[daxelrod]

This is how a fintech Chief Compliance Officer explained it to me:

The industry that the SEC regulates is full of clever people who have a financial incentive to push rules as far as possible.

The concern is that if they provided a clear line between what is allowed and disallowed, that everyone will go right up to the line and then find creative ways to exploit how it’s defined.

The SEC prefers to keep the line fuzzy so that actors keep their behavior well on the “allowed” side.

[ascendantlogic]

"The people we're regulating are really clever so we can't tell you what the rules are" Is a terrible way to handle things.

[pg_1234]

Inconsistent enforcement of rules is a proven way to instill caution via fear and uncertainty.

When you are dealing with sociopaths (i.e. most of the industry that the SEC regulates), reason and compassion are useless as tools for getting people to do the right thing ... but fear still works.

[rcme]

> Inconsistent enforcement of rules is a proven way to instill caution via fear and uncertainty.

Where was this proven? My experience is the opposite. Inconsistent enforcement makes people think they can get away with breaking the rules. And because the enforcement is inconsistent, they have a guaranteed non-zero probability of succeeding.

[kelthuzad]

If the line is intentionally fuzzy it doesn't make sense for them to lie about how the line is supposedly clear, because lying tends to diminish the trust and credibility of the SEC.

I still don't buy this explanation regardless, because it makes navigating the space impossible.

[mrguyorama]

It's weird, because that line has been in place for decades, and the financial industry has mostly had no problems complying, yet a bunch of script kiddies trying to get rich are finding it oh so difficult to stay on the right side of the line?

Ain't that just the darndest thing.

[kelthuzad]

The line seems to be unclear and fuzzy as stated by others, which will naturally cause problems with compliance, but you clearly have a personal axe to grind so I'm not gonna entertain that.

[noman-land]

This sounds like a ploy to justify selective enforcement against whoever the regulators don't like at any given moment.

[mrguyorama]

Sure, vague rules allow misdeeds through enforcement, but luckily we have the court system to police that. Meanwhile, vague rules allow the SEC to target the bad behavior, and not have to constantly be begging the legislature for new laws every time someone comes up with a new grift.

It's basically "unsportsmanlike conduct" for the financial system. The NFL doesn't tell you exactly how hard you have to push the other guy before it counts as unsportsmanlike conduct, because that would be stupid, extremely context sensitive, and only help players push each other around more. It's up to you as a player to actively stay on the right side of the fuzzy line for that exact reason.

Every person on here who works in tech should understand how stupid "no the rules need to be clear" is when it comes to bad actors and adversarial systems. Imagine if it was expected for you to clearly explain to a user who failed your internal risk system what caused them to fail, so that they can fix it and try again. Imagine if you were asked to implement a system that explained clearly to your users what would get blocked as "carding behavior". It's clear to those who have built or worked with these kind of systems how utterly stupid and self defeating such an endeavor would be.

There isn't even an unambiguously correct definition of "Fraud" in the first place!

[solumunus]

> The SEC prefers to keep the line fuzzy so that actors keep their behavior well on the “allowed” side.

In crypto it appears the exact opposite is happening.

[worrycue]

Then crypto will get sued again and again while the SEC refine their internal model of what is lawful based on the outcome of court cases.

On the bright side, it clarify things. The downside is it cost a lot of money.

They can always do what traditional money does, stay within the safe zone with well established precedents.

[hn_throwaway_99]

Thanks, this makes sense to me (even if I may disagree with some of the "implementation"), so I really appreciate you sharing your knowledge.