The Securities and Exchange Commission (SEC) is facing a daunting challenge as it grapples with the rapid rise of cryptocurrencies and the recruitment of experts in the field. According to the SEC’s Office of Inspector General, a report highlighted the agency’s struggles in hiring crypto experts unwilling to divest their digital assets to work for the SEC. It stems from ethical concerns, as the Office of the Ethics Counsel has determined that owning digital assets could prohibit these experts from working on these matters.
The SEC’s Evolving Role in Cryptocurrency
The SEC, actively involved in enforcement actions against major crypto exchanges like Coinbase and Binance, is also contending with a limited pool of qualified candidates and fierce competition from the private sector. This hurdle was outlined in a 25-page report addressing the SEC’s top management and performance challenges. Alongside artificial intelligence, digital currency was identified as an “emerging area,” posing unique challenges for the regulatory body.
The report further delved into the evolving landscape of digital assets and the SEC’s role in regulating them. The SEC acknowledges its rapid growth as one of several “evolutionary risks.” It underlines the lack of fundamental disclosures in digital-asset markets, both about the assets themselves and the firms facilitating investor trades. SEC Chairpersons have repeatedly criticized widespread noncompliance with existing securities laws by market participants.
However, regulatory gaps exist in overseeing certain crypto assets and stablecoins, which are not classified as securities. The report highlights recommendations from the Financial Stability Oversight Council (FSOC) and the Government Accountability Office (GAO) for Congress to consider legislation for federal oversight in these areas. To address these challenges, the SEC has requested additional positions and resources for various divisions, emphasizing the need for staff knowledgeable about crypto asset issues.
Moreover, the report stressed the limited and evolving caselaw regarding applying securities laws to cryptocurrencies. Recent court decisions have demonstrated inconsistencies in how the law is applied to crypto assets, making outcomes uncertain and unpredictable. This uncertainty, the report suggests, could impact the SEC’s enforcement decisions and priorities.