SEC Chair Paul Atkins and SEC Commissioner Hester Peirce in Conversation

Hello. Hello. I am so excited for this next conversation. And so we get to give a warm welcome to SEC Chairman Paul Atkins and SEC Commissioner Hester Pur. And a bit of fun information.

This is actually the very first time Paul Atkins is addressing um anybody at a major crypto conference and making an appearance. So, let's make sure it's the best one and the first one.

Thank you. Thank you.

Good afternoon.

So, I'm honored to be on stage with um Chairman Paul Atkins. Before we begin, I've got to remind you, I've got to do the disclaimer. Um my statements and his are our own in our official capacities. They don't necessarily reflect the views of the SEC. Certainly don't reflect the views of the former SEC and um they don't necessarily reflect the the views of our other commissioner Mark UEA.

Chairman Atkins needs little introduction, but I'm going to give you a brief bio for him. Um he is the 34th chairman of the SEC. He was sworn in on April 21st of last year and he had been at the SEC before. Um, prior to his return to the SEC, he was the CEO of PTOAC Global Partners, a consulting firm, and he previously served as a commissioner, which is when I first met him and actually worked for him. He was a commissioner at the SEC from 2002 to 2008.

During his tenure, he advocated for transparency, consistency, use of economic analysis at the agency. He began his career as a lawyer in New York where he focused on a wide range of corporate transactions for US and foreign clients. He was a resident in the firm in his firm's Paris office and he's a member of the New York and Florida bars. He got his JD from Vanderbilt University School of Law and his uh his his bachelor's degree was from Wford College. He is originally from Lillington, North Carolina, but he grew up in Tampa.

He and his wife have three sons. All right, so now you know a little bit about him. But one other interesting fact about Chairman Atkins is that he's fluent in both French and German. Um, and he's apparently looking for another language to add to his repertoire. So, I suggest solidity.

What do you think of that idea?

Well, uh, no need, Hester. Thank you very much. Um, uh, u, vibe coding I think works just fine, and I think it's a big step up for me from learning basic plus and cobalt back in college.

Fair point, Mr. Chairman. You're you're you're with the times here with your vibe coding. But if um the smart contract that your AI agent writes for you starts saying that everything is a security, we're going to sus suspect AI hallucination. A few years ago, if someone had told me that I would be standing here with the chairman of the SEC, I would have told that person that he was hallucinating.

But we are here. So let's get to some substance. Um during the past year, the SEC under the leadership of Chairman Atkins and and before him, um acting chairman UEA, who stood up the crypto task force, um we've taken a lot of steps toward trying to get to better clarity for for those of you out there who are trying to build in this space. Um so, let me just go through quickly some of the things that we've done. We've sought and received written responses to multiple sets of very difficult questions.

A lot of you have been very gracious in answering those questions. We've held a number of in-depth um roundts on discreet topics including what is a security um in the crypto world, trading, custody, tokenization, DeFi, and privacy. Um we've met with lots of developers. We've done that in DC, but also have gone on the road and met with people in smaller uh roundts across the country. We've provided technical assistance to Congress.

As you all know, Congress is working on the Clarity Act. Um and it also got the Genius Act done. So we've we've worked on those issues. Um we've launched a new initiative with the Commodity Futures Trading Commission to build a lasting basis for coordination and cooperation in crypto and other issues. We've tried to end regulation by enforcement.

Um we have issued multiple staff guidance documents and frequently asked questions to help people understand what the SEC thinks, which is something that we were trying to hide before. Um, and we've tried to help people understand what's in our jurisdiction, what's not. We've issued statements on, these are staff statements typically, but on issues like mining and staking, memecoins, and stable coins. Um, we have gotten rid of unhelpful staff guidance such as SAB 121. Um, published a staff statement on the custody of crypto asset securities by broker dealers.

We just issued a cross-divisional staff statement on tokenized securities. We've approved generic listing standards for ETPs um with crypto in them. We've issued staff no action letters on various things including tokenization and DPIN. And we've begun the process of um really trying to come up with some rules that will be longerlasting. So, Mr.

Chairman, can you give us a preview of what to expect this year on the crypto regulatory front?

Oh, well, sure. Um and that's quite a catalog that uh you listed there. So, we definitely do have a lot on our plate. Uh, not only are we going to continue to engage with Congress on important efforts, but as you noted, Hester, we will move forward with our regulatory work through Project Crypto, which is now a joint initiative with the Commodity Futures Trading Commission. Uh, as you all know, one of our own uh fellow named Mike Seelig is um whom Hester uh brought uh to the SEC as chief counsel of the crypto task force in my office is now the chairman of the CFTC and we're planning great things together.

I'm happy to say harmonization, joint rule making, and really a common coordinated approach unlike anything anyone's ever seen before at these two often sparring agencies. So, as for the SEC, I expect the commission and staff um in the coming weeks to consider uh you know, some of the some of these things here. uh uh framework to explain how we think about crypto assets that are subject to an investment contract. So how is such an investment contract formed and how more importantly how is it terminated? It doesn't go on forever necessarily.

An innovation exemption to facilitate limited trading of uh certain tokenized securities on novel platforms with an eye toward developing a long-term regulatory framework. a rulemaking proposal to establish common sense pathways for people to raise capital in connection with the sale of crypto assets. No action letters and exemptive orders to provide additional clarity including to address wallets and other user interfaces that are not subject to registration under the Securities Exchange Act. rulemaking on custody of nonsecurity crypto assets including payment stable coins by broker dealers, a transfer agent modernization rulemaking which will accommodate the role that blockchain can play in recordkeeping and finally additional guidance and no action letters to help people understand how existing rules apply to their unique factual circumstances. So that itself is in the coming weeks and months is uh going to keep us busy.

That does sound like a lot of work, but um for securities nerds like us, we like this. It's like our version of the Olympics. It's nearly as exhilarating as hurdling down a mountain at 80 miles an hour and then doing acrobatics as we jump off a ski jump or doing bath back flips after a quadruple luts on the ice. Um, we're not quite as dramatic as our talented Olympian Olympic champions, but we do have an unusual opportunity to consider many complex regulatory issues in light of the new technology um that we have before us and that you all are involved with. So, this task will require us to do some acrobatics.

Um, but we're not looking to hurt or break anything and um, the only thing we really want to get rid of is unwarranted regulatory impediments to technological progress. I want to talk for a minute about an innovation exemption which has inspired both hopes and fears that uh, both of which may need some moderation. Um, the pe the way people talk about the innovation exemption sometimes reminds me of the expectations that people have when they buy a storage locker. you know, you can buy abandoned storage lockers um and and you buy it not knowing what you're going to get in there. Um but you know, you of course think that you're going to get that rare piece of art or you're going to get a trunk full of gold bars.

Um and so I think people are certain that the innovation exemption is going to also cure all their regulatory headaches. And then some people in Tradfi think that it's going to um contain this this soon to be opened storage unit is going to contain some sort of monster that will swallow all of Tradfi with one big ugly bite. Um they fear that the imi innovation exemption will let crypto firms just ignore all the rules and both groups are likely to realize that they're wrong. Um, the exemption is not as monumental as either faction anticipated it would be, but it is an important step toward facilitating the the safe integration of tokenized securities into our existing financial system. Um, we're not planning to make wholesale changes to the financial system overnight.

Um, but we are working in incrementally now as we've always done. The goal is to facilitate the organic incorporation of new technology in a way that enhances the dynamism and resilience of the system so that it can serve investors, companies, and others um effectively. So Paul, can you describe a little bit more of what you have in mind with the innovation exemption?

Oh, sure. So I'd like to consider an innovation exemption to enable tradi incumbents and cryptonnative firms to experiment. And so that is was a surprise I think to some of the Tradfi guys at a meeting um here recently in my office when they asked me is this open for anybody I said yes of course it will be. So anyway so I think you know this is for you know to help innovation you know really sprout forward uh without fear of being shut down. So for example, people taking and trading certain tokenized securities through automated market makers even though no one person or group of persons may be controlling that mechanism, you know, is a good um place for this under that innovation exemption.

And in my view, market participants should be able to engage with decentralized applications on public permissionless blockchains if they desire. But I expect that many Americans will be more comfortable allowing intermediaries to custody and trade on their own behalf. And so it's a user choice there that individual investors, not the SEC, should make that decision for them. And I also would like to consider whether there should be a safe harbor for participants who may be facilitating such trading. So specifically, I'd like to consider how issuers that want to tokenize their securities could work with a transfer agent or other tokenization agency to tokenize their securities so that they can be traded onchain in AMMs or other trading systems, environments or platforms that offer decentralized liquidity.

So under this possible approach, the innovation exemption would limit trading volume and could provide relief from some of our rules uh and certain other requirements that may not be relevant to these particular uh uh enterprises in light of how this technology works. So buyers and sellers of the tokenized securities would go through a whitelisting process. The exemption would be temporary and cabined, but it would last long enough for us to consider developing new rules and amending existing rules to allow that sort of trading to continue under appropriate conditions in the future and to enable any parties that need to do so to register with us. So, I would certainly welcome feedback on this potential approach uh from those of you who are interested. Thank you for that peek into the storage locker.

It's uh no Picassos in there, but also no scary monsters, just an incremental step from which I think market participants can learn, and it may help us to get to a fitforpurpose long-term regulatory framework. Um so you and I have both had the opportunity to see some demos. We we're pretty limited in how we can use this technology ourselves, but we're able to get some demos. Um and and so I'm curious what what if anything has struck you about um those demos that we've had an opportunity to see?

Yeah, it was pretty interesting and some of these haven't hit the marketplace yet. So that's a real good peak into the future. But one interesting aspect of the technology is the ability to embed compliance into the smart contracts code. Um, a company's founders, for example, could code their commitment not to resell their securities for a certain period of time into that smart contract governing the tokenized securities. Likewise, we can reimagine communications between issuers and their security holders through uh the use of uh distributed ledger technology and privacy perverting preserving technologies such as zero knowledge proofs can revolutionize how we achieve the goals of the bank secrecy act.

Under this model, Americans wouldn't have to relinquish their privacy wholesale to financial institutions, and these intermediaries would have lower compliance costs in return.

Well, to me, that sounds promising. I worry a lot about how embedded financial surveillance is in our financial system. Um, Americans have an opportunity to use this new technology to protect themselves from bad actors while also protecting our nation from our adversaries. We should take advantage of this moment, I think, to reacquaint ourselves with how important financial privacy is to the security of of the American people. Okay.

So, now let's turn to the elephant in the room. What do you think about the falling crypto prices of late? Is it time to focus our attention on this issue? Should we panic or should we even care?

What has something happened during lunch that I don't know about? No. Um, but uh I I basically view it it's not the regulators job uh to worry about the daily swings of the marketplace. It's our job to make sure that market participants uh have the disclosures that they need to make informed decisions. So people's whose people whose only focus is on the number always going up are likely to be disappointed whether they're buying stocks or precious metals or crypto.

Markets go up and markets go down in response to many factors. As regulators, the best thing that we can do is to ensure that the rules governing the asset classes that we regulate enable people to have the information that they need to express their market sentiments through decisions about whether to buy, sell, or hold the assets at issue.

Yeah, I agree. Number go down is kind of the mantra of the moment and some cryptocritics are dancing in the streets about it. Um in German we would call this reaction shodenfroa um which translates as something like happiness about destruction someone else's destruction. Um in this context however maybe we should call it something like ETH below three three glee or um ETH below two woohoo or uh Bitcoin under 70 levity. Anyway, I'm sure they'll come the Germans can come up with something there.

But the best way I think to respond to these critics is not to look around desperately for some regulatory change and assume that um that change is going to cause the number to go up again. Sure, regulatory clarity in the form of legislation and regulation is something we're working very hard for and we think it can help create a conducive environment for building. But regulation is not the well from which value springs. You have to build stuff that people want and need. That's the best way to garner support on both sides of the aisle in Washington.

If people are actually using something, it's much harder for government to uh take it away from them. So, Mr. Chairman, can you share some lessons for your many from your many years of of working in the capital markets about how innovators can successfully engage with the regulatory system?

Uh yes. Well, I agree with you that uh building useful things that uh people want and need speaks volumes in Washington among the politicians in Washington who don't understand this technology. So, but the technology if developed carefully could have a transformative effect on the financial system as securities move on chain. Tokenization could transform the financial system as we know it by, for example, shortening uh settlement cycles, facilitating the move of collateral and dividends, facilitating proxy voting, or making it easier for people to construct and manage bespoked diversified portfolios of investments. So, we stand ready to work with entrepreneurs who are building for that better future.

But I have to repeat an oft mocked uh phrase from the last administration, but come in and talk to us. Um we will not put our thumbs on the scale in favor of any particular asset or technology, nor will we become your spokesman, but we want our markets to be open to people offering new products and services. Our rulebook should not be a barrier to information to innovation, but it should be a way to further our objectives of protecting investors, facilitating capital formation, and fostering fair, orderly, and efficient markets.

Yeah, I think you've captured that balance well. We're not cheerleaders of any new asset or technology, but we want our markets to welcome people who have ideas about how to improve those markets. The SEC has not always been very welcoming as as uh you know um regulation if done wrong can deny the American people benefits they otherwise would enjoy from new innovation. For example, an unwillingness to work productively with issuers of tokens led to the perverse result that many tokens gave no meaningful rights to their holders because they would those tokens would be um if you gave rights you'd be more likely to get regulatory attention. So now we live in a world in which um most tokens don't give their owners rights and I'd like to get to a place in which project developers would not fear to create tokens that carry some claim on revenue streams and thus might be securities.

Um Paul, what would it take to get to a place where people could create tokens that fall unashamedly into the securities bucket? Yeah. Well, I think first of all, we need to continue to do what we're doing, providing clarity as much as we can about how tokenized securities interact with existing regulation and then how intermediaries dealing with tokenized securities can trade and custody them on behalf of their clients. This work can be done uh in a collaborative fashion and we welcome input from everyone even crypton naysayers who are fully immersed in their shot and pha. Um, I encourage people in the audience uh to think about what attributes a token should have to make it useful to people and then to work with us on a regulatory framework that accommodates these attributes without compromising our important regulatory and statutoily imposed objectives.

But you know, frankly, this process will take time and innovators shouldn't necessarily wait for these changes before they start building. While we have these bigger conversations about whether fundamental changes should be made to our rule books, talking to us to see if there's a way to make the current rules work under your particular facts and circumstances may be a necessary and much needed intermediate step. Yeah, thank you. Um, Mr. Chairman, you're known for your good cheer even in the face of uh difficult circumstances.

Any words of advice in closing for an audience that is in the throws of a challenging crypto market?

Yeah. Well, uh, first, like anything else from Olympians to crypto designers or whatever, you know, put your nose to the grindstoneone and work to build things that really matter to people and are useful to the marketplace. But that's how you transform shoden frea into freeden frea as the Germans would say a joy of of sharing in other people's happiness and and their success. So a little dark chocolate and a diet coke or diet Pepsi uh might help too but go easy on the Celsius and the zen.

Thank you Mr. Chairman and thank you to all of you. Um I appreciate your attention.

Thank you. I think.

All right. All right. Well, before you guys go, I was told that we're going to have a little bit of time to do some community questions. Great.

Sure.

Sure. Perfect.

You guys ready for this?

Before I do,

probably not, but

I'm going to be nice. I promise. Um, before I do though, this is Ethan's ninth year. Would anybody have believed that we would have the chairman of the SEC and a crypto task force, project crypto is so I've actually when when he says come and meet with us, I have twice been in DC at their offices and it is a little weird because you walk in and you're like, I don't know what to ect. But then they actually want to talk to you that a year

and we didn't show you the interrogation chambers down in the basement.

Well, no, they showed me that, but they, you know, they just warned me about that. You know, you just be careful what you do or else. No, in in all seriousness, thank you to the SEC. Thank you from our community to you for actually taking us seriously because I think their last administration, we won't mention names. Um and Commissioner Pur, you were a part of that.

The first question

is

I bear the

you have served under multiple chairs. What's it like going to work today versus say 23?

Well, I'm actually very happy that you asked that question because I will say I mean I think you all um probably understand somewhat the magnitude of the change, but it's just been dramatic for me. I mean those years in which the SEC was taking the SEC and other regulators were taking an approach that was crushing um to people who were who were trying to build interesting things. Um, it was crushing to me from the inside to watch that happen because I I felt like so much time and energy was going into reading regulatory tea leaves and then ultimately fighting um uh regulatory battles in in in the courtroom um that could have been spent on better things. And so when Chairman Atkins um joined the SEC again as chairman, it was just a complete change um from from what it had been during most of my time at the agency. Um there's someone who has a sensible approach to regulation.

He cares about um a regulatory framework that does meet our statutory objectives, but at the same time um enables people to to do things. we serve the American people and that's always how he approaches issues and so I feel uh a much much pier much more pep in my step as I walk in the SEC.

Right. Well, and for me uh I have to add I salute everything that you've done over the last several years. Um but for when uh the president uh you know told me that he wanted me to go um to do the uh SEC I thought this was like a dream come true because it's putting the band back together because Esther Perks and Mark ua were my uh council to my council back in the there O2 to08. So it's great to be back working together and solving real problems in the marketplace and then vaultting us ahead um and putting America at the forefront of progress. So, one more question and I think we're running a little behind, so we're going to try to cut it down to one more.

Uh, so President Trump has promised to make the US the capital, the crypto capital of the world, and that seems to be a pretty prevailing mandate in many corners of the administration. Um, that success looks often like quantitative terms, GDP growth, job growth, wealth, etc. But in terms of web 3, we tend to be just as concerned with qualitative metrics like alignment, creating win-win outcomes, positive sum games, connecting profit and purpose, and in qualitative value considering the SEC's regulatory approach, and if so, how do how does this community, crypto community actually engage with those efforts as it pertains to your regulatory approach?

Well, I mean, I think we want to hear from you. as the chairman said, come in and talk to us about what you're trying to build. I think what we're trying to build is a regulatory framework that allows you to pursue your dreams, right? And I think um the the vision of of web 3 is the idea of breaking down um unnecessary intermediation, breaking down um uh unnecessary, you know, where there's been a lack of democratization, bringing in democratization. And so we think very much that we can create a regulatory framework that allows that to happen and also allows people who are building real things again emphasis on that um to to benefit from what they're building and also to for their users to benefit.

Yeah, I agree with that and I'm not one to be afraid of the future. I think when you look at what's coming together now. So here we've, you know, we're addressing the crypto aspect which is you know a battle that should have been fought 10 or more years ago with but you know for many reasons of course wasn't but uh now we're at the cusp of solving that but at the also at the confluence of now AI the huge advances that recently are in there and we don't even know what's going to be here in you know just a couple years as well. But um the exciting thing for me is to you know we have an opportunity now to to build a framework that is lasting but we have to futureproof it. Um because we cannot have backsliding and anything could happen and you know future elections but we have to seize the moment now to make sure that we do have this um our our framework and our rules futurep proofed as much as possible to really cement it in.

And legislatively, there's some concern that clarity may not make it through. I know there's a lot of optimism here. Um, we had uh Chris Lan from Senator Lisa's office here this morning and he's very optimistic, tired, but optimistic, doing the good work. Let's say, for example, in in in the worst case outcome that we don't get it this year, it's a, you know, it's an election year. What is the SEC's plan for that?

Uh well I mean we're so I I think it will happen. Uh and so I do too but let's say it didn't but right so whatever if it doesn't um as I mentioned Mike Celig is at the CFTC great guy. we see eye to eye and for us to mesh the two agencies and so we can we're we can draw these uh lines as between the two agencies and where there's um overlap or uncertainty we can work it out between the two agencies and we can set a pattern of uh of actually harmonization working together in our rule book in uh you know okaying uh uh uh uh agencies or or facilities and and market to participants on either side of the securities or the commodities uh side but let them overlap and why don't why can't we have substituted compliance you know a super app type of thing so that people aren't so concerned about oh am I tripping over one line or another so that's our vision I think we can develop that we need a statute to undergard those efforts so that um you know we won't have backsliding in the future um but uh you know I think once we show the uh show the way to go and and show that it is realistic and put it into place it will be sustainable.

Round of applause guys.

Thank you all so much.

Thank you very much. Thank you.