I am so excited to be here today, and I think perhaps many of us in this room are even fangirling a little bit. But so thrilled to be here to chat with you. And you know, for me, one of the things that's so great about this event is really seeing how it changes year-over-year and how, even from last year to this year and the year before, things are so different. And so I wanted to kick it off—I know you'll probably have some disclaimers—but I wanted to kick it off by asking you about sort of that change in how things have been and how that's been for you.
Well, thank you. And it's great to be here again. I do feel like we've been doing this for a long time, but I hope we can finally now say that we're making some progress. So that part is great.
I do want to start with my disclaimer, which is that my views are my own views as a commissioner and not necessarily those of the SEC or my fellow commissioners. That, I think, has changed a bit, right? That disclaimer has lost a little bit of its bite because I'm now on the commission with a chairman who is very much in support of trying to get us to a better place, and that's just really refreshing.
The work is not easy. I think all of you in the room know this. But we are making a lot of progress toward getting clarity. I really feel like when acting—then Acting Chairman Uyeda—set up the crypto task force, the mandate was, "Let's do it right this time." And so we have been trying to do the groundwork, which is gather a lot of information from people like you about what you all think we should be doing, where the problems are, clearly walking away from the regulation by enforcement approach. That's not to say that enforcement doesn't have a role. We all know that it does, but it really has to be after the rules are clear.
And then working on getting the clarity that we can through the authority that we have as the SEC already, also working to provide technical assistance to Congress as they develop legislation. And so I think this whole process has been—it's been a whirlwind of a year, but it's been also very encouraging to see all the good ideas that people have. Of course, we know we're not going to be able to make everyone happy. So I think next year at this time you all will probably be talking about what you like and what you don't like about what we've been doing, but I think it will put us in a better place.
Could you walk us through sort of your work at the crypto task force and really what you're focusing on, what your priorities are, all the things you've gotten done already this year, and what you're hoping to accomplish?
Yeah. So, we started out with some low-hanging fruit, I think, of saying some things that we see out there are not actually within our jurisdiction. Again, the crypto task force is a small group, but we're working with staff across the commission. So some of those early statements were staff statements from, for example, the Division of Corporation Finance just to say certain things lie outside.
The next piece of what we're trying to do is—you've seen some no-action letters come out. I think those can be helpful in just, again, saying here are some ways that you can do things that just are not going to land you in an enforcement action. But we are working on longer-term issues, and some of those relate to, for example, the big question of when is a token part of a securities offering. We've all spent way too much time thinking about Howey, but there is application of Howey in this space. And so we're trying to work on a taxonomy, which the chairman referred to in a recent speech, that will help people figure out where things fall.
And then the other thing we're working on is the response to or a way to actually come in and register, right? Before, there was this mantra, "Well, you can just come in and register with us. What's your problem?" We're actually trying to put out a possible path forward there for how people can come and register their securities offerings that involve crypto assets.
And then the other big piece of work that we have to do really deals with the trading issues, the custody issues. As you know, we've put out a no-action letter around investment advisor custody, but there are a lot of other custody questions to be answered. We've done a lot of work on exchange-traded products. We have generic listing standards out there, which I think have been helpful to just deal with the onslaught of applications in that space. And we're very interested in, as the chairman has been talking about, an innovation exemption which will allow people to trade tokenized securities. That's an area that's probably had the most interest once the change happened. There were a lot of crypto-native players, but also traditional financial players who wanted to come in and think about how to tokenize securities. So I guess those are some of the main areas that we're working on.
This is all very different from the regulation by enforcement approach we've seen in the past. And I'd love to hear from you sort of bigger picture and longer term, what do you really see as the big picture path to clarity for the industry? And how will we know we've succeeded? What are the things you're looking to kind of look back and say we accomplished?
I think we hear a lot from people who say, "Yeah, we're really happy with what the SEC is doing, but we really want long-term certainty that comes only through legislation." Obviously that's outside of our control, but if we can get a durable framework in place, I think that's good. We can do a lot toward the durability by getting regulation out the door, and so that is, for me, a marker of success if we're able to do some of this by regulation.
But also, I think a marker of success is just that people are able to experiment with different things, and then we can really let the market be the deciding factor on whether something is here to stay or not. And so that may take some time really to assess whether or not that's successful, but I think that's really what people have been asking for: just let us try this stuff, and let's see what flies.
And you're always, I think, so great about sort of talking about what the SEC is for and what it's not for, and what falls into the SEC's jurisdiction and what doesn't. As an industry, there's a lot of, "Okay, where does this fall? Is it under the CFTC or the SEC or other things for different types of activities?" And as an industry, how should we sort of navigate that, especially in sort of like an interim period where things might be passing around? Is there room for cross-agency guidance? How should we navigate that as an industry?
Yeah, I mean, it is a great question, and it really was brought home to me. I was in Ann Arbor at a conference on Friday, and I talked to a number of projects there. These are small projects, and that's been part of what we've been trying to do on crypto on the road is meet with some smaller projects. They're throwing out sort of what they're doing, and they're saying, "Okay, what do I need? Who do I need to go to, and what kind of relief do I need?" And the number of issues is just immense, right? There are tax issues, there are banking issues, there are state issues, there are SEC issues, CFTC issues, and it really is hard to kind of untangle where people even need to start. That is a little bit of a function of just the complexity of our financial and non-financial regulatory landscape. AML issues also are huge.
So I think we have made it very clear that we're working with the CFTC, and so where people have issues that cross SEC-CFTC jurisdiction, if you have questions, I think you should come talk to us. We are trying to work closely with our CFTC counterparts. Obviously, Mike Selig has been nominated for the chairman position, and we have a lot of familiarity with him since he's been working on the crypto task force this year, so that's a good connection.
I guess my advice is really come talk to us if you have questions about what you should be doing. We are very open to talking to people. We're open to working to craft relief that will work for people. It doesn't mean that you're going to get 100% of what you asked for, but we do want to try to figure out a way to let projects go forward. It is very hard in this interim period. I think there's no really easy answer, unfortunately.
As so many of these things go. And speaking of which, in the sort of important question of when and under what circumstances cryptocurrencies fall under SEC jurisdiction, you've put out a lot of really great thinking over the years, and I wonder sort of how your thinking on the substance has evolved and might continue to evolve as we're talking about things like network maturity and functionality, and really how you're addressing the substance of that all-important question.
Yeah. I think we've gone from a place where the chairman of my agency was saying that everything is a security to a place where the chairman is saying something that's much more along the lines of what I think, which is that very few of these crypto assets are securities. Now, I think with tokenization of traditional equities and other kinds of securities, we're going to see a lot more that are inherently themselves securities. But then you have the bucket of things that may be offered in a transaction that's a securities transaction. That's where the Howey test comes in.
I have been objecting to that for many years now, of thinking about things that way. But this really is a new application of the Howey test. No matter what other people say, I maintain that it is really a new set of facts to which we're applying the test, and we have to think about it afresh in light of the fact that these kinds of token sales are something new.
So given that, let's think about how it makes sense to apply Howey in this space, right? And what I think we see is people are out there, they're selling the tokens along with promises that they're going to build out a network. And so it makes sense to lay out those promises, fulfill those promises, and then the investment contract ends. And I think if we can do it in that way—and this is something that I do commend to you, the chairman's speech on his taxonomy as he's thinking about things; we'd love your reactions to that.
But I think this idea really could inspire people to behave in a way that is helpful for everyone involved, right? You're setting out what it is you're promising to do, you're doing it, you're done, then you move on. It's not to say that the issuer of the token will be uninvolved in the network after having fulfilled those promises. But at that point, it's functional, other people are contributing. If you're hit by a bus, the thing's still going to keep operating; you're performing ministerial functions. So I think that's sort of how we're thinking about things. Stay tuned for more clarity on this, but again, would love your thoughts and response to just this initial kind of thinking.
I'm super interested to hear personally, as someone working on Filecoin, how you're thinking about DePIN, about decentralized physical infrastructure and non-financial use cases, and really substantively how that is different or the same.
Yeah. Well, I think that DePIN is an area that really has a lot of potential. I think it's, for me personally, interesting to think about ways that you can coordinate human activity in a new way that you couldn't do before we had this technology. And so I think that because of the regulatory framework, DePIN hasn't really been able to blossom. But now that we have put out a couple no-action letters, I think people should start thinking about ways that they can make it clear, "This is a non-financial use. This is really intended to give people an incentive to participate in this network," and it becomes kind of the coin of the realm of the network. So for me, I think this is encouraging, and I'd love to see more projects coming in and talking to us as well.
And you know, as you talk and think through the substance, how does that tie into sort of the bigger picture principles that you have about sort of what the SEC should and should not exist to do?
Yeah, I mean, I am very much a believer that we should exist to do what Congress told us to do and no more than that. It is true that there are a lot of bad things that happen in the world, and often people will ping me and say, "Hester, there's this really bad thing happening in the world. Why aren't you doing something about it?" And my response is, "I agree it's really bad, but you've got to go find another regulator to deal with it because Congress didn't give me the authority to deal with this."
So I think it is important to remember that we've got a limited scope. Certain types of fraud are just not ours; we can't do anything about them. And then the other piece of it I would say is that we should be careful in terms of trying to grab jurisdiction from other regulators when maybe it's the CFTC's bailiwick, for example.
But the other piece of the limitation is that Congress really did not set us up to be a merit regulator. And so if someone is doing something in our space, we have not said that this is a good firm for you to deal with. We haven't said this is a good product for you to buy. We have worked with the product issuer on disclosures, but really we think that people are adults and they can make their own decisions. And I think that's really important for me personally. I'm certainly not a paternalistic regulator, and I don't think that's what Congress asked us to do either. So I think this really fits in with it of, let's let the market decide what lives and what dies. And I think, frankly, most of you would be happy if we lived in a world where we didn't see regulators trying to jump in and decide, "No, this isn't good for anyone else in the marketplace."
It is sort of ironic that as a non-paternalistic regulator, you have been dubbed Crypto Mom.
