Thank you so much for joining us. Since the leadership transition, the SEC has issued scores of termination letters to firms that were previously under investigation. Commissioner, how do you really know how to distinguish between cases that were truly meritless and those where the agency simply shifted its legal theory on what really constitutes a security?
Well, let me begin by saying I'm happy to be with you. I am speaking on my own behalf as a commissioner; my views do not necessarily represent the views of the commission or my fellow commissioners. I have long objected to the approach that the SEC has taken with regard to crypto enforcement. And so when the new administration came in and when I was appointed as head of the crypto task force, I very pointedly set about trying to start a new era for the agency with respect to crypto. That really involved taking a new look at how we had approached it in the past and trying to bring some legal clarity where there had been ambiguity before. And it was within the context of that ambiguity that the enforcement actions had been brought. I think there was a lot of, in my view, confusion caused by the position taken that most crypto assets were securities. There were statements along those lines and I think that was reflected in a lot of the enforcement actions as well. And so there were registration violations flowing from that: if most crypto assets are securities, why weren't they registered or why weren't they availing themselves of one of our exemptions from registration?
And so from my perspective, of course, facts and circumstances matter. You've got to look at the facts and circumstances of each case, but it's not helpful to pursue enforcement actions based on registration claims that are based on sort of a misunderstanding of what the underlying asset is.
So, Commissioner, recently Chairman Atkins has launched a project to redraw essentially the lines between the SEC and CFTC. As the leader of the crypto task force, how are you really ensuring that this isn't just a temporary truce, but a permanent, legally binding taxonomy that really provides certainty for the next at least decade or so?
I think there's real intention on both sides. At the CFTC, with the new chairman Mike Selig, who was working here before, there are close ties. And then with Chairman Atkins as well, there is real intention to make good progress in harmonization, not only in the crypto area but across the board. There are many instances in which the jurisdictions of the two agencies run up against each other, and as the chairman has said, it becomes sort of a no man's land where there are products and people don't understand which regulator is responsible for regulating those products. And so putting down some markers now and establishing some practices where the two agencies talk and work together regularly, where the staffs work together regularly, I think those kind of patterns, if we establish them now, can have a lasting effect and will help to change the nature of the relationship between the two agencies. We should work together because we both have limited resources and we want to make sure that we're using those in a way that makes the most sense. And as new products develop, it really does help to have conversations with the product issuers early on to figure out where the regulatory lines should fall. And I think we'll see that that works quite well. And I think that can in and of itself be a reason for this kind of mechanism to outlast this administration and these two chairmen. And then also with Congress, they're working on the Clarity Act, and with the legislation coming on board, that also can help to sort of cement some of those working relationships. And so I'm quite hopeful that we can continue this.
And just following up here, Commissioner, you've recently advocated for an innovation exemption to allow firms to experiment with decentralized protocols. Now, historically, the SEC has been a bit wary of sandboxes because they can become permanent loopholes. How do you prevent these exemptions from becoming a get-out-of-jail-free card for companies that have no intention of ever reaching full compliance?
Yeah, as we've outlined the innovation exemption, and there may not, as we saw last week or it was two weeks ago now, I forget, but there was a speech that Chairman Atkins and I gave together where we talked about an innovation exemption. And I think if you look at that, it's very clear that we're trying to address the new technology, address the desire of people to bring tokenized securities into the existing financial landscape. And the innovation exemption would allow people to do that in a way that is limited. But the goal is to get to a place where if the markets decide they like tokenized securities and they want to trade tokenized securities in some of these new environments, then we need to get to commercial viability. And so there's no point in having firms try something without looking toward a longer-term, permanent way for them to do it in a commercially viable way. And so that's the goal all along. The goal will be to get to a long-term solution, which is a regulatory solution with appropriate protections, both investor protections and protections for the integrity of the market. And so that is the goal of trying things like this. There are a lot of very difficult legal and technical questions that have to be answered. And so I think trying to do it through an innovation exemption makes sense. And then just one point, we have often used tools to allow people to try different things. We have a lot of regulations in the United States around the securities markets, but Congress also gave us a lot of authority to exempt people or activities as appropriate with appropriate conditions. We also, the staff routinely issues no-action letters to say that if someone does something according to a set of conditions, the staff will not recommend an enforcement action. And so those mechanisms allow people to try things as well.
And Commissioner, the Genius Act officially designated payment stablecoins as non-securities under banking oversight. However, the SEC still maintains kind of a narrow rule. Could you clarify the exact line where a stablecoin crosses from a payment tool into an investment contract under your task force's new guidelines?
I think that we have a long history of having money market funds at the SEC, and whether they're tokenized or not, those are products that we regulate. So money market funds are already tokenizing, and I think that's clearly an area that's within our remit. The Genius Act identified payment stablecoins, which were never something that we, in fact, we had already put out a statement saying that we did not believe that stablecoins, the staff put out a statement saying stablecoins were not within our remit. So I think that's fully in line with the Genius Act approach.
You know, with the new law, we're seeing a surge in yield-bearing stablecoin offerings. Now, does the Securities and Exchange Commission view these as traditional money market funds, or are you carving out new safe harbor registration paths specifically for digital-native yield products?
We look at the facts and circumstances of each asset, and that has to line up with where we are. So I can't give you a blanket answer to what's covered and what's not, other than to say that we just look at the facts and circumstances. And money market funds have been around for a very long time, so people are quite familiar with what they are and how they work.
Yeah. And you know, the critics of the SAB 121 reversal argue that it hides unseen risks in the banking system. So what is your response to those who say we're simply inviting the same rehypothecation risks that led to the 2022 collapses?
Well, I think that SAB 121 was an SEC staff statement about accounting treatment, and it had the effect of making it financially, commercially impossible for some custodians to come into the marketplace that otherwise would have. Now, that was something that early on in this new administration, that position was reversed, and that's what you're referring to with the new SAB. And the goal there is not to say who should or should not be able to be a custodian. It's just to say we are not going to take an accounting approach that is designed to prevent people who are traditional custodians from coming into the market. It's then up to them, and of course their regulators will have a look at what they're doing, but it's up to them and their regulators then to decide whether and how to participate in this custody of crypto. But as with many aspects of crypto, people can make their own decisions. If you want to self-custody, you as an individual are able to self-custody, and that is something that we should definitely protect. We meaning we at the SEC, but also more generally, the law should protect people's ability to hold their own crypto assets. A lot of people will decide that they want to use a third-party custodian, and that's fine. And we want to make sure that there are safe options for them to do that. There are unique aspects of being a custodian of crypto assets. And so we want to make sure that nothing we're doing on the regulatory side is leading people to worse custody solutions than they would otherwise have. And so that's really our focus. And then it will be up to the market to decide who serves as a custodian for which assets.
And then also with the implementation of SAB 122, major US banks are finally custodians of digital assets on a large scale. Now, while this brings institutional stability, it also tightly couples the traditional banking system with crypto volatility. Are you then concerned that by removing the balance sheet hurdles, the SEC is inadvertently setting the stage for a new kind of systemic risk that we aren't really equipped to monitor?
You know, crypto asset markets are quite small. And so I think that's one thing to bear in mind. But I think the second point is that risk management is something that financial institutions spend a lot of time thinking about, and I don't think that we should attempt to override their risk management decisions. We're not a systemic risk regulator. That's not the SEC's function. We're a capital markets regulator. Banks, to the extent that they are engaged in custody activities or other activities, frankly, they are subject to regulators of their own, and those regulators work with them on monitoring these things. And then more generally, we have the Financial Stability Oversight Council, which keeps an eye on systemic risk issues. And if there are issues that are posed by banks custodying crypto assets, that's something that the FSOC can look at. There are many assets that are volatile, and institutions are experienced at handling volatility. I think everyone ought to be careful. No matter what asset you're buying or holding, whether you're holding it for yourself or someone else, it's something you have to be careful about. So I just think some of the traditional lessons that we've learned through problems in the past can be applied in this area as well. But the answer isn't just to say, well, everyone should just stay away from this asset class because it's volatile. People have to make their own decisions based upon their own hard work to figure out whether or not this is an asset class they want to be involved in, whether it's owning it yourself or holding it for someone else.
