BBW25 - Day 3 - Fireside Chat: Abigail P. Johnson, Chairman & CEO, Fidelity Investments

Okay, I'm very fortunate to have such good colleagues. When I'm not uh hosting this conference, I moonlight as a city counselor here in Quinsey. So, I'm very fortunate to have uh such a good friend in public service and Tom Ko and John O'Keefe through Cubic Labs. Without further ado, our special guest today, uh she needs no introduction. Uh she and her team hosted the Cubic Labs team in May for our first cohort for our accelerator.

So, we're very honored to host her here today at Boston Blockchain Week. Please join me in welcoming Abigail P. Johnson.

Well, thanks. That was very warm intro. I apprec I appreciate it very much.

Well, we are happy to welcome you to Quinsey. It's been a while.

Yes, it has. It has been a while, but it's really wonderful to be here in historic Quinsey, and it's exciting to see all the changes that have taken place here.

There are lots of changes happening. I think the mayor touched on, you know, the history of innovation through the founding of our country. And so now we're going to have a good conversation about

Can't beat that.

You can't beat that. No, this is the cradle of history here. And today we're going to have a nice conversation about the future of finance and the global financial system. So, thanks for being us with us. This is such a treat to have you at Boston Blockchain Week, Fidelity Investments, global powerhouse, household name.

You've been in this space, crypto, blockchain, digital assets for longer than most. So, we could call you a crypto OG. Okay. But the first thing that I want to ask before we get into the institutional plays is how did you first discover Bitcoin in blockchain? So it's not an easy simple question uh not a simple answer.

Sure.

Uh you know there there wasn't any you know kind of epiphany moment for me. Uh I you know at Fidelity we pride ourselves on being a crowd of curious people and uh people who don't uh shy away from new things and you know this has been a little bit of a cultural journey for me in the company over the course of my career but if we're talking roughly uh you know I mean we all know when when crypto really began But when it it started to kind of be something that people talked about that it was a little bit at least a little bit in the general media even in a way that was a less than accurate b um you know not necessarily positive. Um I don't know it was sometime uh kind of probably around I don't know 2011 12 you know because I remember in two it it was 2013 where we had a management group where we actually responded with forming a group because we there were just a bunch of people who were curious about it. It's like, hey, you know, we're just talking. We're hearing about it and, you know, technology is a big part of our business.

So, what's this new technology? And nobody we we couldn't we were all kind of as individuals struggling to kind of understand it. And of course, there's no place to really go to find out. So, we started having regular meetings to just try to self-educate about what this Bitcoin thing was. and how was it possibly going to play a role in the future of our of our business?

So, um, so that wasn't really a moment. It was just it was a process. But I think the thing that I I really distinctly remember was the more we talked about it, the more questions we had, the more we dug and the and the more the more we kept learning and more and more things made sense to us and that was exciting. Sure. So, so there was some kind of moment uh a few years into the beginning of the history of Bitcoin where there was energy at at the senior level at Fidelity around understanding this

and that's a big deal for an institution of your size and so you know when you decided to make that commitment what was it about the tech that you were so appealed by? So I was I was initially very drawn to this uh the security system. That was the first thing because you know as a CEO of a big financial company um a lot of the time people ask me you know what keeps you up at night and the CEO of every finan big financial institution has to say if not the first thing one of the first few things um a cyber attack and cyber security. So here was something that appeared and is, you know, incredibly secure. And people were really challenging the notion that something so simple could be so secure because in traditional financial companies, you've got mountains of complexity.

And to keep your environment secure, that's, you know, that's just reality. It's lots of years of different kinds of technology that have been built on top of each other. So, uh that's what what generates that and uh it takes a lot of of energy. So, I thought well maybe this will be helpful from from that that was the very simplest thing that grabbed me. But then pretty quickly the elegance of the reconciliation of the blockchain really hit home because again as a big financial institution you've got you're reconciling uh huge huge numbers of transactions every day and you've got again years of legacy technology that you've built up to be able to do that quickly and reliably.

Sure. No, that's such an elegant way to put it. And so, you know, as it stands and I think you had mentioned this before that there's just super interconnectivity uh across the financial system. And so, while we are excited about the advances that this space has made, we are also still very early. And so, can you talk a little bit about the some of the you know interconnectivity that exists in systems like yours that we would need to be thinking about?

Oh, yeah. So, we're talking trad maybe maybe I can back up just a spec because uh from your question to try to give a more complete answer. So, when we first looked at this, we we first really started thinking about sort of isolated discrete use cases where the blockchain could replace and I'm talking this is more than 10 years ago. this was how we were thinking how how can the blockchain replace legacy technology and that seemed really exciting. Um but we anyway what h we we quickly realized we had to move on from there and well not quickly it actually to pro it seems quick now uh at the time it took a while and there was a there was a revelation amongst this senior team of cohorts that thinking about building bridges between tradi and defi by was not only super important, but what was really exciting was that because at this point we had at least a handful of years of of work on crypto under our belts that as a big traditional financial company, we actually were in the best position to run into that

and and try to build those bridges to connect the old world and the new world. But I have to tell you, I mean, that that wasn't where it it was definitely not where I started. And it um but I think looking back on it, it was very helpful to us to have built that foundation of just looking at crypto and what was the potential of crypto and the blockchain and and how much of uh complete advancement it could be for our traditional system. You talk a lot about the use cases and I think that there were a good number of them. Uh dozens of them in fact

and so you know could you talk about a couple of them? What worked? What didn't?

Yeah. Well this you're going to like this one. Uh so those uh we had in the very beginning after that our initial working group I think we had 52 use cases and we had 52 use cases where we thought uh crypto the blockchain could be used in our business to meaningfully step up our game and we spread them around the company uh with different teams and we had lots of people who raised their hand who wanted to work on this because it was an opportunity to learn something new. Anyway, that that's another story. We can come back to that.

Um and so we worked on them for kind of 12 18 months and you know after about a year we started kind of bringing the reports back to really try to say okay we've been working on each evaluate each use case after that and um it was it was kind of disappointing and uh there was one only one use case that specifically happened and came through to fruition uh quite quickly.

And what was that?

Well, but you're gonna like the second one better. The first Well, the first one was to take donations for our charitable gift fund in Bitcoin. This was going back to the kind of the first big ramp up in when I don't know, I think it hit $100 or something. And um you know a lot of people who had were in at pennies on the dollar had made a lot of money and you know I think they were very grateful to have the opportunity to participate in philanthropy with um the good fortune that they had. So that that was that was actually a great story and it actually helped us get um kind of more connected with the community um and and lots of people in the community.

But one of our use cases was MUN bonds on the blockchain.

I do love that one.

And but that but we could we couldn't back then we just couldn't make it work. The opportunity seemed so huge because we have so many customers who so many customers who want to buy MUN bonds and it's such a fragmented market. it's very inefficient um compared to other things and we it was just a massive opportunity to do it better and we got into the the classic chicken and egg problems. Well, no municipalities are going to do it.

Well, look where we are.

I know. I know.

And I've got just the team.

If if we had only persevered Oh, that's okay.

For another 10 years,

but but we did move on. We did we did prioritize other stuff that went okay and we were never going to get all 52 use cases done. Anyway,

that's a good segue because government is slow and you come from a very highly regulated business and so uh I think a lot of this uh evolution of the space has been sort of waiting on uh more clarity around definitions of uh certain laws and and regulations from the federal government level. And so, but I I like your perspective on what regulation provides for the customer experience. As you know, we all very well know, Fidelity is a customer-driven organization. And so, I want to hear about those connections and how um some of that regulation and compliance efforts might actually help proliferate the space.

Yeah. So, I think um a couple things. I mean early days having people who actually even know what compliance is actually really beneficial

and for having you know virtually everybody in the company knowing that compliance is reality if you want to have any longevity uh was very helpful. Um so so that that made um that made a you know a big difference and I think um you know when you think about you think about financial businesses of all types in our country um some regulation is reality and there was if you go back to I don't know kind of the I guess the late 19th century I mean oh my god the financial system really kind gyated and was pretty crazy and I think not great for the general population. And then we had a lot of regulation that came in uh kind of in the late uh late 19th century, the early 20th century, particularly the first um half of the 20th century. there was a lot of foundational regulation that I think really helped facilitate customer confidence broadly

um across the country and and I think I think that was positive because people could put money places where they knew it would be safe. Um, you know, the second half of the 20th century, uh, you know, maybe, uh, more regulation without cleaning up some of the old stuff wasn't really, uh, so great. Um, the whole digital age changed lots of things in traditional finance. Uh, you know, forget, you know, getting to, um, cryptocurrency. And so uh anyway, I think it's good regulation.

It definitely helps customer confidence is the bottom line and that uh you know that is helpful. I think there are probably mixed feelings about that in the community. But I think now that the community uh has matured, people see that yes, it is good to have rules of the road. We can have fair play and and customers, even those who know very little about this world but perhaps want to learn, have the opportunity to learn and experiment without having to fear for uh unreasonable things happening.

We've had a few conversations this week about consumer protection and privacy and security and safety and I think that is often overlooked uh in many of these corners because of the exuberance of the space. Yeah. Yeah.

Uh but very important conversation especially from the government level in providing those consumer protections uh for consumers. But um you've talked a lot about community and you've got a lot of communities within Fidelity that are working on various initiatives. So you know coming from the internal research and implementation and the trial and uh success or or error um you know what what did that lead to? Uh because you've got certain divisions or new businesses that were formed out of those efforts.

Yeah. So uh in the early you know again I'm trying to put everything in perspective you know for a long time we had um all of the things the actual work that we were doing outside of studying use cases really in our R&D group and you know that was a natural because uh we have a whole group that just looks at cutting edge technology that was a natural place um people were actually surprised at the number of people that we had that were were dedicated to this. But it became clear to me uh that we needed to develop this. And so as we started to think about analoges to the traditional system, I started to use that as a basis for how to do our organizational structure around this. So coming out of the securities business um myself I you know the obvious analogy was to think about a brokerageoriented business and an investmentoriented business.

So I I'm I'm kind of skipping an important step here that I want to pause and fill in. Sure. when we had to when we got over the 52 use cases and we realized we had to prioritize because doing anything was a lot harder than we thought. And so we realized we've got to pick a small number of things and

just put our efforts on that and really focus. And uh one of my colleagues um said, you know, we really have to do custody. We should we we do custody of securities. We know how to do it. We should design custody for Bitcoin because lots of people while they might like to self-custody for lots of stuff, there's certain situations um reality sets in where you don't necessarily want to self-custody.

So we are in the best position of anyone to be the be an institutional custodian and that's we ran really hard on that. We launched that in uh 2016 and that was the beginning of our Fidelity digital assets business. So that that became the foundation of what I think of as the analog to the brokerage business for digital assets. Now keep in mind the regulators have been very um uh fixated although I think this might change uh in keeping securities and digital assets separate. You can't have them touch each other other in your operating environment anyway.

Uh but then the other side of things, we have people who want to give us their money and say, you know, would like you to manage a portfolio of some of the major currencies. Lending obviously is huge thing in this space, but the the actual way that you do lending is completely different, but the value that you're trying to deliver to the customer is analogous. So we set up a group in our investment management organization that was going to focus on product development and so we have those two different major groups that operate alongside our core business. In addition, we have the original R&D group known as FCAT.

And then we also have some crypto uh businesses in our um internal incubator which um uh has some so we have all those different areas. So it's kind of spread. So there's there's room for different agendas, different points of view. Um, and you know, I think that's been helpful to us to developing our community and our internal ecosystem. It's not like we have one, you know, blockchain division.

Sure.

Yeah.

Um, can we talk a little bit about product development? You have a number of products that, uh, are out. Uh I I know that you're offering them uh but not currently necessarily selling, but I want to hear about that strategy and um and how successful those products have been.

Well, the the core thing that you um are at least touching on is we we knew that the regulatory approval to do lots of different things was going to be uncertain and what it was. So we our philosophy was to technically work to develop lots of different stuff so when the regulators decided that they were warm to something we could be ready to go.

So uh having that product pipeline I guess would be the way to describe it was I think has helped us. um having that custody um basis was very helpful when it came to launching our ETP. So I mean I was we were all shocked how long it took for that to be able to develop and it it got hung up on you know a technical point that was a big point of philosophical debate at the SEC but you know

how long was that?

Oh that that that that was years. Yeah. Yeah. And because when um oh there was a whole lawsuit and you know then the lawsuit and then there's still foot dragging even after the lawsuit was run like oh my god no you know this is just crazy. But anyway, so finally, yeah, we get um a bunch of us uh launch ETF, ETPs and uh so that that was that was a big well our sorry our first big product launch was the digital assets custody business in 2016.

So that you know I think that was putting us on the map. Um and then the the ETP was really the you know that the next really big thing but of course that came out of the investment management uh division. Um technically we are very capable of offering um income and yield kinds of instruments to people but we aren't bringing those to market because we haven't um been able to navigate all the approvals. So,

uh, we've got a number there are other, uh, coins out there that we know are of big interest to people that, um, would like to launch too, but there's there's a lot of steps to to go through and um, yeah, so it's going to be a journey.

Yeah, it's a journey. So, that will probably hinder adoption. Uh there was, you know, some numbers out there, at least in the last goound of the federal election cycle, 50 million holders of crypto in the country and so and that was meant to affect voting. Um but you've got well over 50 million clients and customers of your own. Um so you're well in a position to affect adoption rates.

Uh but I suppose what you were just speaking to, uh the hurdles that you need to go through would would hinder that.

Yeah. So our our perspective is so as one of our core philosophies is we don't give people advice unless they ask us to be their adviser. So and and we're perfectly happy with either one. It's we as a business we do equally well either way. So um people um we have we have taken the position that we are not advising people on Bitcoin or any cryptoc currency uh to date and uh but we do offer a great easy relatively easy opportunity to own it if you do.

So, we've found that a lot of our customers call, take an interest, they have questions. We publish quite a bit of research through our brokerage um uh business on uh on the opportunities, how things work. Uh that's for people to digest at their own uh pace. So I think uh I think that will um that gives people the opportunity and and and I think that's that's kind of our core audience is people who want to be involved and but make decisions at their own pace and they find we often find people saying things like well I wanna I want to own a little Bitcoin and I I feel better doing it at Fidelity because I know you and I'm accustomed to interacting with you and I have um you know a relationship and it's easier to do it um in a consolidated way.

So it's back to that trust. There's a certain trust.

We we work hard I I don't actually use that language. We work hard at building our customers confidence.

Great. And that um you know we we feel like that is actionable and if we keep doing that more often that than not that means that people will keep coming back

right

so that's what we aim to do.

So I think that you know there's still a lot of awareness and education in the space that uh you know regular people I don't think understand what's going on here.

Yeah. The the one thing I worry about, and this is a an extension of what I worry about in our traditional financial system, is people keep coming up with new ideas, which is great, but they're so like I mean, our traditional financial system is so complicated. It's insanely complicated.

So sometimes when people say, you know, what is the core of what you do? I mean, we really try to make the complicated I it's we we can't make it simple, but we can make it manageable. And I think in um in this in the digital asset space there is a lot of complexity. And so trying for I think the the ecosystem of digital assets to keep their eye on how do we keep this manageable for people who are not professionals in this business so they can make sensible riskbased decisions that are right for them but without having to spend their entire life learning about it. Oh, that sensible, pragmatic, it's realism, and I think that that's a very important uh concept to insert in this conversation.

Um, I think that a lot of this space thrives on uh this quote unquote opium concept, which is people are watching numbers go up with the hopes of uh becoming wealthy through sort of speculative uh crypto play. But in any event,

we do remind people it's a volatile asset.

Again, very eloquently put. Yeah. Um so we um so tell us about the current state of play you know where are we today and where might we be going I guess in the near term.

Oh near term guessing I don't want to give you too far. Well, guess yeah. Well, the long I would say it all along the way I've been surprised at this and that's been the exciting part. But some of the things that I've mentioned the um you know realizing that connecting the new and old worlds was more important than we realized. Um and incre now you know regulation is really driving what is coming on the market uh versus what's not and we've got a fantastic team based down in DC that keeps a very close um ear on things what's happening.

Um, we do lobby. Um, we've lobbied, I think, on all of the the major, uh, bills and I think had a real influence. um uh maybe not the most influence of anyone uh for sure, but but we um we've worked hard to develop relationships with the lawmakers in DC who I have found increasingly receptive to conversations, even those that are skeptical, they're at the point now where they realize this isn't going away,

right? and they really they really do need to engage and and if they're skeptical I think that's okay because I take that as channeling the thinking of their constituents. So it's it's worth considering you know what what is making people skeptical. So

so how much I guess of the way are we there how early is this if you put

Oh I think it's still way early. I think there's there's a yeah of course I mean think about the world of technology in general and how much it changes uh our industry in particular I think because we're so we're so focused on reliability and security we you know we have a tendency to cling to tech things that work what we know is reliable and resilient and that includes technology ology. So that that's a little bit at odds with this.

Um you because you in our business you can't afford to mess up.

Sure.

You you can't afford to not have everything go exactly uh as your customers expect.

So this is Boston blockchain week. Uh we are doing our best to elevate this space as are you in your way from Fidelity. Um you've called Fidelity a talent destination.

Yes.

Uh I hope.

Yeah. That's what we that's our aspiration.

Well, what what are you looking for?

Yeah. So, lots of things. So, we love um everybody who is passionate about this space whether you went to school for engineering or computer science or if like me you were a liberal arts person like

I suffered from that too. They're all enthusiasm and curiosity and a commitment to understand our customers and what they're looking for and how we can help them get what they want is is what's key. And we're finding that at lots of schools. uh and we're uh there's lots of opportunities even even if you're just a little bit curious about this and are thinking well uh I I'm not sure it's exactly what I want to do now but I do believe maybe that that's where the world is going so I want to be in the space there's a lot of opportunity to come to Fidelity and not necessarily be full-time in this space in one of those jobs that I mentioned but be on the periphery of the space. Um, never mind all of the um support functions that need to go into supporting this space the same way they would with any other business.

And just informally, we founded something uh many years ago, me and a couple of other people, the Bits and Blocks Club.

Sure.

And so the Bits and Blocks Club sponsors lots of outside speakers who come in. We sponsor activities, events, networking opportunities. Uh, and anybody in the company is it we have a few of these clubs, but this was actually the original one. And the idea was to give people the opportunity to learn about a new space, even if it had nothing to do with their day job. So, you can come and participate in something informal like that.

um work in a a a staff function that supports this space, work in a traditional role that is working on some of the connection activity with the new world and ease into it that way. So I think that's one of the things that we offer that you're not necessarily only about digital assets um in a in a narrow way. if you come join us, it's part of a bigger system.

Sure.

Well, what a great opportunity. We've had uh many students here this week and it sounds like a great opportunity to work at a global financial institution where there's innovation actually taking place.

So, we uh we've got a couple minutes left and before this uh talk, we did crowdsource some questions. So, um if I might ask you a couple of them. Uh I I think we talked a little bit about this but one came in was you know what role do you think large institutions like Fidelity should play in shaping regulation in the US?

It's a little bit of a loaded question

okay

because large institutions have a way of wanting to double down on perpetuating at least some of the status quo

their core.

Yeah.

Yeah. That makes sense.

Um, kind of goes with the territory.

That's fine.

And so I think there and I think some of the um alliances in the business have I hope helped some of the smaller companies to have a voice. Um but there's also a lot of the companies who used to be small digital assets crypto companies that are now actually pretty big

growing to institutional level.

Yeah. that are so um uh I hope legislation will take input from all because we've got to continue to have have competition and that's that's what will move things along I think faster.

Absolutely. And we've already seen sort of what we've lost uh with government ignoring the space for a long time.

Yeah, it re really it that it was unfortunate. Um, if you could change another regulatory question. If you could change one thing about the current regulatory environment around blockchain, what would it be? We can pass. Uh, how do you see

that is way too hard?

That's fine. Um, how do you see we'll talk a little bit this this theme of the conference is where blockchain meets AI? We don't have to go too deep,

but how do you see blockchain and AI intersecting the future of financial services? I know that they're you you use a considerable amount already in your organization.

Yeah. Yeah. So, um, my knee-jerk reaction is, "Oh, whoa, these are two really different things." But when you one of the things that we've learned about AI is its effectiveness in a more digital uh application is way more successful and easier than in the old analog world. So I think it follows from that that AI will thrive in a in the digital native world,

right?

But as for putting them together that but we're there's a at least we still have a lot of work to do.

Okay. Noted. Um looking back, what moment convinced you that blockchain and digital assets were too important to ignore? Um that's hard to say because I always thought digital assets were really really interesting from the beginning. I mean that was that beginning.

This is just this is interesting. The more you learn the more you want to learn and the more questions you have. Um you answer them and they lead to more questions. So it's it's always been too interesting to ignore. So that's not exactly an answer to your question, but um but you know, I think it's I assume this goes for everybody in the room.

You just found this so interesting. You know, how could you not come to Boston Blockchain Week because it's such an interesting topic and you you want to work on it and bring it into your life.

Thank you for that promotional. That was awesome. Um do you have any final thoughts for us? You know, we've got many different people from institutions, startups, students here, you know, whether it's about continuing to work collaboratively with organizations like yours. Um you know, what can we do to continue to advance Boston as as a hub for blockchain, crypto, and digital assets?

I would love to see Boston as a hub for all of this activity. I think that uh one of the things that helped us really thrive in our core business was that we were here in Boston and there were um lots of other companies that were very similar to ours. And what we found is, you know, sometimes people say like, well, you know, someone can quit and walk down the street and get the same job. Yeah. Well, that's true.

But I think the posit that and that is a negative or a risk, but the positive of being a talent destination for an area that is exciting and growing makes it all worth it. So, I would really like to see more companies here uh and building their their bases here and and not moving elsewhere. That that will help us and um be great for the community, too.

Well, you've done great work so far and we will support you in any way that we can to continue that mission.

Well, thank you.

It is such a treat to have you here. Thank you for giving us your time and sharing your mind with us. Uh, please give a round of applause for Abigail Johnson. [Applause]