SEC Investment Management Director Brian Daly: Acknowledges Poor Handling of Crypto ETF Approvals
Brian Daly, Director of the Investment Management Division of the U.S. Securities and Exchange Commission (SEC), stated on the Trillions program that the SEC acknowledges its poor handling of cryptocurrency ETF approvals in the past, which has damaged industry trust.
The SEC is currently working to establish a more orderly and asset-neutral approval process to address approximately 200 ETF applications each month, including innovative products like predictive markets. Daly emphasized the consideration of introducing a confidential filing mechanism to prevent rapid copying of product ideas.
In terms of market mechanisms, issuers are fiercely competing for first-mover advantages, driving rapid capital inflow into approved products. Event-driven approvals accelerate capital concentration towards compliant innovative ETFs, benefiting traditional asset managers from process transparency while putting pressure on copycat applicants.
Source: Public Information
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Brian Daly has previously participated in the modernization of investment company rules at the SEC, advocating for the simplification of the ETF exemption process and handling no-action letters related to digital asset custody. During the 2024 mass approval of crypto ETFs, regulatory responses faced multiple first-mover competition controversies.
On the capital pathway, the SEC is mobilizing resources through public consultations and potential confidential filing mechanisms, aiming to allow issuers to collaborate with staff without fear of idea leakage. The motivation is to reduce process distortions caused by fierce competition while guiding capital from high-risk copycat products towards prudently reviewed structured innovative tools.
Similar to the paths taken by BlackRock and Fidelity in the initial Bitcoin ETF layouts, the SEC is transitioning from passive approval to active framework construction, akin to the period after the streamlined ETF rules in 2019, which saw a surge in asset scale.
Essentially, this represents a regulatory change: past fragmented approvals led to trust erosion and inefficient capital allocation. By implementing asset-neutral processes and confidentiality mechanisms, the aim is to transfer pricing power to compliant innovators, reducing information asymmetry and first-mover speculation, and promoting more efficient long-term capital allocation towards genuine product differentiation rather than regulatory arbitrage.
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Regulatory acknowledgment of mistakes is not a sign of weakness, but the first lever to rebuild pricing power. The more aggressive the first-mover advantage, the more transparent rules are needed to prevent capital internal friction. The stronger the innovation protection mechanisms, the more capital is willing to shift from replication to structural creation.