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SEC Commissioner Hester Peirce Cautions Against Regulatory Sandbox

bitcoin blockchain regulation cryptocurrency initial coin offerings

The U.S. Securities and Exchange Commission has been suggesting for some time that cryptocurrency markets and initial coin offerings require further regulation. But according to one commissioner, the rush to introduce regulation, and a regulatory sandbox for innovation, may not be the best response to the growth in ICOs.

In comments delivered at the Medici Conference last week, commissioner Hester Peirce said she was troubled by the idea of regulatory sandboxes, and the way they bring regulators and entrepreneurs side by side in the development phase.

“My fear that regulators will grab hold of the shovels and buckets is why I am often wary of so-called regulatory sandboxes. I am entirely in favor of finding ways to make appropriate regulatory allowances that clear the way for innovation to flourish. What troubles me about sandboxes, however, is that the regulator is typically sitting there next to the entrepreneurs.”

Instead, her speech called for a so-called ‘lifeguard’ approach — where regulators oversee developments from afar, with close communication with developers, but without micromanaging every decision along the way.

Calling for “open communication” between regulators and startups, Peirce said it was preferable to have a regulator that “watches over what is happening, but ... not sitting with sandcastle builders monitoring their every design decision.”

Recognizing that the sandbox approach had been helpful in other markets, such as Singapore, the United Arab Emirates and the U.K., Peirce warned against adopting a similar approach at the SEC.

Often favored by regulators, regulatory sandboxes allow innovation under the guise of the regulator, which supporters contend has been instrumental in developing new technologies.

However, arguing against remarks made in February by SEC chairman Jay Clayton, who described every ICO he had seen as a security, Peirce said she was reluctant to apply any uniform description to ICOs.

“Given the undeveloped nature of this area, I am wary of any blanket designation for all ICOs ... They will, over time, come to look more and more like securities and securities offerings. Innovations that might otherwise have occurred that don’t fit within that ‘security’ framework may never come to fruition.”

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