I think that'll be a big piece of what the SEC works on once it carves out things that aren't within our jurisdiction. Thinking about, okay, how do we help crypto technology and crypto products and services to be integrated into the financial system, but in a way that doesn't just say we're only going to let the incumbents play in this space.
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Welcome into the Thinking Crypto podcast. I'm your host, Tony Edward, and my guest today is SEC Commissioner Hester Peirce. Commissioner Peirce, great to see you. Happy New Year.
Happy New Year, Tony. It's great to be back with you. I've got to start, of course, with my disclaimer, which is that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners.
Commissioner Peirce, a lot of folks are excited about the new year 2025. Lots of changes in government, lots of pro crypto initiatives and folks looking to get regulatory clarity and legislation and all these things in place. But I would love to start with incoming SEC Chair Paul Atkins. You spent some time with him, worked with him and so forth. Tell us, maybe you could take us behind the curtain. What's he like? What's it like working with him and his view on the markets?
Yeah, so I did work for him actually here at the SEC and that was from 2004 to 2008. I was one of his counsels, and he had been a commissioner for some time before I started working for him and was always someone whose approach I admired. He is a very careful thinker. He thinks a lot about how markets work, what the function of regulation is and how the two of them interact, and tries to think down the road about what unintended consequences might be of regulatory decisions. He really likes to think about things from an economics lens, too, and a practical lens. And he's just a wonderful person to work for. I mean, I learned a tremendous amount from him because of the way he approaches problems. He is very, very hardworking, but loves people, too, and loves to talk to people and hear what people's experiences have been with the agency. And he loves to work with the staff at the agency. So he was a wonderful boss, and I'm really looking forward to having him come back to the SEC. I think he's the perfect person for the job. He has that deep experience with the agency, but also an appreciation for trying to make the agency more nimble and respond better to new technologies, new products, and I think it'll be a really nice new era.
And over the years, I've seen him talk about crypto. He's been on various podcasts, and he's done some interviews. Do you think that his experience with crypto and kind of seeing how things have been going over the past four years with the previous administration, that we might be turning a new leaf here as he comes in?
I do. I think he's someone who, when he sees a problem, wants to take a proactive approach to solving it. And this agency is, as you and I have talked about in the past, has not acquitted itself particularly well with respect to crypto. And that's something that really does need to change. And I think that he's the perfect person to bring about that change and to diagnose the problem and then help us figure out some practical solutions. Now, of course, some of crypto will not be within our remit. And so I think even providing clarity to say there's some things that are not within our remit will be helpful to people. Some of it will be working to bring the technology into the financial markets that we regulate. And I think he'll be good at that too, because he has such a deep understanding of the markets.
Yeah, for sure. And, you know, in the long term view, with tokenization, it seems there's a merging of tradfi and crypto here with these traditional assets going on the blockchain. So to your point, maybe with his experience going back to 2004, seeing the growth of the equities market and stock market and so forth, and now that's coming on blockchain, maybe that's really great.
Right. I think that'll be a big piece of what the SEC works on once it carves out things that aren't within our jurisdiction. Thinking about, okay, how do we help crypto technology and crypto products and services to be integrated into the financial system, but in a way that doesn't just say we're only going to let the incumbents play in this space. You know, part of what I think is exciting is seeing the competitive landscape change and seeing new entrants come in. And I know from working with him before that that's something he really cares about, is keeping barriers to entry low so that new players can come in and offer products and services. So I think it should be a dynamic marketplace with a solid regulatory framework. That said, all of this stuff can take time. This has been many years. Bad crypto policy has been many years in the making, and undoing it will take some time as well. But I certainly, it's something that I intend to work toward in the next months and years.
Yeah. And one of my questions I was going to ask you is, how does the SEC, I want to make sure I use the right verbiage here, repair some of the reputational damage it has taken over the years, because I'll give an example of anecdotal. For me, I've heard of the SEC over the years, but over the past four years, my view of the SEC and not you specifically, and some of the folks there, but just as an agency, I'm just like, what is going on? And I have an anger towards the agency, like, what are they doing? So how do we fix that? And I'm not the only one who feels that way.
Yeah, well, I think we do have to address that problem. And one way is to say, you know, we really do intend to approach this area differently. And I think a lot of the, well, there has been frustration with the agency and anger with the agency, not only with respect to crypto, there have been other areas where people have been unhappy with the way that we've been dealing with things. But just to focus specifically on crypto, I do think we have some reputational repair work to do. And that really, I think, comes by saying, look, it is a new day. We are going to try to take a new approach to solving the problems here and providing regulatory clarity and then showing through incremental steps that we're actually fulfilling those promises to try to take a new approach. One thing that we've talked about in the past is the SEC structure is unusual in Washington. There are some other agencies like us that are commission based, but we are a commission where the chair has authority over the budget, the staff and the agenda. And so when you have a new chairman coming in, that can all change. Of course Congress sets the budget, but in terms of deciding how to allocate the resources that we get. And so I think we can really have some change because there'll be change at the top. And I think it is important for people to know that the staff at the agency responds to the direction from the commission. That's as civil servants, that is their obligation to take direction from the commission. And so when the commission changes, those directions will change. And so I'm hoping that we'll see some real change in the way we approach things. Again, I urge people to be patient because these things can take time. But I do urge people to think about how they can be helpful in this effort. Giving us concrete ideas of where we might make changes where things have not worked in the past and then coming in with some ideas about what would you like the rule set to look like, what would you like the engagement with the outside to look like? Tell us those things and help us to shape this agency. Reminding you of course, that this agency works for you and we really want to make it work for the American public.
Yeah, absolutely. And would some of the ideas be, you know, having roundtables with the crypto industry and leaders, right, where the commissioners and the chair, including the chair, it doesn't have to be every month, obviously, but maybe the first half of the year, second half of the year type thing annual where they meet with the industry, talk about some of the problems that are doing, what is the industry maybe doing to self police itself as well. But also what can the SEC do better and what can we improve for having these companies come in and register easily and so forth?
Yeah, absolutely. I think that is something that I'd really like to see. One of my concerns about how the SEC has approached crypto and frankly other areas too in recent years is that we have not really spent enough time thinking about how can we get really helpful input from the outside. And roundtables have been one way to do that. You can get a lot of input through comment letters, and that's very valuable. But a roundtable brings people with different views together and then the commissioners can hear that dialogue and the discussion, and that can be very helpful. And so I do think that roundtables will be a part of the solution. It may be that we work with the CFTC to try to do some joint roundtables and joint discussions, again, recognizing that some of this stuff is not going to be within our jurisdiction at the end of the day.
And then with regards to the registration aspect. Right. There's been a lot of talks over the years, a lot of confusion. Some parties saying, oh, it's easy, some parties saying, it's not easy. What are some of the solutions here? Is it updating the SEC website? Is it, I don't know if you guys have a subdivision on crypto and that team is able to work with the industry to fast track the registration. I'm just spitballing here. Yeah. So a lot of people are wondering, like, where is that come in and register button that needs to be on our website?
Right, right. I think it's a little more complicated than that. And I think that's the whole point. It's one thing to say come in and register, but the next piece of that has to be, okay, so someone walks through the door and you have to be willing to work with them to understand what are the unique facts and circumstances that that entity or that project, whatever it is, has, and how does that line up with what we have in our regulation and what our precedent has been in this space. And then where might you need some sort of exemptive relief to allow this to move forward? And I think there are a number of different ways to do that. We have a no action letter process which someone can come in and submit a request for no action relief, which basically the staff can issue and says, if you do it under these conditions, we're not going to recommend an enforcement action. We've seen a few of those in the crypto space, but that process could be reinvigorated. We also can give exemptive applications. People can come in with an exemptive application and get an exemptive order from us, which basically says, you know, we're sort of setting up some conditions that you comply with, and if you do that, then you don't have to comply with all the requirements and the rules. And so people can come in with those requests. And then, you know, I think helping people think through when something is a security and when not will also be helpful for people in trying to understand whether they even have to come in and register with us. What I think is really important is that people know that we want to have those conversations, which I can tell you that I certainly do want to have those conversations. And I expect this new SEC to want to have those conversations and want to do so in a way that actually leads to concrete results at the end of the day and not just conversation after conversation while your funding is drying up because nothing's moving forward. Another idea that I've put forward is some sort of an innovation, experimental sandbox type thing where people could do small projects and could move forward with small projects working then toward longer term relief. So, and I years ago put out a safe harbor proposal, we could do something like that. So I think there's a lot that's on the table. And again, that's why I encourage people, if they have great ideas about either procedure or, you know, specifics on what a useful exemption might look like, come in and tell us what you think that should be.
And would it be helpful also, in addition to, let's say these projects come in, they talk to you, they show you exactly what they're doing, right? What they're running on their blockchain, that the SEC leverages tools like Chainalysis, where you can plug into any blockchain and view the on chain data. So you're better informed to know, okay, are they telling the truth? Are these tokens actually globally distributed? What's happening, you see everything behind the scenes. I don't know if the SEC uses tools like that already. Would that make sense?
Yeah, I mean, we have some very sophisticated tools and sophisticated people at the agency, and so we certainly want to take advantage of that. And you know, I've been very impressed by the depth of knowledge of some of our staff and we'll put that to work. I think your other point though is that there are aspects of this technology that allow for unique transparency that hasn't been possible before. And let's take advantage of that. I mean, that's a wonderful thing. And that's part of why I think some people have looked at the SEC's approach in the past and have said it's sort of strange that the SEC is taking this negative approach when there's so many aspects of the technology that we could use to really improve transparency, to improve access for people. And so I hope that we can take advantage of those tools where it's appropriate.
