SEC Commissioner Peirces to the heart of the Kraken prosecution problem
Updated: Feb 13
The news of the US SEC targeting Kraken's staking-as-a-service sent waves through the blockchain community, with concerned expressed that the SEC is targeting network staking more generally. A video starring SEC Commissioner Gary Gensler making jokes about steak and staking was also released.
But when it comes to approaching the policy of blockchain and crypto-regulation, one US figure has been consistent and doesn't waste time on word-play, Commissioner Hester Peirce, a known pro-crypto Commissioner. She posted a strong dissent to the decision, pointedly identifying that:
The SEC has been aware of crypto staking programs for "a long time";
Instead of taking the path of "thinking through staking programs and issuing guidance, [the SEC] again chose to speak through an enforcement action".
Despite the SEC saying "staking-as-a-service providers must register and provide full, fair and truthful disclosure and investment protection" no actual way to do that in a compliant fashion has been identified by the SEC; and
Irrespective on the view of whether the Kraken service is the offer of a security under US law, the SEC should take a proactive role to give guidance and not leave people guessing.
Commissioner Pierce blasts the SEC, saying:
Most concerning, though, is that our solution to a registration violation is to shut down entirely a program that has served people well. The program will no longer be available in the United States, and Kraken is enjoined from ever offering a staking service in the United States, registered or not. A paternalistic and lazy regulator settles on a solution like the one in this settlement: do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down.
The crypto-industry has been continuing to call for clear guidance around the world to meet sensible goals of informing users and holding separate custody of assets, however in the US, the SEC has developed a reputation of hostility towards crypto-assets. The unfortunate reality, is that key aspects of crypto-businesses simply do not fit the existing regulations, and guidance is needed from regulators as well as policy and lawmaking from parliament if the benefits of crypto-assets are to be realised. As leading crypto-lawyer Jason Gottlieb pointed out:
Commissioner Pierce closes on a stinging note, saying the following while linking to a post from 2020 showing how blockchain powered solutions can meet the policy goals of enforcement and protection for users:-
whether we need a uniform regulatory solution and if that regulatory solution is best provided by a regulator that is hostile to crypto, in the form of an enforcement action, is less clear
Australian regulators have not acted historically with the same approach as the SEC but recently ASIC has commenced prosecutions, urgent engagement and clear guidance is needed to prevent the similar criticisms made by Commissioner Pierce applying Down under.