What signals did the new SEC chairman reveal during his first speech on the Crypto theme?

This article is from: SEC

Compiled by | Odaily Planet Daily (@OdailyChina); Translator | Azuma (@azuma_eth)

Editor’s Note: On May 12, local time in the United States, the Special Cryptocurrency Working Group of the U.S. Securities and Exchange Commission (SEC) held its fourth cryptocurrency roundtable, with the theme "Tokenization: Asset on the Chain - The Intersection of Traditional Finance and Decentralized Finance."

It is worth mentioning that Paul Atkins, who officially took office as the SEC Chairman on April 22, attended the roundtable meeting and delivered a lengthy speech on cryptocurrencies for the first time in his capacity as SEC Chairman (Note: At the third meeting, just four days into his tenure, Paul Atkins had delivered an opening speech, but it was only a few words).

In his speech, Paul Atkins mentioned that "securities are increasingly migrating from traditional (off-chain) databases to blockchain-based (on-chain) ledger systems, and a core priority during his term is to establish a reasonable regulatory framework for the cryptocurrency market, setting clear rules for the issuance, custody, and trading of cryptocurrencies, while continuously curbing illegal activities. In addition, the SEC's regulation of cryptocurrencies will no longer rely on controversial enforcement actions, but will use existing rule-making authority, interpretative authority, and exemption authority to set precisely applicable standards for market participants.

The following is the full text of Paul Atkins' speech, compiled by Odaily Planet Daily.

Thank you all, good afternoon. I am honored to speak at today's roundtable discussion on tokenization with such distinguished individuals. Thank you to all the panel members for your participation.

The topic of discussion this afternoon is timely — securities are increasingly migrating from traditional (also known as "off-chain") databases to blockchain-based (also known as "on-chain") ledger systems.

The migration of securities from off-chain systems to on-chain systems is comparable to the evolution of audio recordings from vinyl records to cassette tapes and then to digital software several decades ago. Encoding audio into a digital file format that is easy to transmit, modify, and store has unleashed tremendous innovative potential for the music industry. Audio broke free from the shackles of static fixed formats and suddenly became compatible and interoperable across multiple devices and applications. It can be combined, split, and programmed to create entirely new products. This also gave rise to new types of hardware devices and streaming business models, greatly benefiting consumers and the U.S. economy.

Just as the digital audio revolution reshaped the music industry, securities on the blockchain are expected to transform the securities market through new methods of issuance, trading, holding, and usage. For example, on-chain securities can transparently distribute dividends to shareholders periodically using smart contracts; tokenization can also turn relatively illiquid assets into liquid investment opportunities, facilitating capital formation. Blockchain technology is expected to open up a wealth of innovative applications for securities, nurturing new market activities that are not yet covered by existing SEC regulations.

To realize President Trump's vision of making the United States the global center for crypto assets, the SEC must keep pace with innovation and assess whether the existing regulatory framework needs to be adjusted to accommodate on-chain securities and other crypto assets. Regulations designed for off-chain securities may be incompatible or unnecessary for on-chain assets, and could instead hinder the development of blockchain technology.

**The core priority of my tenure is to establish a sound regulatory framework for the cryptoasset market, with clear rules for issuance, custody and trading, while continuing to curb illegal practices. Clear rules are essential to protect investors from fraud – especially to help them identify illegal scams.

The SEC has ushered in a new era. Policy making will no longer be achieved through temporary enforcement actions, but instead will utilize existing rule-making, interpretative, and exemption authorities to set precise applicable standards for market participants. Enforcement work will return to the original intention of congressional legislation - focusing on combating violations of legal obligations, particularly in cases involving fraud and market manipulation.

This work requires collaboration among multiple departments within the SEC, so I am pleased that Commissioner Uyeda and Commissioner Peirce have jointly established the Crypto Assets Working Group. For a long time, the SEC has been plagued by policy silos, and this working group demonstrates how we can break down departmental barriers to provide the public with the long-awaited clarity and certainty in policy.

Next, I will elaborate on the three key areas of cryptocurrency asset policy - issuance, custody, and trading.

Issuance

First, I will urge the SEC to establish clear and reasonable guidelines for the issuance of securities-like crypto assets or investment contract-like crypto assets. Currently, only four crypto asset issuers have completed financing through registered issuance or exemption under Regulation A. Issuers generally avoid this method of issuance, partly due to the difficulty in meeting the corresponding disclosure requirements. If the issuing entity does not intend to issue ordinary securities, such as stocks, bonds, or notes, it is also challenging for the issuing entity to determine whether the crypto asset constitutes a "security" or is subject to investment contract regulations.

Over the past few years, the SEC has responded with what I call the "ostrich policy" – the illusion that crypto assets will disappear on their own; Later, it shifted to the law enforcement supervision model of "shoot first and then question". **While they claim to be willing to speak to potential registrants ("welcome to consult"), this has proven to be short-lived at best, and more often misleading, as the SEC has not made the necessary adjustments to the registration form to accommodate the new technology. For example, Form S-1 still requires detailed disclosure of executive compensation and the use of funds, which may be neither relevant nor material to cryptoasset investment decisions. While the SEC has tweaked registration forms for asset-backed securities and REITs, it has not done the same for crypto assets, which have become increasingly popular with investors in recent years. We can't encourage innovation by "cutting it all".

I am committed to pushing the SEC to develop a new approach. SEC staff has recently issued a statement regarding certain registrational offerings and disclosure obligations clarifying that the issuance of certain cryptoassets is not subject to federal securities laws. I hope that staff will continue to provide clarifications on other types of issuances and assets, as I have directed. However, the existing registration exemptions and safe harbor rules may not fully apply to the issuance of certain cryptoassets. I believe this reliance on staff statements is extremely ad hoc – action at the SEC level is critical and necessary, and I have asked staff to assess the need for additional guidance, registration waivers, and safe harbor rules to open new avenues for cryptoasset issuance in the United States**. I believe that the SEC has sufficient discretion to accept the crypto industry under the framework of securities laws, and I will definitely push for it.

Custody

Secondly, I support granting registration agencies more autonomous choices in the custody of cryptocurrencies. The staff recently eliminated a significant obstacle for companies providing cryptocurrency custody services by rescinding "Staff Accounting Bulletin No. 121" (SAB-121). This bulletin was a major misstep — the staff had no authority to substitute committee actions on such a broad scale without notifying the rule-making process. This move not only caused unnecessary confusion, but its impact extends far beyond the SEC's jurisdiction. However, in addition to repealing SAB-121, we can take further measures to promote competition in the compliant custody services market.

It is necessary to clarify the definition standards for "qualified custodians" under the Investment Advisers Act and the Investment Company Act, and to establish reasonable exemptions for common operations in the cryptocurrency asset market. Many advisers and funds have adopted self-custody solutions that are more advanced than the technologies used by some custodial institutions in the market, which can more effectively ensure asset security. Therefore, custodial rules may need to be updated to allow advisers and funds to self-custody under specific circumstances.

In addition, it may be necessary to abolish the current "special purpose broker" framework and establish a more reasonable system. Currently, only two special purpose brokers are operating, which is clearly due to the significant restrictions imposed by this model. Brokers have never been prohibited from custodial non-securities crypto assets or securities crypto assets, but SEC action may be needed to clarify the applicable standards of customer protection rules and net capital rules for such activities.

Trading

In addition, I support allowing registrars to trade a wider range of products on the platform based on market demand, which has been banned by previous SEC sessions. **For example, some brokers are trying to launch "super apps" that integrate securities, non-securities and other financial services. Current securities laws do not prohibit registered broker-dealers with alternative trading systems from providing non-securities trading services, including "pair-trading" of securities with non-securities. **I have asked staff to look at how to modernize the ATS regulatory regime to better accommodate cryptoassets, and to assess whether further guidelines or rules are needed to support the listing and trading of cryptoassets on national stock exchanges. **

In the process of the SEC building a comprehensive regulatory framework, market participants should not be forced to go overseas for blockchain innovation. I will explore whether conditional exemptions could be granted to registered and unregistered entities attempting to launch new products and services—these innovations may not fully comply with current regulatory requirements.

I look forward to collaborating with my colleagues in the Trump administration and Congress to make the United States the best participant in the global cryptocurrency market.