News
US should join UK in ‘Blockchain Sandbox’ free from regulatory interference, SEC commissioner says
Hester Peirce, a senior member of the Securities and Exchange Commission (SEC), has signaled her support for a proposed cross-border US-UK “digital securities sandbox”
In a Wednesday letterSEC Commissioner Peirce praised the Bank of England and the UK’s Financial Conduct Authority (FCA) for proposing a local “digital securities sandbox” (DSS), which would allow participating companies to experiment with blockchain technology “in the issuance, trading and settlement of securities”.
The sandbox was launched as a testbed to see whether the use of distributed ledger technology can increase the efficiency of traditional banking – and the commissioner said it should be available to businesses on both sides of the Atlantic.
“I suggest that, contrary to the proposal, the DSS be open to companies domiciled in the United States,” Peirce wrote. He suggested a “micro-innovation” sandbox in which American companies could test digital trading by choosing between US or UK regulations, while still subject to general anti-fraud provisions and pre-determined monetary and customer caps.
The SEC and the UK could then share information about activity within both sandboxes and use the findings to develop better regulations for their respective local crypto sectors, Hester said.
Meanwhile, he wrote, the private market would benefit from having a space to innovate in “real world” environments without fear of a regulatory crackdown, creating a path for “smaller, more disruptive companies” to enter regulated markets and compete with larger incumbents.
“While I tend to be more of a beach guy than a sandbox regulator, sandboxes have proven effective in facilitating innovation in highly regulated industries,” Peirce wrote. A cross-border sandbox, he suggested, could allow experimentation with “asset slicing” and “interoperability between different blockchains and tokens,” among other things.
While the proposal is interesting, it is unlikely to go anywhere given the SEC’s current leadership, said University of Kentucky Paw Professor Bryan L. Frye Decipher.
“I think it’s a good idea, especially because by allowing it the SEC could learn a lot about regulating the cryptocurrency market,” Frye said. “However, I am quite skeptical that Gensler will support this and therefore it seems unlikely to me that this will happen.”
“Commissioner Peirce’s cross-border sandbox proposal doesn’t stand a chance in Chairman Gensler’s SEC,” agrees Todd Phillips, assistant professor of law at Georgia State University. “The SEC would have to approve the sandbox, and given that many view regulatory sandboxes as backdoors meant to weaken consumer protection laws, I don’t expect the SEC’s Democratic majority to bite.”
Regulatory sandboxes are a common tool employed among jurisdictions around the world “as a means of providing a dynamic, evidence-based regulatory environment for testing emerging technologies,” says the World Bank. explains. US FinTech companies participated over a dozen programs at the state level, according to the American Banking Association.
Until recently, the Securities and Exchange Commission (SEC), chaired by Gary Gensler, conducted dozens of enforcement actions against cryptocurrency companies for violating securities laws and refused to listen to industry calls for a tailor-made regulation.
Under regulatory pressure, numerous companies have decided to flee the United States for fear of not complying, while others have done so fighting against the SEC in court.
Earlier this month, the political winds turned in the direction of cryptocurrencies after the House of Representatives passed legislation provide legal clarity on crypto assets with strong bipartisan support.
Shortly thereafter, the SEC quickly decided to do so approve Ether spot ETFs for public negotiation, despite overwhelming expectations that they would be denied.
By Ryan Ozawa.