Why this former SEC executive thinks crypto is coming to finance

Former US Securities and Exchange Commission Chairman Jay Clayton recently gave an interview where he discussed the state of crypto regulation in the country. Many top companies in this industry have called for a robust framework from the US government, but the SEC and others may be under-delivering.

Speaking on CNBC’s Squawk Box, Clayton talked on the “frustration” surrounding crypto regulations and the reasons why the US has failed to catch on to the nascent industry. The former SEC chairman said:

Why is this so difficult? There are a number of factors, and I think if we understand those factors, we’re going to do a better job moving forward, which we need to do (…). The technology underlying the crypto revolution is going to finance, it is so compelling that it is coming (…).

One of the reasons the US has failed to implement a regulatory framework for digital assets, Clayton said, is “pure emotion” on the part of regulators and crypto companies. The former SEC chairman claimed there has been “abundance of fraud” in the nascent industry, non-compliance and “lots of lawsuits”.

Current SEC Chairman Gary Gensler has often compared cryptocurrencies to “The Wild Wild West”, a time in US history when people lived outside the law. Thus, the regulator has tried to push for new rules, tried to expand its jurisdiction to monitor all digital assets classified as securities, and has entered into controversy with its sister agency, the Commodities and Futures Trading Commission (CFTC).

Speaking about the “Turf War” between the two agencies, the former SEC chairman commented:

You are absolutely right (about the “Turf War”) on both of these things. One of what I called the “Uber Effect”, which is basically Uber, came in and said, “Taxi regulation is so arcane, so outdated, we’re just going to offer a compelling consumer alternative”. The problem with that is that you cannot give up the core of our economic regulation (…).

Former SEC chief changes opinion on crypto and digital assets

According to Clayton, there is a discrepancy between current regulations, focused on institutions and national markets, and crypto, a product with a global reach. One of the first things regulators need to achieve to address crypto is “regulatory coordination”.

In the nascent industry, rules for stablecoins could be agreed upon relatively quickly, as Clayton believes players in the regulatory and crypto landscape would be able to negotiate them “with ease.” This will allow toll rails in the US to improve from this integration.

In one of the comments to the interview, John Deaton, a lawyer representing over 200 hundred XRP holders, accused Clayton of stopping innovation and “missing an opportunity”. Deaton so to the former SEC chairman:

You were the chairman and Elad Roisman and Hester Peirce were crypto friendly compared to others (including you). Instead of fostering innovation, you fostered an environment of regulatory uncertainty.

In December 2020, Clayton left the SEC and pushed for a lawsuit against Ripple and two of its executives for allegedly selling an unregistered security, XRP. This has negatively affected XRP holders.

During his time at the SEC, Clayton was considered an anti-crypto chair who rejected a number of proposals to integrate the nascent asset class with the legacy economy. Deaton added:

Now you get jobs to act as an adviser to help companies navigate the uncertainty. It seems like you are taking advantage of the lack of clarity you helped create. Regarding your comment – ​​The Peculiar Challenges of Crypto Regs, I guess you were not up to the challenge.