Regulators are also enforcing enforcement action against other crypto companies and celebrities selling tokens. But there’s little consensus on how the industry should be regulated or whether the SEC’s “regulation by enforcement” approach is working. Against this background Barrons spoke to SEC Commissioner Hester Peirce. One of two Republican-appointed commissioners, Peirce, 53, has been dubbed the “crypto mom” for her pro-industry views. She was also called to the 2023 Barrons 100 Most Influential Women in US Finance.

Peirce, who is two years into her tenure, discussed a range of issues including how she views her role as commissioner and whether crypto markets need more regulation. An edited version of the conversation follows.

This is a high profile position and any decision you make will draw criticism. What do you like about work?

I love the opportunity to influence the capital markets, which are a very powerful engine in our country that contributes to prosperity and can also help change people’s destiny. Someone who has an idea to start a business can come to the capital markets and get finance and then build generational wealth, pass it on to the next generation and pass it on to other entrepreneurs as well. To be part of trying to get the rules around these capital markets right is such a privilege.

In December, the SEC made several proposals that Wall Street rejected. The proposals would require nearly all retail stock orders to be sent to auctions and brokers to demonstrate that they optimally execute clients’ trades. The SEC also proposed lowering trading increments and entry fees on exchanges. Do you feel that small investors are being taken advantage of?

These are suggestions and we get public comments, so I look forward to hearing what members of the public have to say. In fact, I did not support some of these proposals. I think the markets are working better than ever for retail investors. are they perfect No. Are there incremental changes we can make? Yes. But by and large, if a retail investor wants to buy or sell a stock, they can do so quickly and with little or no commission…at a price that you see in the market or maybe even better.

The proposed change was quite dramatic, to tell brokers that every retail order must follow this specific path. This is something the government has never done before and I don’t think we should experiment with the market without a very strong justification. I hope that we can get some robust dialogue going, at least in writing, so we can really think about it before we go ahead with it.

After the collapse of FTX and the $2 trillion cryptocurrency market crash, do you think the industry has reached a point where its survival depends on a robust regulatory framework? Many investors have lost money to crypto fraud and bankruptcy.

I don’t think crypto’s survival depends on a regulatory framework, but it would be better for everyone if we were clear about what regulatory parameters crypto could work within, because then people would spend a lot less time thinking about it , ‘What are the rules?’ They would know and could think about building the things they are trying to build. We all waste a lot of time thinking about issues that we and Congress could solve.

We want to protect customers, whether investors or consumers, and we want to protect the stability of the market. What are the best ways to do that? The SEC could play a role in this. We have already been able to cite a few cases of fraud in the crypto space. This is important to us.

Building a regulatory framework that takes into account the challenges and opportunities associated with the technology would be a really good development. Europe just created a regulatory framework for crypto. Whether they got it right or not is too early to tell, and we might do it differently in the US, but we should think about what kind of framework makes sense.

SEC Chairman Gary Gensler recently said that among cryptocurrencies, “anything but

Bitcoin is a security and should be regulated because there is an entity backing it. Do you agree?

The definition of “security” is broad and you must consider all facts and circumstances when considering applying the securities clause. We have not been very disciplined in how we feel about the application of securities clauses in crypto. We need to establish a framework within which people can operate, so that whether the token is a security or not, people are able to operate. If you say that these are all securities, how is the law applied in such a way that these crypto projects can continue to function?

Do you think the SEC’s “regulation by enforcement” approach is working given the massive fraud and bankruptcy rates we’ve seen in crypto? Should exchanges like Coinbase be required to register with the SEC?

I don’t think enforcement is the right approach to bring regulation into a space. When it comes to fraud, we often have a role to play and we have brought many cases in this area. But if we’re trying to get regulation through enforcement, we’ve done the math, and at the speed we’ve been going it would take us about 400 years, so that doesn’t seem like the best approach. What we need to do as a society, and this is where Congress has a role to play, is to think, “Do we think crypto exchanges should have federal regulators? If so, who should that federal regulator be? Should it be the SEC? Should it be someone else?”

Do we think there should be a disclosure framework when someone makes a token offering? If it should be, who should do it? Do we think stablecoins should have a regulator? Should it be a banking regulator or should it be the SEC or some other regulator?

Do you have a list of the top priorities over the next 12 months?

Gary Gensler, as chair, gets to set the agency’s agenda in terms of rulemaking, and he’s set a very active agenda, so one of my priorities is to think about all the items on the agenda and see if I can try to put these into one better direction to push or not. I want to put us in a better place on crypto regulation and to do that we should have some public discussion boards that we involve people in, preferably in conjunction with the [Commodity Futures Trading Commission]to have these conversations. I would like to see that next year.

And then I would devote some of our attention to helping entrepreneurs find the capital they need to build their businesses. That was a part of our mission that we’ve been neglecting lately, and I wish we could spend more time thinking about, “What can we do to make it easier for these entrepreneurs to raise money?”

Silvergate Capital, a major lender to crypto firms, is going out of business following the collapse of FTX. Do you think there needs to be rules requiring segregation of client assets or crypto brokerage, or stricter custodial rules?

It’s good to think about custody rules in advance because people need to understand if something happens to the entity holding their crypto, what happens to their crypto? Is it separate for them, or is it part of the bankruptcy estate and they just have to come to terms with the other creditors?

We could definitely think better about how companies we regulate should custodian crypto. We recently published a custody proposal for investment advisers. This is a big rule that covers a lot of different things, but part of it is related to crypto custody, so it will be interesting to see what people have to say about that in general and that part of the rule.

There have been reports that Binance may have acted improperly to make it appear that Binance.US is a separate legal entity from Binance. Does this mean the industry needs tighter regulation?

Without talking about any specific entity or entities, with centralized entities a fair question is, “What kind of regulatory structure do we want around them?” Part of the theory behind crypto is that centralized entities bring risks of their own… and blockchain technology allows you to build a trusted network where you don’t really have to trust anyone else. They trust the technology and everything is open so you can see everything.

In cases where technology actually plays the role that regulation would otherwise play, this might be a space where you don’t need to create the same kind of regulatory framework.

Have you thought about your long-term future and how your career will continue?

There is so much to think about with this job that I can’t think about what’s next other than hoping to have some hives one day. This will be my hobby.

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