​Regulation by enforcement does nobody any favors


To see a prominent representative from one regulator accuse another of “regulation by enforcement” might raise the eyebrow of some observers. But it shouldn’t—not when that’s the other regulator’s stated strategy.

As far back as November 2021, Gary Gensler tipped his hand regarding how his Securities and Exchange Commission (SEC) would pursue what he termed “high-impact cases.” Making an example of one company prompts the compliance departments, lawyers, and accountants of others to change their internal procedures, he said in a speech, thus sending a message on where the agency’s tolerance lines are drawn.

“Some market participants may call this ‘regulation by enforcement,’” acknowledged Gensler. “I just call it ‘enforcement.’”

So when Caroline Pham, a new Republican commissioner at the Commodity Futures Trading Commission, accused the SEC of “regulation by enforcement” in a recent cryptocurrency case, it likely did little to faze Gensler. Neither will threats from Republicans forecasting an investigation into the agency’s authority should they win the House following mid-term elections in November.

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