Ripple or XRP: Why SEC Commissioner Peirce acknowledges that the Howey Test “hasn’t turned out well.”

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Hester Peirce, also known as ‘Crypto Mum,’ is an SEC Commissioner who has long called for more transparency on the issue of crypto-innovation. As one of the speakers at the recent Draper Goren Holm Security Token Summit, Peirce stressed the crucial need for a consistent regulatory structure for cryptocurrencies, particularly because major corporations such as Tesla Inc., BNY Mellon Corp., and Mastercard Inc. have begun to accept the alternative asset class.

“That adds to the urgency of us taking some sort of action in this area to provide more clarity.”

Peirce has long encouraged regulators to develop simpler rules that will allow crypto-assets to flourish without fear of violating the law. In the past, the Commissioner has claimed that such uncertainty has inhibited progress, with many claiming that the United States is losing the technical race to countries such as China.

The Commissioner also criticized the ‘Howey test’ used by the Supreme Court to determine whether an asset is a security. According to her, the Howey Test has had some challenges over the years, when being applied to the digital currency industry.

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According to Peirce, digital currencies are analogous to stocks in some respects but distinct in others. She suggested, based on recent trends, that the Howey Test is unable to catch and identify certain instances of digital currency trading and distributions in the same manner that it can capture what we would call securities transactions.

It’s worth noting that the U.S Securities Exchange Commission (SEC) sued Ripple over an illegal securities offering in December, the outcome of which has been argued quite frequently on crypto-Twitter. According to digital currency lawyer at Anderson Kill, Stephen Palley,

“The scenario where Ripple would win the lawsuit, and replace Howey Test with another new legal identifier for crypto is delusional.”

In order to tackle the said ambiguity, ‘Crypto Mom’ has suggested a ‘3-year safe harbor’ for virtual currency token projects. Following this, it would provide exemptions under a given set of strict conditions.

“You have three years to develop the network so that the token is actually usable or the network is decentralized — and at that point, it’s clear the securities laws don’t apply. And everything that you say will be covered by the anti-fraud laws under the securities laws.”

With Gary Gensler, President Biden’s candidate for SEC chairmanship, on the way, the next few months are sure to be eventful. Especially because he has previously commented on whether XRP is a defence. Commissioner Peirce concluded by expressing her excitement about working with the new SEC chairman to develop the draught strategy to increase transparency in the regulatory realm in the United States.

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