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SEC Commissioner Peirce Criticizes Regulatory Resistance to Innovation

Steven.Lofchie@friedfrank.com's picture
Commentary by Steven Lofchie

SEC Commissioner Hester M. Peirce pressed regulators to allow innovators greater market freedom, stating that "regulation needs to leave room for experimentation, tinkering, and, yes, failure."

In an address before the University of Central Florida's Inaugural FinTech Summit, Ms. Peirce examined the relationship between regulation and innovation. She stressed that innovators need more freedom, so they are not spending unnecessary amounts of time communicating with regulators for minor changes or adjustments. She warned that such micromanagement hinders the creative process, and expressed concern that the financial industry is an example of how a bureaucracy can slow down innovation. Ms. Peirce described regulators as naturally over cautious in regard to innovation and urged members of the FinTech innovation industry to raise their voices to get the regulatory system right.

Ms. Peirce expressed concern about the SEC's overly cautious approach to Decentralized finance ("DeFi") and other FinTech, suggesting that these innovations should be viewed as opportunities to meet important regulatory objectives. She noted the usefulness of smart contracts, non-fungible tokens, decentralized autonomous organizations and Decentralized Identifiers, which can provide a disclosure system that is comparable to the existing system.

Commentary

Ms. Peirce is a regulator who embraces a willingness to accept a measure of risk with the confidence that innovation and risk-taking result in progress, with failures along the way. Her speech is a welcome break from the onslaught of rule proposals. (See also Rat Farms and Rule Comments.)  

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