Caroline Crenshaw, the sole Democratic Commissioner at the US Securities and Exchange Commission (SEC), has recently voiced her concerns about the agency’s shifting regulatory stance on cryptocurrencies, labeling it a “precarious” situation.
The Fragility of Crypto Regulations
During her address at the SEC Speak event, Crenshaw articulated that the current regulatory framework is undermining the stability built over several decades. She raised alarms about “disturbing market fluctuations, rising risks, and widespread calls for deregulation pervading our financial markets.”
The Commissioner likened the SEC’s strategy to a precarious game of Jenga, where each rule represents a building block carefully put in place over time. “Every piece supported a long-established framework,” she stated, emphasizing the interconnected nature of these regulations.
In her critique, Crenshaw questioned the integrity of the regulatory process, asking how many foundational pieces could be removed before the entire structure collapses. She argued that the efforts to diminish institutional credibility, lax enforcement of existing laws, and overlooking potential risks have already destabilized the framework.
Highlighting the agency’s staffing issues, she pointed out that the SEC has seen a 15% reduction in personnel within the last four months, which she deemed “devastating.” Furthermore, she criticized the agency for its recent reliance on informal guidance regarding emerging crypto issues, proclaiming it a departure from established practices.
The agency’s statements regarding crypto represent a subtle indication that we won’t enforce our regulations vigorously in certain key areas. This undermines our foundational legal precedents and suggests a reluctance to thoroughly examine the specifics of each case.
Crenshaw cautioned that cryptocurrencies introduce “unique risks” that, if disregarded, could lead the SEC to repeat past mistakes with significant ramifications as crypto further intertwines with established financial systems.
Reconsidering Regulatory Strategies
A focal point of Crenshaw’s speech was the SEC’s ongoing reliance on “regulation by enforcement,” contrasting it with the newly introduced “regulation by non-enforcement” strategy established during the previous administration.
She expressed that this new terminology misrepresents the agency’s role, arguing that the staff has historically applied established legal precedents to combat detected violations, rather than creating novel regulations.
According to her, the cessation of robust enforcement actions has left the agency vulnerable, as it anticipates drafting more flexible, crypto-friendly regulations.
Conversely, Paul Atkins, the current SEC Chairman, has criticized the “head-in-the-sand” regulatory style of his predecessors, asserting it hindered progress and created confusion within the crypto sector.
At the SEC Speak event, Atkins outlined his commitment to fostering a more constructive regulatory environment, distancing himself from the prior administration’s aggressive tactics which he believes undermined trust within the industry.
He expressed a commitment to rebuilding communication and trust with cryptocurrency entities and announced steps to begin drafting new regulatory proposals aimed at better defining the SEC’s approach to crypto.
“As I take on the role of Chairman, I am dedicated to returning to our foundational mission of supporting innovation rather than stifling it. The financial markets are evolving, and the SEC’s role should not be to impede that evolution. This marks a new chapter for the SEC, and I am excited about the future opportunities for both investors and the financial sector,” he concluded.
