SEC Commissioner Uyeda Urges Greater Clarity over Securities Law Terms and Guidance
Commentary by Steven Lofchie
SEC Commissioner Mark T. Uyeda highlighted current regulatory challenges concerning (i) the definition of "dealer" under the Exchange Act, (ii) the lack of guidance over cryptocurrencies and (iii) the handling of off-channel communications by broker-dealers.
In his remarks at a conference on "SEC Regulation Outside the United States," Mr. Uyeda said that there is ambiguity of the definition of the term "dealer," which has led to confusion and potential legal liability for individuals and businesses. He cited recent case law and questioned whether the SEC provided fair notice for its interpretation of the term. He suggested there were "better ways" to communicate the SEC's views before beginning an enforcement action.
In the area of cryptocurrencies, Mr. Uyeda pointed to the lack of regulatory guidance, which has led to enforcement actions. He argued that this approach is not well-suited for providing clarity and can lead to confusion among market participants. Mr. Uyeda recommended that the SEC issue rules or interpretive guidance with respect to cryptocurrencies and digital assets.
On the issue of off-channel communications, Mr. Uyeda argued that there was a lack of clarity on what is considered a "business communication." He emphasized the high civil penalties associated with these actions, despite no identified investor harm. Mr. Uyeda suggested that the SEC issue additional guidance on what is included in the phrase "communications . . . relating to the firm's business." He said that the SEC should be more transparent about how penalty amounts are calculated.
Commentary
The SEC's attempted proposal to expand the definition of the term "dealer" is, in large part, outside its authority under the Exchange Act. Should the SEC go forward with the proposal, plaintiffs - as in the case the Commissioner cited - would have a very strong argument.
As to off-channel communications, the issue is not really the lack of clarity in business communications. The real problem, which the Commissioner notes, is the unjustifiable amount of the fines for the violations. These fines appear to be about firms not keeping up with new technology, and not about any finding of investor harm.