SEC ‘Playing Regulatory Jenga’: Commissioner Crenshaw Slams Agency’s New Crypto Approach

The sole Democratic Commissioner at the US Securities and Exchange Commission (SEC), Caroline Crenshaw, recently criticized the agency’s new regulatory approach toward cryptocurrencies, warning that the watchdog is playing a “dangerous” game.

Crypto Regulation’s Jenga Tower

In her remarks at the SEC Speak event, SEC Commissioner Caroline Crenshaw said that the regulatory agency is undermining its decades of work while staring at “alarming market volatility, emerging risks, and calls for deregulatory action in all corners of our markets.”

The Democratic Commissioner affirmed on Monday that the watchdog is “playing a game of regulatory Jenga,” with their “proverbial Jenga Tower,” comprised of “a set of discrete but interrelated rules and laws, deeply and carefully developed over the years.”

Criticizing the SEC’s new regulatory approach, Crenshaw questioned how many blocks the Commission can pull “before the tower gives away,” arguing that it has already shaken the tower by pulling institutional integrity, failing to enforce laws, and ignoring potential market risks.

She affirmed that the “most devastating” Jenga piece to go was the SEC staff, which has declined by nearly 15% in the past four months. Additionally, Crenshaw blasted the agency’s recent use of guidance on topics like memecoins and crypto mining “to walk away from rules and upend longstanding practice.”

In particular, our statements on these crypto-related issues are the equivalent of a wink and nod intended to convey that we do not plan to rigorously apply our laws in certain, specific situations. For example, the statements pull at the threads of our most foundational case law while meekly suggesting – in footnotes – that we still might do the required facts and circumstances analysis in each case.

The Commissioner stated that crypto presents “certain novel risks,” which could lead the agency to “repeat hard lessons with high stakes” if they fail to address them as crypto becomes increasingly entangled with traditional finance.

SEC’s New Regulatory Approach

One of Crenshaw’s key remarks also addressed the SEC’s long-criticized “regulation by enforcement” approach, slamming the new “regulation by non-enforcement” of the Trump administration.

According to the Democratic Commissioner, the term was a “total misnomer” as the agency staff didn’t try to create new laws with the cases. Instead, these actions “applied decades-old precedent to address violations of existing securities laws.”

She alleged that the SEC has abandoned its duty to enforce existing law with the shutdown of its enforcement program “in anticipation of creating new crypto-friendly rules.”

On the contrary, the SEC’s new chairman, Paul Atkins, criticized the agency’s previous “head-in-the-sand” regulatory approach, affirming that it stalled innovation and created an uncertain state for the crypto industry.

At the SEC Speak event, Atkins shared his vision for a more welcoming and constructive regulatory environment, contrary to the previous administration’s aggressive “shoot-first-and-ask-questions-later” strategy.

He detailed that this approach led to a communication breach and a lack of trust between the SEC and the crypto industry, which made working together on complex legal matters difficult.

Ultimately, Atkins directed the Division of Corporation Finance to address these issues by maintaining transparent interactions with the public. He also announced that the SEC’s policy Division has started drafting rule proposals related to crypto.

“As I begin my tenure as Chairman, I can tell you that we are getting back to our roots of promoting, rather than stifling, innovation. The markets innovate, and the SEC should not be in the business of telling them to stand still. It is a new day at the SEC, and I look forward to what we are going to be able to accomplish for investors and the markets,” he concluded.