Jennifer Schulp, Director of Financial Regulation Studies at the Cato Institute, said that the Securities and Exchange Commission's (SEC) approach to the cryptocurrency industry exceeds its authority and fails to provide clarity to market participants. Schulp shared her statement during a Congressional hearing on September 18.
"The Securities and Exchange Commission's approach to digital assets under the leadership of Chairman Gary Gensler can be characterized as an 'enforce first, make rules never' strategy," said Schulp. "While an enforcement-forward strategy may be effective—and perhaps even appropriate—where existing rules provide clear guidance to market participants, the Commission's current strategy, where the application of existing rules to digital assets is uncertain or inappropriate, effectively amounts to a ban on crypto activity within the United States. This strategy simultaneously exceeds the agency's authority and abdicates the agency's role in overseeing the securities markets."
According to Schulp, market participants, legislators, and other federal regulators have indicated an absence of clarity about how existing securities laws apply to digital assets. The SEC's refusal to acknowledge the differences between traditional securities and digital assets has created "a hostile regulatory environment for innovation," she said. Schulp asserted that the SEC has claimed "essentially limitless jurisdiction over digital assets" rather than addressing their unique characteristics to determine whether they should fall under SEC jurisdiction.
Jennifer Schulp of the Cato Institute (left) and SEC Chair Gary Gensler (right)
| cato.org, sec.gov
When crypto companies question whether the SEC has authority over their projects, those companies risk facing investigation or litigation from the SEC, Schulp said during the hearing. "This alone stands as a major deterrent to operating in the digital assets space in the United States," she noted. Schulp added that the SEC's "enforcement-first" approach is "inappropriate" given that there is not sufficient legal clarity for market participants to comply with regulations. Additionally, she mentioned that the SEC has refused to engage in its official rule-making process, and crypto companies have reported attempting to engage with the SEC but finding it unresponsive.
Roslyn Layton, a senior fellow at the National Security Institute, commented on the SEC's actions against crypto companies. According to Layton, while the SEC has engaged in a series of "non-fraud enforcement actions," it has failed to issue "a single regulatory guideline registering a digital asset or determining whether it will be a security." She pointed out that there are no forms, instructions, or published rules for registration. Layton also noted that the penalties sought by the SEC are so large that many companies are unable to fight lawsuits; however, those who have managed to contest them "have exposed how truly bad the SEC’s faith has become."
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 other jurisdictions are advancing in regulating the digital asset industry, the U.S. lags behind. "I think what the EU, UK, Japan, and Singapore have done are, in their own ways, more rational [and] more thoughtful than [the U.S.]," Verret said. He expressed concerns about aspects of each regime but maintained that each one is more thoughtful than current U.S. efforts.
Schulp serves as director of financial regulation studies at the Cato Institute’s Center for Monetary and Financial Alternatives and has testified before Congress multiple times, according to the Cato Institute. She is also a member of the Investor Choice Advocates Network advisory board.
