Regulatory Update: SEC Announces Establishment of Independent Cryptocurrency Regulatory Division, Crypto Matriarch: DeFi, Ethereum 2.0 Emerge as New Topics

The U.S. Securities and Exchange Commission (SEC) announced that its division known as the Strategic Hub for Innovation and Financial Technology (FinHub) will establish an independent office. Additionally, SEC Commissioner Hester Peirce, also known as "Crypto Mom" for her crypto-friendly stance, mentioned in an interview that Ethereum 2.0 and DeFi will be new topics for regulatory scrutiny.

FinHub

Established in 2018, FinHub's scope of operations includes fostering the development of financial startups, as well as areas such as distributed ledger/blockchain, digital assets, automated investing, digital market financing, artificial intelligence, and machine learning. In 2019, it developed a regulatory framework for digital assets to determine whether they are securities.Regulatory framework for digital assets.

According to an official announcement by the SEC, Valerie A. Szczepanik, the former Senior Advisor at FinHub, will continue to serve as the first Director of the office. She stated:

As technology evolves, the work scope and complexity of FinHub continue to expand. Granting FinHub a new identity will facilitate flexibility in collaboration between global market participants and regulatory agencies.

In addition to becoming an independent division, all future matters of FinHub will be reported directly to the SEC Chairman. Jay Clayton, who is stepping down at the end of the year after a three-and-a-half-year term as SEC Chairman, believes that establishing FinHub as an independent division will better serve the interests of investors, market efficiency, and the introduction of innovative technologies.

DeFi Presents New Challenges to the SEC

Referred to as the "Crypto Mom" by the crypto community for her frequent focus on cryptocurrency and blockchain developments, SEC Commissioner Hester Peirce recently shared her views on the rise of DeFi this year and the recent launch of Ethereum 2.0 in an interview.

She sees DeFi as a threat to the SEC, similar to the ICO boom of the past, progressing faster and posing more complex regulatory issues. She pointed out:

Think carefully about the project you are building, research whether it appears to be a security. If it is, please contact the SEC. If someone develops such a product, they may be in big trouble. That would be my advice.

In addition to securities issues, the feature of DeFi excluding intermediaries such as banks and exchanges also increases the difficulty of regulation. Peirce stated:

All regulations and policies are built around these intermediaries, so when DeFi bypasses these institutions directly, the operational tasks of regulators become exceptionally challenging.

Peirce also revealed that the reason it is difficult to promote financial innovation is due to regulatory barriers. These regulations protect traditional financial institutions from competition, and Peirce emphasizes that this is something she is eager to change. She wants to see what will happen on a competitive playing field.

Given the recent launch of Ethereum 2.0, Peirce is not only optimistic about it but also mentioned that she is working on the 2.0 version of the Digital Asset Safe Harbor Framework.

It is understood that Peirce initially proposed the Safe Harbor plan in August 2019, which, if passed, would provide developers with a three-year grace period to establish decentralized projects without fear of legal action from the SEC.