5 Ways the SEC Can Embrace Innovation

The U.S. Securities and Exchange Commission has agelong been the world’s astir influential fiscal regulator, helping to guarantee our superior markets are the deepest, fairest, and astir accessible successful the world. But its continued relevance volition beryllium connected whether it tin bash much than simply respond to innovation — it indispensable proactively foster it.

For astir a century, the SEC has adapted to evolving markets, caller technologies and greater retail participation. In its champion moments, the bureau has embraced innovation successful work of transparency, capitalist protection, and superior formation. But successful caller years, it has strayed from that bequest — obscurity much visibly than successful its attack to crypto and blockchain.

The bully quality is, with a alteration successful enactment and a much unfastened posture emerging, the SEC has a accidental to course-correct. But the bigger question is: however bash we marque that alteration permanent? How bash we physique innovation into the SEC’s DNA truthful that the adjacent promising fiscal exertion isn’t strangled successful its crib?

I spent astir six years astatine the SEC, archetypal arsenic a Senior Counsel successful the Division of Enforcement and past arsenic Chief Counsel successful the Office of Legislative and Intergovernmental Affairs. I’ve since held elder ineligible and argumentation roles successful crypto firms crossed the ecosystem. From some perspectives, 1 happening is clear: the SEC tin fulfill its ngo much efficaciously — and support its planetary enactment — lone if it becomes a proactive spouse successful fiscal innovation.

The SEC astatine Its Best

The SEC has a arrogant past of embracing alteration to the payment of investors and markets alike. In the 1990s, it digitized firm filings done EDGAR, replacing insubstantial documents with searchable databases. It aboriginal approved Regulation ATS, enabling the emergence of alternate trading systems that accrued contention and liquidity. ETFs, which were erstwhile novel, are present mainstream products that connection low-cost, diversified vulnerability to a wide scope of assets. More recently, fractional-share trading has empowered millions of retail investors to ain a portion of companies they erstwhile could lone respect from afar.

One particularly applicable illustration arsenic the SEC thinks astir however to modulate crypto is the agency’s attraction of asset-backed securities. In the 1980s and 1990s, the SEC recognized that these analyzable fiscal products didn’t acceptable neatly into existing disclosure regimes. After years of survey and no-action letters, it developed a tailored disclosure model successful 2004 — refined further successful 2014 — that balanced innovation with capitalist protection. And it didn’t request to bring hundreds of enforcement actions to bash it.

When the SEC Fell Behind

There are besides times the SEC failed to adapt, to the detriment of some investors and markets. It was dilatory to respond to the emergence of high-frequency trading, contributing to the 2010 Flash Crash. It took years to instrumentality the crowdfunding rules authorized by the JOBS Act. It lagged connected integer reporting standards, delaying broader entree to marketplace data.

And, for overmuch of the past fewer years, its stance connected crypto veered from caution to outright hostility. Instead of issuing wide rules for integer assets, the bureau pursued a scattershot enforcement run — often against firms that were seeking to comply successful bully faith. Many of these actions didn’t adjacent impact fraud oregon capitalist loss. Meanwhile, American crypto companies fled overseas, and a planetary manufacture flourished without us.

Even the SEC’s grudging support of spot bitcoin ETFs successful 2024 came lone aft it was forced by a national court. And portion the bureau astatine 1 constituent talked astir creating a crypto disclosure model akin to what it did for ABS, it ne'er followed through.

Innovation Isn’t the Enemy

Crypto whitethorn beryllium new, but the SEC has faced this situation before. It knows however to modernize its rules to conscionable caller realities. What’s antithetic present is the accidental to leverage innovation — not conscionable modulate it.

Take blockchain technology. It could alteration near-instant commercialized settlement, reducing hazard and freeing up capital. It could amended marketplace transparency done immutable records and real-time transaction data. It could little operational costs by reducing intermediaries. And tokenization could grow entree to backstage markets and hard-to-reach plus classes, benefiting some issuers and investors.

Ironically, the SEC hasn’t earnestly explored however blockchain could amended its ain marketplace oversight. That’s a missed opportunity. But it’s not excessively late.

A Blueprint for the Future

So what would it look similar to physique innovation into the SEC’s halfway mission?

• Revise the SEC’s Mandate: Congress should amend the Securities Exchange Act of 1934 to explicitly see the promotion of innovation and modernization, alongside capitalist protection, marketplace integrity, and superior formation.
• Rethink Metrics of Success: The SEC shouldn’t measurement occurrence solely by the fig of enforcement actions oregon penalties collected. It should besides look to superior formation, capitalist confidence, and the harmless adoption of caller technologies.
• Create an Innovation Office: A dedicated, empowered squad should prosecute with entrepreneurs, technologists, and academics to usher liable innovation — conscionable arsenic akin offices successful the U.K. and Singapore person done.
• Adopt Risk-Based Regulation: Not each caller merchandise oregon level needs afloat regulatory attraction connected time one. Pilot programs, harmless harbors, and regulatory sandboxes tin assistance innovators trial ideas portion maintaining due guardrails.
• Invest successful Education and Training: SEC unit request amended fluency successful emerging technologies. Cross-disciplinary expertise should beryllium rewarded and cultivated.

These are not extremist ideas — they are proven tools drawn from the SEC’s ain playbook.

In a planetary contention to specify the aboriginal of finance, the SEC has a choice: pb oregon autumn behind. Its top spot has ever been its credibility and quality to adapt.

The adjacent procreation of investors and entrepreneurs won’t hold astir for 20th-century rules to drawback up to 21st-century innovation. Nor should they person to. If the SEC wants to stay the golden standard, it indispensable accommodate erstwhile again — not conscionable to the present, but to what comes next.