SEC Commissioner Hester Peirce speaks out against global regulatory framework
In a speech delivered in Singapore on July 30, Hester “crypto mom”, Peirce expressed concern that the U.S. will fall behind other countries in attracting crypto-related businesses unless it is more forward-leaning in establishing a regulatory regime with discernible parameters.
The SUSS Convergence Forum
Peirce delivered her remarks in a speech titled, ‘Renegade Pandas: Opportunities for Cross Border Cooperation in Regulation of Digital Assets’. Peirce was speaking at The SUSS Convergence Forum, a one day conference organized by The Singapore University of Social Sciences (SUSS).
Peirce has been dubbed “crypto mom” due to her forward-thinking remarks and opinions with regard to regulating the blockchain and cryptocurrency sector in the United States. The US holds a position of influence within the sector globally. As a result, the SEC and its commissioners are able to influence the direction of global regulations.
Concerns with global cross border regulatory frameworks
The nascent and fast-changing nature of blockchain technology has proven to be a challenge for regulators across the world. In the years since the launch of Bitcoin, governments across the world have taken different approaches. Responses range from outright bans to an ambivalent wait-and-see perspective.
While regulatory concerns are not unique to the blockchain industry, these issues are brought into stark focus because of the nature of the technology itself. Blockchain technology and the digital assets they underpin are designed to allow access and collaboration from anyone, independent of a physical location. Decentralization is a major theme, acting both as a security feature as well as a deterrent to malicious actors.
Decentralization is an advantage for participants in blockchain-based networks. However, for regulators looking to control and protect their markets from influences outside of their legal jurisdiction, this constitutes a significant risk.
Peirce reiterated this sentiment, saying, “Much of the allure of cryptocurrency is the ability to join people from all across the world in common enterprises, which makes pinning down a domicile for these enterprises difficult.”
Additionally, the rate at which the industry is evolving presents challenges in defining the emerging assets in a manner that accurately reflects them.
Peirce stated, “The precise nature — currency, commodity, security, derivative — of many of the assets at issue is difficult to determine. Accordingly, academics and regulators are thinking through cross-border questions in the digital asset context.”
Therefore, to create a working cross-border regulatory framework on a global basis, these challenges must first be addressed by governments across the world. The recently concluded G20 summit was in favor of creating a global regulatory framework for the sector. A joint statement said: “We welcome on-going work by the Financial Stability Board (FSB) and other standard-setting bodies and ask them to advise on additional multilateral responses as needed. We reaffirm our commitment to applying the recently amended FATF Standards to virtual assets and related providers for anti-money laundering and countering the financing of terrorism.
Since the financial crisis of 2007-2009, the Financial Stability Board (FSB) has been at the forefront of facilitating inter-jurisdictional communication as well as research undertaken by the association’s member states jointly. The FSB has taken a keen interest in the digital asset sector due to its perceived threat to the stability of global financial systems and its contribution to organized crime on a global scale due to money laundering. The FSB, as well as other international bodies like the FATF, have been leading the charge on creating a global framework to govern the sector.
Is standardization the answer?
Despite the sentiment expressed by world leaders at the G20 and other global regulatory bodies, Peirce believes that a global framework may not be the most conducive response from authorities. She stated: “Although the existence of many jurisdictions can create regulatory friction, it also can create regulatory competition, which is healthy because it enables us to learn from one another.”
Peirce opines that varying regulatory approaches are more likely to uncover the legal approach that best serves the interests of all stakeholders. The US is an interesting case study of this approach. While the SEC ultimately has jurisdiction over securities, different states enforce varying legal approaches within the US leading to some states, such as Colorado, acquiring a reputation for being ‘crypto friendly.’
In the same way, Peirce believes that varying legal approaches will lead to better regulatory frameworks. European countries continue to attract blockchain-based startups due to their conducive legal environments.
Peirce referenced Europe’s popularity, saying: “I have often expressed my concern that the U.S. will fall behind other countries in attracting crypto-related businesses unless we are more forward-leaning in establishing a regulatory regime with discernible parameters.”
While Peirce believes that collaboration and open communication is imperative across the governments of the world, she concludes: “I believe a single global regulatory framework would be unwise. Regulators can create a healthy environment for this new market to grow by sharing information that will smooth cross-border transactions while stamping out fraud and other harmful activity. We also can continue to learn from one another to fill the gaps in our own regulation and borrow, when appropriate, from frameworks developed and tested in other places.”
OhNoCrypto
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Alex Lielacher, Khareem Sudlow