Former U.S. Senator Pat Toomey has criticized the U.S. Securities and Exchange Commission's (SEC) "regulation by enforcement" approach to the cryptocurrency industry, arguing that it is driving innovation offshore into jurisdictions with clearer regulations. Toomey shared his views in a September 8 opinion piece.
"Instead of providing upfront clarity on how existing securities laws apply to the crypto industry, the SEC has regulated by enforcement," said Toomey. "This has chilled the development of the crypto and blockchain ecosystem in the United States. Entrepreneurs developing new blockchain applications are increasingly doing so overseas where jurisdictions have the legal and regulatory clarity that the United States lacks."
According to Toomey, cryptocurrency "might be the most important American financial innovation in decades," as it enables people to complete transactions quickly, cheaply, without intermediaries, and with immutable records on the blockchain. However, he emphasized that the success of cryptocurrency hinges on regulatory and legal clarity, which he believes is currently lacking.
Toomey stated that SEC Chair Gary Gensler has claimed most crypto transactions qualify as securities and fall under the SEC's authority but refuses to issue new rules specifically for crypto. Instead, Gensler believes securities laws from the 1930s should govern digital assets. "In public Senate Banking Committee hearings while I was ranking member, Gensler refused to explain how he reaches these conclusions," Toomey said. He warned that as U.S. crypto firms battle SEC allegations in court, the country risks losing its leadership role in developing significant financial innovations.
Toomey suggested that Congress should enact legislation creating comprehensive regulations for crypto issuance and trading. He noted that some lawmakers have made progress, citing "thoughtful legislators" such as Patrick McHenry, Wiley Nickel, Cynthia Lummis, and Kirsten Gillibrand who are advancing bipartisan legislation to clarify rules for the crypto industry. He highlighted the House of Representatives' passage of the FIT21 Act as significant, aiming to clarify boundaries between securities and commodities with bipartisan support. Toomey urged Congress to use some of this legislative session "to pass crypto legislation that will help the U.S. retain its leadership as the world’s most innovative financial center."
J.W. Verret, a law professor at George Mason University who previously served on the Investor Advisory Committee of the SEC, told Federal Newswire in July, that while the U.S. lags behind, other jurisdictions are moving forward with regulating digital assets. "I think what the EU, UK, Japan, and Singapore have done are, in their own ways, more rational, more thoughtful than the U.S." Verret said. "I have concerns about aspects of each of those regimes but each one of them is more thoughtful than what we’re doing in the United States."
Toomey represented Pennsylvania's 15th Congressional District in the U.S. House of Representatives from 1999 to 2005 and served as a U.S. Senator for Pennsylvania from 2011 to 2023.
