SEC Commissioner Sounds Off on Complicated Relationship Between Innovation and Regulation

Just more than a year into the job after her appointment by President Trump, SEC Commissioner Hester M. Peirce issued a warning about the unforeseen consequences of innovation and the difficulties regulators have keeping pace.

In a speech to the University of Missouri School of Law on February 8, Peirce’s address entitled “Regulation: A View from Inside the Machine,” touched on the positive relationship between entrepreneurship and technological advancement, while simultaneously cautioning of inevitable “trade-offs,” of runaway innovation without regulators as a watchdog.

“Entrepreneurship and innovation do not have the happiest of relationships with regulation,” said Peirce. “Regulators get used to dealing with the existing players in an industry, and those players tend to have teams of people dedicated to dealing with regulators. Entrepreneurs trying to start something new are often much more focused on that new thing than on how it fits into a regulator’s dog-eared rulebook.”

Peirce claimed that the SEC had an important role to fill in innovation, seeing the SEC as a “gatekeeper,” for the success of the economy.

“As a regulator, when I think about protecting the public, I think not only of protecting investors, but also of ensuring that the capital markets are able to serve the rest of the economy without undue barriers,” said Peirce.

Using the innovation of the ATM as a recurring theme, Peirce touched on risk in innovation as she likened technological and industrial advancement to a tale of a repairman who became trapped inside a machine while performing maintenance, who only managed to escape by slipping notes to customers through the ATM slot pleading for help.

Peirce pointed out that no matter how great the innovation, it will always carry unforeseen risk.

“Sometimes I feel like the repairman in the ATM sending slips of paper to the outside world asking for help,” said Peirce. “In my case, I am asking for help on getting the regulations right so that innovators and entrepreneurs can spend their time and attention on making better products, providing better services, and revolutionizing the way we interact with one another.”

In her assessment of the ATM comparison, Peirce noted that regulators are not tasked with hindering progress. She reiterated the importance of allowing innovation to proceed while placing regulators in the position of “reasonable safeguards,” to be aware of the proverbial man in the machine.

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