SEC Playing "Regulatory Jenga"

In a pointed and urgent address titled “A Reckless Game of Regulatory Jenga,” SEC Commissioner Caroline A. Crenshaw sharply criticized recent deregulatory moves by the Commission, warning that they undermine institutional integrity, ignore market risks, and erode protections for investors and the financial system.

Speaking at the annual “SEC Speaks” event, Crenshaw issued a stark warning: “We are pulling apart our own regulatory foundation—block by block, case by case, and rule by rule.” Framing her critique with the metaphor of a collapsing Jenga tower, Crenshaw said the agency is dismantling long-standing investor protections “at a time of serious headwinds.”

Loss of Institutional Expertise

Crenshaw emphasized the consequences of recent attrition at the SEC, noting that the agency has lost nearly 15% of its staff in the current fiscal year. Citing internal data and news reports, she described this as “the first, and perhaps most devastating, Jenga piece to go,” warning that the loss of experienced regulators could impair the agency’s ability to prevent or respond to market crises.

Rulemaking Without Process

She criticized the Commission’s use of staff guidance to reverse or dilute substantive rules—on issues ranging from meme coins and crypto mining to investment adviser marketing and shareholder proposals—without public comment, Commission votes, or economic analysis. “This is the second foundational Jenga piece,” she said. Crenshaw characterized recent staff statements on stablecoins and crypto-related products as “winks and nods” that depart from the agency’s legal mandate.

She further criticized the agency’s decision to abandon litigation and reconsider recently adopted rules, such as climate disclosures and investment company reporting. “The result is that every ‘final’ rule feels like it isn’t final at all,” Crenshaw warned.

Failure to Enforce Existing Law

The Commissioner also expressed concern about the SEC’s withdrawal from multiple enforcement actions, particularly in the crypto sector. She described this as “regulation by non-enforcement,” citing the agency’s voluntary dismissal of cases against Coinbase, Kraken, Ripple, and others. These reversals, she said, “corrode our reputation in front of courts” and “cast doubt on longstanding and fundamental case law.”

Overlooking Systemic Risks

Crenshaw highlighted unresolved risks in the crypto markets, such as fraud, custody gaps, and interconnections with traditional finance. She also warned against the SEC’s apparent openness to increasing retail investor exposure to opaque and illiquid private markets: “Packaging these risks into retail products … does not change their nature.”

Lessons from 2008

Drawing parallels to the 2008 financial crisis, Crenshaw cited findings from the Financial Crisis Inquiry Commission that attributed the collapse to “decades of deregulation and reliance on ill-advised self-regulation.” She cautioned: “Before a crisis happens, everyone demands that regulators get out of their way. I don’t want us to suffer the same fate.”

Crenshaw closed with a plea for institutional responsibility: “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.”

[Link to Text of Speech]