SEC Commissioner Cautions Against 'Blanket' ICO Classification

A sandbox for ICOs is not the best approach to token regulation, an SEC commissioner said last week.

Speaking at the Medici Conference on May 2, Commissioner Hester Peirce told the audience:

"My fear that regulators will grab hold of the shovels and buckets is why I am often wary of so-called regulatory sandboxes. I am entirely in favor of finding ways to make appropriate regulatory allowances that clear the way for innovation to flourish. What troubles me about sandboxes, however, is that the regulator is typically sitting there next to the entrepreneurs."

Peirce went on to argue in her ICO-focused speech that "open communication" between regulators and those they regulate is possible without a sandbox, and instead advocated for a "lifeguard" approach in which the regulator "watches over what is happening, but she is not sitting with sandcastle builders monitoring their every design decision."

Peirce did, however, acknowledge that sandboxes have been successful for some regulators, including those in the U.K., the U.A.E. and Singapore.

Blockchain sandboxes have become increasingly popular amongst global regulators, and advocates argue that they are a means of satisfying regulators without quashing innovation. Lithuania, Bermuda and Malta are among other countries experimenting with the idea.

In another notable part of the speech, the Commissioner broke with SEC Chairman Jay Clayton's statement at a U.S. Senate hearing in February in which he stated, "I believe every ICO I've seen is a security."

Contrarily, Peirce remarked: "Given the undeveloped nature of this area, I am wary of any blanket designation for all ICOs." She instead suggested that regulators "evaluate the facts and circumstances of each offering."

The Commissioner also addressed the potential for regulation to impact innovation and argued that the classification of tokens as securities, for example, could create boundaries for innovation.

"They will, over time, come to look more and more like securities and securities offering. Innovations that might otherwise have occurred that don't fit within that 'security' framework may never come to fruition," she told event attendees.

Additionally, Peirce expressed regret that the SEC has largely communicated with ICO issuers via its Division of Enforcement and cautioned that the Commission should not lead "with its enforcement powers." She also suggested that the SEC set up a website to field questions and comments on ICOs, tokens, blockchain technology and cryptocurrencies.

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