A&O Shearman | FinTech | SEC Commissioner Pushes for Hands-Off Approach to Token Regulation
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  • SEC Commissioner Pushes for Hands-Off Approach to Token Regulation

    Securities and Exchange Commission Commissioner Hester Peirce spoke on the agency’s oversight of tokens and initial coin offerings before the Medici Conference on May 2, 2018.  In her speech, she pushed for a hands-off approach to token regulation and noted the importance of regulators keeping an open mind when regulating the space.

    Commissioner Peirce cautioned that the use of “regulatory sandboxes” as a means by which regulators can work with entrepreneurs and creators as they develop new FinTech innovations is a perilous undertaking, asserting that regulators may become overly involved in the development of new technologies.  Instead, Commissioner Peirce advocated for what she called a “lifeguard” approach where regulators employ more hands-off oversight by only monitoring the regulatory landscape, intervening to stop violations and answering any interpretive questions innovators may have.  This, she claimed, would prevent regulators from forcing new innovations into existing rigid regulatory frameworks and from assessing a product’s commercial value when thinking about potential risks.

    Commissioner Peirce also pressed for regulation of ICOs on a facts-and-circumstances basis.  She highlighted the versatility of these tokens and warned that blanket designations of all tokens as securities during their development and maturation may stifle innovation that may otherwise occur.  Additionally, while she pointed out that some tokens certainly fall under the jurisdiction of the SEC, she made it clear that she does not believe all tokens are securities.

    In order to build an effective regulatory framework, Commissioner Peirce believes understanding the technologies and keeping an open mind are paramount.  In discussing several of the “traps” regulators may fall into when regulating this space, she argued that regulators must work to understand the potential of these technologies and not let fear of the unknown stand in the way of innovation.  Stemming from these suggestions, she also encouraged greater communication between the SEC and innovators and suggested building a digital asset resource page on the SEC’s website to ensure the agency’s resources are easily accessible.

    Going forward, we will be watching to see if Commissioner Peirce’s approach gains further traction at the agency.  Regardless, Commissioner Peirce’s willingness to keep an open mind and desire to appropriately balance regulation and innovation should be an encouraging sign for innovators within this space.