SEC Determined to Regulate the Future with Tools of the Past

The SEC is doubling down on its stance that tokens are securities and will be treated as such, firmly rooting the agency in its early 20th century approach to regulating 21st century technology.

Gurbir Grewal, director of enforcement at the U.S. Securities and Exchange Commission, said his agency can’t look the other way as the cryptocurrency industry violates securities laws.

“It often seems that critics are upset because we're not giving crypto a pass,” Grewal said Friday at a Practicing Law Institute conference in Washington, D.C. His brief remarks focused largely on crypto – it was the only industry specifically addressed – revealing how much the agency is currently thinking about digital assets.

He even played a favorite political card.

The SEC needs to “impartially enforce the laws on the books,” and ignoring them "would be a betrayal of trust, and that is not an option for us," he said.

He also noted that crypto has had an outsized, harmful impact on low-income and nonwhite consumers.

Grewal’s comments at the PLI conference followed an address and interviews from SEC Chair Gary Gensler likewise staking out the SEC’s hardline position.

Gensler also issued a strong warning to the digital assets industry that his agency would not sit idle on enforcing U.S. laws against unregistered exchanges and tokens that fail to register as securities.

David Hirsch, the incoming head of the SEC's crypto enforcement effort, also said at the PLI conference that "registration is key in this area, particularly for issuers." The agency wants to see a culture of compliance in crypto, complete with accountants and specialized attorneys that are there to keep the "wellbeing of their investors forefront in their minds."

Of the many problems with the SEC’s approach to crypto, the idea of putting the more dynamic, Silicon Valley funding model under a TradFi/Wall Street regulatory regime makes no sense – it stifles innovation. Banks and Wall Street firms employ armies of attorneys and accountants, where tech startups don’t.

Working through the system is expensive and time consuming. Tech visionaries on the cutting edge of innovation understandably take on a certain level of risk by bringing new ideas into existing frameworks, but the risk doesn't need to be inordinate. Former SEC Chair Hester Pierce’s Token Safe Harbor Proposal 2.0 could square this circle, providing regulatory protection and oversight while still allowing innovation to thrive.