SEC Commissioner Hester Peirce Blames Herself for Crypto Howey Test Regulatory Failures

• The SEC Commissioner blames herself for being unable to offer more clarity on crypto regulation.
• Hester Peirce called for collaborative efforts within the SEC and the wider crypto industry.
• SEC chief’s enforcement actions against crypto firms have made him a key topic during Presidential election rallies.

SEC Commissioner Hester Peirce issued a rare rebuke of her own agency’s handling of cryptocurrency regulation, saying that its struggles to apply the Howey test, a decades-old framework for determining what constitutes a security, have contributed to a culture of regulatory uncertainty and confusion in the industry.

Peirce Admits Howey Test Dilemma

Commissioner Peirce’s introspection was not merely an exercise in self-criticism but a warning to fellow regulators that the absence of clear guidance can have far-reaching consequences.

She noted that the Howey test is a particularly thorny issue, with its four-pronged criteria—an investment of money, expectation of profits, and reliance on the efforts of others—often proving inadequate for the complexities of modern cryptocurrency transactions.

She reflected on her role and regretted that she could not bring more legal clarity to the nascent crypto industry.

“I blame myself in part for that. Something I could have done differently is help bring more legal clarity…it’s a cautionary tale for other regulators. I think we’ve got a lot of work to do both at the SEC and in the industry.”

Commissioner Peirce’s call for clarity is not a new one; as a longtime advocate for the crypto industry, she has consistently pushed for a more nuanced approach to regulation.

Yet her recent remarks underscore the urgency of the issue and the need for policymakers to provide more explicit guidance on securities law and investment contracts.

During her recent space appearance , she stressed the need for clear guidance, especially regarding securities law and investment contracts.

She called for support of innovation in thriving industries like crypto. She also admitted that there is a lot of work to be done within the SEC and the broader crypto industry.

SEC’s Regulation by Enforcement Approach Hurting Crypto

The SEC, led by Gary Gensler, has adopted a regulation-by-enforcement approach.

Despite repeated calls from lawmakers and industry leaders for a comprehensive framework, the SEC has instead focused on bringing high-profile cases against crypto companies for alleged securities law violations.

This approach has led to a confusing patchwork of regulations, with the SEC’s stance on key issues like the classification of Ethereum and other cryptocurrencies remaining unclear.

While Chairman Gensler has long maintained that only Bitcoin is not a security, the SEC’s recent approval of a spot Ether exchange-traded fund (ETF) has muddied the waters, suggesting that the agency may be reevaluating its position on Ethereum.

This spot Ether ETF approval also raged the debate around Howey Test’s relevancy in the crypto world.

Additionally, Gensler’s harsh stance towards crypto has made him a critical Presidential election topic. Republican candidate Donald Trump has seized on the issue, vowing to oust Gensler if elected.

Meanwhile, rumors have circulated that Democratic candidate Kamala Harris may be lining up a potential Cabinet role for the SEC chief, with an unsubstantiated report suggesting she plans to nominate him for Treasury Secretary.

About the Author

Prashant Jha

Prashant Jha is a crypto-journalist focused on the US and UK markets, his interests lie in blockchain technology and crypto adoption across emerging economies.

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