Hester Peirce would prefer to see the nascent cryptocurrency market go through increasing difficulties and reach a natural state of self-regulation, rather than have governments impose numerous restrictions that could help and hinder its evolution.
Andres KarolyiFrankly, he is not so confident in the self-regulatory capabilities of cryptocurrencies.
This year's Lewis H. Durland Memorial Lecture, held March 25 in Statler Auditorium, was less of a lecture and more of a respectful exchange of views. As part of Cornell's annual academic theme, โThe Sine Condition: Free Speech at Cornell,โ the annual event took the form of a conversation between two experts with opposing ideological perspectives.
Peirce, one of the five commissioners of the Securities and Exchange Commission (SEC), came to Cornell to exchange views with Karolyi, the Charles Field Knight Dean of the Cornell SC Johnson Business School. His one hour conversation It was followed by approximately 30 minutes of audience questions and answers.
"I'm so grateful that you were willing to come and do this," Karolyi told Peirce when the event ended. โIt would have been easier to just give a speech, but to have this exchange where we really disagree โ respectfully disagree โ about different points of view on how we should do things, I really appreciate that.โ
President Martha E. Pollack welcomed the in-person audience as well as approximately 600 registrants to the livestream.
Peirce and Karolyi addressed a variety of topics: the regulation of cryptocurrencies such as bitcoin and ethereum; environmental social governance (ESG) disclosure rules; and regulation generally, with particular attention to the merits of the Public Company Accounting Oversight Board (PCAOB), which is overseen by the SEC.
Peirce, who earned her law degree from Yale Law School and has worked in both government and the private sector, explained in plain language why she feels less is more in terms of government regulation of markets.
โOne thing that has been critical for me is seeing the complexity of the markets that we regulate,โ he said, โand really understanding the value that each person brings to those markets. โฆAnd if we, as a government, try to intervene and override that, we actually cut off information from our markets that is really valuable. โฆthat appreciation for the value of the individual has really shaped a lot of my thinking.โ
Karolyi pressed Peirce on that point, highlighting the SEC's decision in January โ after years of resistance โ to approve the listing and trading of a series of spot bitcoin exchange-traded funds. Given his ideology of limited regulation, Karolyi asked: What would sensible safeguards in this area look like?
"It's hard to talk about crypto in this one group and paint it with one brush because it means a lot of different things to a lot of different people," he said, noting that the crypto market has gone up and down and is now on the rise. territory, which can give rise to risky behavior.
"I think my central message is that people, when they take their money and buy anything with it, they need to ask themselves some questions," he said. "They should be skeptical about the promises made to them."
Peirce said some cryptocurrency regulation may be covered by existing securities laws, "although we may want to have a customized disclosure regime" in some situations. However, the regulation she adamantly opposes is โa regulatory framework that is simply designed to push everything out of the U.S. That's my only caveat, and I think a lot of what we've done as regulators so far โItโs that weโve used regulation as a way to try to force all of this activity outside of the U.S.โ
Karolyi pointed out to a recent fellow researcher Will CongRudd Family Professor of Management and Director of the FinTech Initiative at Cornell, conducted that found that, of 29 crypto exchanges it examined, โthere was a significantly higher fraction of volume on unregulated exchanges that would be associated with types of fake transactions,โ Karolyi said. "That's a call for a very focused perspective on the importance of (regulation)."
Peirce noted that Europe and Bermuda have established comprehensive regulatory frameworks for cryptocurrencies. He asked Karolyi if he believed markets would find a way to self-regulate if the United States simply did nothing.
"I'm less confident; I'll be honest with you," he said. "I just feel like the United States should probably be at the forefront (of defining the size and scope of regulation)."
Regarding ESG disclosures related to a company's sustainability priorities, Peirce again said that the SEC, which earlier this month adopted rules to improve and standardize climate-related disclosures by public companies, should not be dedicated to "telling companies what we think." "It's important that they disclose it, rather than what has traditionally been the approach for companies when making a decision: 'Climate risk is actually material to me, and that's why I'm disclosing it.'"
Karolyi referenced the Sarbanes-Oxley (SOX) Act of 2002, which requires certain financial recordkeeping and reporting practices for corporations.
"There were a lot more disclosures coming, and that was probably a big improvement for the capital markets," he said. "I guess this is our kind of post-SOX 2.0, in the green space."
Karolyi referenced a statement Peirce made in December about the PCAOB and the fact that, 20 years later, its inspectors estimate that 40% of the audits they reviewed in 2022 had at least one deficiency. His question: Does Peirce feel the PCAOB is worth its $385 million budget?
"I'm thinking, are you, as an audit regulator, doing your job of not only detecting problems, but also helping to work with audit firms so that they don't have these problems?" she said. โYou probably have to ask yourself: How bad are the problems they are encountering? But I think it's fair to ask if there is a different way we could regulate audit firms.โ
The Durland Conference was eestablished in 1983 in memory of Lewis H. Durland, Class of 1930, who served as Cornell's chief financial officer for more than 25 years.
