The Securities and Exchange Commission (SEC) is now confronting difficulties recruiting staff knowledgeable about crypto assets, according to a new report from the SEC’s internal watchdog.
The self-reflection confirms a popular image of the SEC as being out-of-touch with the crypto industry, and unsympathetic to its concerns. A picture even one of its own Commissioners agrees with.
The Inspector General’s annual assessment of management challenges highlights recruiting skilled crypto talent as an obstacle the SEC must overcome. According to SEC officials interviewed for the report, many qualified candidates own crypto assets. But SEC ethics rules prohibit employees from holding or trading assets in industries they regulate, deterring owners of coins like Bitcoin (BTC) or Ether (ETH) from joining the agency.
“This prohibition, according to SEC officials, has been detrimental to recruiting, as candidates are often unwilling to divest their crypto assets to work for the SEC,” read the report.
The limited pool of experts in the emerging crypto field, coupled with high demand and lucrative compensation in the private sector, also impedes the SEC’s efforts to hire much-needed talent in this area, the report noted.
Leaders of the SEC’s Division of Enforcement acknowledged that candidates with knowledge of complex markets like crypto “critical” for investigating potential violations and providing oversight.
The report also notes that in FY 2024, the SEC asked for more staff in Exam, Trading, and Enforcement divisions to tackle growing risks from crypto assets. The Office of the General Counsel and International Affairs also wanted extra staff to handle crypto regulation and policy. So whilst there is a demand, there is a real struggle within the agency to fulfill it.
There is plenty of good reason for the Inspector General to be concerned about these areas. Accusations of an anti-crypto bias in the SEC have been ongoing for years.
Fundamentally, if the regulator cannot hire staff members open to good-faith innovations in the cryptocurrency field, it risks taking an overly skeptical or restrictive stance toward the entire industry. Overly burdensome regulations could prompt cutting-edge crypto companies to move their operations offshore, or limit services, as they already have done.
This flight away from the US risks rendering the SEC irrelevant on crypto oversight issues as other jurisdictions become more important on the ground.
Striking the right balance is crucial. The regulator must deter unlawful behavior and protect investors in crypto markets while also encouraging responsible innovation. But for regulators to effectively walk this tightrope, they first need meaningful real-world expertise.
The SEC is already under fire from a public interest law group over how they adjudicate cases that come before the regulator. Their allies, which include Elon Musk and Mark Cuban , maintain that the system of in-house SEC judges restricts Americans’ Seventh Amendment right to a trial by jury.
This system, which relies on a cadre of in-house administrative law judges, further compounds the SEC’s issue of group-think.