A Reckless Game Of Regulatory Jenga - Remarks At “SEC Speaks”, SEC Commissioner Caroline A. Crenshaw, Washington D.C., May 19, 2025

Good afternoon. As you know, SEC Speaks is an opportunity for the agency, and specifically the SEC staff, to speak directly to practitioners in our space. To me, and perhaps to some of you, this year’s SEC Speaks feels a bit different. My hope is that over the course of this event, amid talk of rolling back rules and diminishing protections, we will all be reminded of the crucial work that the agency does, which benefits not only investors, but also you. And, I hope we are all reminded of the caliber of people who do that work.

Before I begin, I’ll give the standard disclaimer. The views that I express today are my own, and not necessarily those of the Commission, the staff or my fellow commissioners.

My remarks today offer a word of caution as the agency chips away at decades of our own work – and, at the same time, as we stare down alarming market volatility, emerging risks, and calls for deregulatory action in all corners of our markets.

As we careen down this path full speed, it almost feels like we’re playing a game of regulatory Jenga. Our proverbial Jenga tower is made up of a set of discrete but interrelated rules and laws, deeply and carefully developed over the years, and implemented by a strong agency of experts, skilled in overseeing and regulating our increasingly complex markets.

Of course, in Jenga, the tower remains standing when you pull out a block or two here and there. But, how many blocks can you pull before the tower gives way? When it comes to the stability of our markets, how far are we willing to take our dangerous game? Who would ultimately be the loser when the foundation gives way? I worry, as we all should, that those losing the most won’t be the influential, monied interests; rather, it will be the Main Street Americans – the investors and small business owners who can least afford the greatest loss. Consider some of the actions of the agency over the past weeks and months.

Institutional Integrity

First, we pushed out our staff. This is the first, and perhaps most devastating, Jenga piece to go.

The SEC is, and has been, comprised of dedicated public servants who are responsible for implementing and upholding a careful mosaic of laws, which have matured gradually and deliberately over decades. Their knowledge base reflects a regulatory regime that is highly technical, and their expertise has been sharpened by lessons learned from crises past. The industry’s success, in many ways, depends upon the agency maintaining a deep well of institutional knowledge.

Our well has taken a substantial and sudden hit. In response to voluntary retirement, resignation, or simply the specter of random firings, we have lost nearly 15% of our staff.[1] These are experts in their fields who have weathered market events of all shapes and sizes; seen the fallout from calamity; guided recovery efforts; and have instituted protections that decrease the risk that similar disasters might happen again. In other words, these are the people who you want in place when volatility (or disaster) strikes.[2] This of course begs the question – is our capacity sufficient today to prevent a future crisis, or aid in the recovery from one?

We cannot take the integrity and continuity of this institution as we know it for granted – and we should not assume that the growth and stability we’ve witnessed the past few years will continue.

Un-Due Process 

Then, we diluted or effectively rescinded the laws without due consideration of the costs, benefits, or public feedback. This is the second foundational Jenga piece.

In the past four months, we’ve used guidance to walk away from rules and upend longstanding practice. Recently, there has been a wave of staff guidance on meme coins,[3] on crypto mining,[4] on investment adviser marketing,[5] on the engagement with management for purposes of Schedules 13D and 13G;[6] and on verification requirements for accredited investors.[7] We have further changed the rules of the road for proxy proposals (issued midway through the proxy season);[8] and effectively amended recently adopted rules on conflicts of interest in securitized transactions.[9]

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. We take this slipshod approach to stablecoins as well, which have shown their capability of posing systemic risk to our traditional financial system.[10]

We’ve done all of the above without Commission vote; without the benefit of analysis from our economists; and, without fulsome opportunity for public comment. I am concerned that staff guidance is not the correct vehicle for declarations of this magnitude, and we need to carefully analyze suggestions that we ought to create some alternative, presumably lesser, regime to accommodate industry and promised innovation.[11]

Separately, the Commission has also declined to defend, and claims to be “reconsidering,” recently adopted rules.[12] The dismantling of these rules taken individually is bad enough, but what’s worse is the broader intentional pattern of undoing the dually adopted work of prior Commissions. The result is that every “final” rule feels like it isn’t final at all. This is problematic for our reputation and credibility as a regulatory body and may undermine the presumption of regularity of government affairs.[13] Of course, rules are amended and updated over the years and decades as necessary, but to reverse course on rules before they have even gone into full effect suggests that a prior Commission vote is meaningless against the slightest change in the political breeze.

Brazen Failure to Enforce the Laws We are Charged with Enforcing 

Third – the next Jenga piece – we are ignoring courts and failing to faithfully and evenhandedly enforce even laws that have been on the books for decades.

Our agency was criticized for purportedly engaging in “regulation by enforcement,” but this was a total misnomer. None of our litigations tried to create laws or regulate in a new way. These actions applied decades-old precedent to address violations of the existing securities laws. This is what our mandate is and always has been. The real complaint was not that the Commission wasn’t applying the facts to the law, it was that the crypto industry didn’t like the law and wanted new rules. And we’ve now shut down our enforcement program, abandoning our duty to enforce existing law, in anticipation of creating new crypto-friendly rules. This is properly criticized as regulation by non-enforcement.

Given that, I am deeply troubled by the Commission’s abandonment of swaths of our enforcement program.[14] As I have said before, [15] these cases were thoroughly investigated by the staff and considered by a prior Commission. Some even involve court orders that we now toss aside with no respect for the court’s decision.[16]

This about-face is problematic for a host reasons: it corrodes our reputation in front of courts, it undermines the credibility of the Commission and staff when we pursue enforcement cases involving all types of misconduct (not just crypto-related conduct), and it casts doubt on the state of longstanding and fundamental case law. In a supposed search for regulatory clarity, all these actions have done is create confusion and disarray.

Unheeded Risks 

Finally, we are ignoring significant risks.

Consider the crypto markets again. These products have already laid bare how their heightened risk profiles can result in harm for investors. Crypto presents certain novel risks – including those related to hacks and the prevalence of crypto as a method of payment for illicit activity. This last year alone saw a 66 percent increase in total fraud-related crypto losses – primarily affecting individuals over the age of 60.[17] Plus, we’ve already experienced what a large-scale crypto crisis can look like. As recently as 2022, following the fallout of FTX, there was a shared sense of concern and call to action for regulators.[18] Those risks have not gone away, but the calls for serious regulatory scrutiny are a lot quieter these days. For example, unique challenges with custody,[19] conflicts of interest, disclosure, and market integrity remain unresolved – despite the pressure for widespread crypto adoption and experimentation.[20] Adding to the complexity, are the scores of “traditional” products that reference crypto assets in some form, including crypto futures ETFs and crypto ETPs. Failing to appreciate and address these risks and complexities destines us to repeat hard lessons with high stakes as crypto becomes increasingly entangled with traditional finance.

Next, consider the unheeded risks posed by the eroding barrier between the public and the private markets. There is a growing appetite to experiment with limitations on exposure to private assets in registered funds. The distinction between public and private markets exists for a reason. We know that private markets are inherently riskier, entail less disclosure, and require a higher tolerance for volatility and illiquidity.[21] And, we’ve seen instances of outsized harm when the opacity of the private market space covers up massive fraud.[22] These private markets are not designed for the average Main Street investor. Packaging these risks into retail products – in the form of retail funds of private funds, for example – does not change their nature.[23] It simply further masks those risks to investors who may not appreciate them – if they even know that they are being exposed to them at all. What’s more, it’s not clear that products designed for retail investors, such as registered funds, will function effectively in times of market stress if they are significantly handcuffed to private markets. It is therefore worth asking: is this proposed expansion in retail investors’ interests, particularly when fees on products with private market exposure are exponentially higher than, for example, most index funds?[24]

A Bad Time to Play Games

So, we’re pulling pieces from the Jenga tower in a perilous way. And we’re doing so in time of serious headwinds.

• Markets are becoming increasingly (predictably) volatile;[25]
• products are more complex;[26]
• investors are more exposed;[27]
• regulators will have less insight.[28]

It is reminiscent of other times when we’ve been criticized for our deregulatory posture while markets were growing increasingly complex.

Consider the 2008 financial crisis.[29] In a post-mortem, the bipartisan Financial Crisis Inquiry Commission’s Final Report concluded that the crash was avoidable and the result of “human action and inaction.”[30] According to the report, decades of deregulation and reliance on ill-advised self-regulation by financial institutions resulted in widespread failures in financial regulation and supervision.[31] The report also found that regulators failed adequately to manage evolving risks and heed warning signs of instability.[32]

After a crisis happens, the first thing people ask is “how could this have happened?” And, more specifically, “where were the regulators?” But, before a crisis happens, everyone demands that regulators get out of their way. I don’t want us to suffer the same fate.

Conclusion 

This is a dangerous game. We are pulling apart our own regulatory foundation – block by block, case by case, and rule by rule. It feels all too familiar to those of who have lived through 2008. And this approach comes in a moment when the agency has just experienced an unprecedented blow to our staff. If we continue down this path, eventually, the carefully constructed tower of regulatory blocks will tumble – leaving the door open to the same types of misconduct that we have spent decades irradicating. When that happens, small businesses and retail investors are the ones who will lose out as they attempt to tread water in tumultuous markets with fewer and fewer protections.

Of course, there is also the damage a potential future crisis will inflict upon the reputation of regulators who let it happen. In that future moment, when we’re asking ourselves what could’ve prevented a new crisis, we may find ourselves coming back to the rules and case law that we contemplate abandoning at this very moment.

Tomorrow’s hindsight is today’s foresight. We cannot play games with the institutional integrity of the SEC – and the integrity of our markets – and expect that we won’t ultimately lose. Sooner or later, our complacency today will be the cautionary tale told to the regulators of tomorrow. Like tumbling Jenga pieces, we cannot let our guard down and pull the wrong blocks.