On November 16, US Securities and Exchange Commission (SEC) Commissioner Jaime Lizárraga delivered his first public statements on digital assets at a “Fintech and the Law” event held at Brooklyn Law School. His comments generally reemphasized existing SEC positions and focus and didn’t suggest a departure from the SEC’s current approach to the digital asset markets.
In his keynote address, Commissioner Lizárraga said his focus in the realm of digital assets was to understand the perspective of working families or persons investing in digital assets. In highlighting this focus, he referenced the original Bitcoin whitepaper published during the 2008 financial crisis and said promises of “a viable alternative to traditional finance” and “genuine financial inclusivity” have not yet been reached.
Commissioner Lizárraga also pointed to the events of the past few weeks as an opportunity for the industry’s issuers and intermediaries to evaluate their operations and for some to reconsider their decisions to, in his words, “[operate] outside of the federal securities laws.” Importantly, Commissioner Lizárraga said that he agreed with SEC Chairman Gary Gensler’s view that most digital asset tokens are securities, and, as a result, many digital asset intermediaries are operating as unregistered market participants. Echoing past comments from other SEC officials, Commissioner Lizárraga also said that he believes blockchain technology can exist side-by-side and be compatible with the existing federal securities law framework. However, he did not address some of the market’s criticisms of this approach, including the practical challenges of applying this framework to digital asset technology.
Commissioner Lizárraga attributed problems in the digital asset market—conflicts of interest, lack of transparency, asset comingling, malicious attacks, and high volatility—to the fact that it is largely unregulated. He cited the recently released Financial Stability Oversight Council (FSOC) report on financial stability risks in the space, highlighting a “lack [of] uniformity” in stablecoin issuer disclosures and a general lack of transparency in digital asset markets.1 As support for further enforcement and a greater breadth of regulatory oversight, he also cited an estimate of $14 billion of worldwide digital asset crime in 2021, almost double that of the previous year.
Commissioner Lizárraga argued that the SEC’s approach to digital asset regulation is not “regulation by enforcement,” as some have charged, and instead asserted that the SEC was enforcing US securities laws as an implementation of congressional intent. In his view, securities laws and their applicability are well-established and the cases brought to date by the SEC have clear applications in those circumstances.
1 The Mayer Brown team provided its assessment of the FSOC Report here.