.
The SEC’s heavy emphasis on enforcement, she argues, is a mistake. When the agency announced last week that it would nearly double the size of its enforcement team, a plan that entails hiring more supervisors, investigative staff attorneys, trial counsels and fraud analysts, she asked in a tweet: “Why are we leading with enforcement in crypto?”
Peirce elaborated on her criticisms of the SEC’s approach to crypto in her interview with Protocol. She shared what she thinks of Gensler’s leadership and why she believes there’s still an opportunity to “break this unhealthy dynamic” between the SEC and the crypto industry.
This interview was edited for brevity and clarity.
Why are you critical of the move to expand the SEC’s enforcement team?
The number of lawyers you have looking at cyber issues and crypto issues in itself is not the issue. The issue is that we have a dearth of work being done at the agency on the regulatory framework for crypto assets.
So why don’t we think about spending more of our resources to try to work on a framework that makes sense and address some of the real questions that are out there?
We can do work on the enforcement side. There’s a lot of fraud to go after in this space. There’s certainly a lot of cyber issues. My question is: Why not provide guidance on all of those subject matter areas?
So it’s that lack of balance. We sometimes tend to fall into the trap of thinking about ourselves as an enforcement agency. But we really are an agency that has a lot of tools to build a good framework within which our capital markets operate. One of those tools is enforcement. But it should never be the leading tool that we use unless you’re dealing again with something like fraud.
Educate me a little bit, commissioner. Chair Gensler does not have to consult with the commission or get a vote to implement something major.
No, and that’s a good question, because the way the SEC is set up, the five of us share the responsibility for voting on rules, for voting on enforcement actions. But the chairman is the operational head. The staff reports to him. He makes the budget decisions, so a lot of that is concentrated in the chair.
When did you first hear about bitcoin and crypto and what was your reaction?
I think it was when I was at George Mason [University]. Some of my colleagues were working on issues around bitcoin. And my reaction was: It’s really interesting, this idea of a non-sovereign type of value that allows you to transfer value over the internet. That’s a powerful concept.
We’ve been able to transfer data over the internet and now we can transfer value. And, you know, money has always been what people think. They decide they’re going to put value on it, right? And so here’s this new idea. So I thought it was certainly an interesting development.
How do you feel about being called “Crypto Mom?”
Well, on the one hand, I think it’s kind of funny because I don’t have children. And so I always say, “Well, I always thought if I had children, I would never know what they would turn out to be like.” And so indeed, this is certainly the case.
On the other hand, there are a couple reasons that I push back a little. One, I’m not an advocate for any industry. I think innovation is really important. And I think the regulatory relationship to innovation is very important.
But I also think it’s important for people not to think about the government in parental terms. Because when you do that, then you sort of think, “Oh, I can sit back and, you know, Mom and Dad are gonna take care of me and if something goes wrong, I’m gonna go live in their basement or they’re going to bail me out.”
This country is about taking responsibility for your actions, making decisions for your own life, but the government is there to help you in the sense that we at the SEC help you get the information you need to make decisions. We’re out there if there’s a fraud. We can go after the fraud. But responsibility still lies with you, the decision-maker.
I think no matter what you’re doing with your money as an individual, you need to be using your own brain, first and foremost. You need to be looking out for red flags.
That’s a good segue to my next question. You said in a video that the role of regulators is “not to be sitting in every car and telling every driver what to do, when to do it and how to do it.” How does that apply to crypto?
I think no matter what you’re doing with your money as an individual, you need to be using your own brain, first and foremost. You need to be looking out for red flags. That’s the same in crypto as anything else. We can play a role in saying, “There is stuff out there that sounds great. It’s in the name of crypto. It sounds new and exciting and it’s [potentially] fraud so you’ve got to be careful.” But we can also play a role in setting the rules for the road.
I’m trying to think about how I translate this to the analogy of the car. If we see that there are people dropping nails in the road, so that people will get flat tires, we can go grab those people and pull them out of the road. And we can also set up rules by which people have to drive on the road. And that’s what I think we failed to do.
Now what we’re doing is we’re pulling people over and saying, “Well, you didn’t follow the rules of the road.” And people are like, “What were the rules of the road? And are you, SEC, even the one who should be setting the rules of the road?” I think we’re sort of getting ahead of ourselves there.
Can you talk about your conversations with Chair Gensler about crypto after he took over?
I can’t talk specifically about that except to say that Chair Gensler and I do talk about crypto. He’s someone who does know a lot about crypto. Even though I’m not happy about where we are, we still have the potential to do this the right way even though we’ve started out on the wrong foot.
He understands a lot about this technology. I think we could do a good job and we just have to set about doing that. Because of his knowledge and his background, I’m still optimistic that we can get it right.
When he was announced as the new SEC chair, the industry reacted positively because he had taught blockchain at MIT. Clearly, the industry’s general attitude has changed. He’s often criticized harshly on Twitter, including by many key leaders of the industry. How do you react to that?
Look, ad hominem attacks are not a good way of doing policy or anything else, frankly. One of the reasons this country is so wonderful is it’s built on ideas. It’s not built on personalities or people. It doesn’t matter that I’m sitting in this chair or someone else is sitting in this chair, we need to build principled approaches that will last over time.
The goal is to work together. The commission is set up as a five-member body. Each member brings something unique and different to the job. Each one of my colleagues brings something unique and different that would be valuable in this conversation around crypto. I just want to have a conversation about crypto. I don’t want to make this about personalities.
Sometimes we talk about responsible innovation. I think we should talk about responsible regulation, too.
What is your main criticism of Chair Gensler’s approach to crypto?
My main criticism of the approach this agency has taken is that it is leading with enforcement. It’s failing to sit down with people and provide them a productive path to compliance. It’s failing to use the tools that Congress gave us to use for just this kind of situation.
Of course, Congress didn’t foresee crypto or any of the technological developments. But what they did foresee is that things would change and so they built this framework and they said, “All right, SEC, you have broad exemptive power. So when a rule or a principle needs to be adjusted to allow for this new thing to happen, you can make that adjustment and put appropriate conditions around it.”
That’s a long way of saying my biggest complaint is that we have not used the non-enforcement authority we have to make a workable way for this industry to innovate in ways that appropriately balances our regulatory objectives with the need to move forward.
Sometimes we talk about responsible innovation. I think we should talk about responsible regulation, too. It’s not responsible to come in years after the fact and say, “You did something wrong,” when people were saying to us, “Could you please help us figure out how we can do this right?”
This is how some crypto industry leaders I’ve talked to illustrate their dealings with the SEC. They’re asked to come in, then the door is closed and they’re told “You’re doing this wrong. You have to stop and you have to pay the fine.” Do you think that’s a fair characterization of the way the SEC is operating when it comes to crypto?
I do. We say, “Come in and talk to us.” [Ideally] you come in the door, you talk to us and you walk out the door and you actually have a workflow plan to move forward.
Sometimes we’re going to have to say “no” or “absolutely no.” But we can also take advantage of those authorities that we have to say, “Well, okay, we understand what you’re trying to achieve here. And this is what’s really important to us. We need to make sure that people who are buying your product get…
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