The new chairman of the SEC details new directions for Crypto Assets regulation
I am very honored to share my views with all the excellent guests at today's tokenization roundtable.
The topic of today's discussion is highly timely, as more and more securities are migrating from traditional ( "off-chain" ) databases to blockchain-based ( "on-chain" ) distributed ledger technology systems.
The transition of securities from off-chain to on-chain systems can be compared to the evolution of audio recording from vinyl records to tapes and then to digital formats decades ago. Once audio content is digitized, it becomes easier to transmit, modify, and store, bringing significant innovation to the music industry. Audio has freed itself from the constraints of fixed formats, achieving compatibility and interoperability across various devices and applications. It can be restructured, segmented, and programmed to create entirely new products. This has also propelled the development of new hardware devices and streaming business models, greatly benefiting consumers and the U.S. economy.
Just as the digital audio revolution completely reshaped the music industry, the migration of securities to the blockchain has the potential to disrupt every aspect of the securities market, as it can create entirely new ways of issuing, trading, holding, and using securities. For example, on-chain securities can periodically and transparently distribute dividends to shareholders through smart contracts. Tokenization can also turn illiquid assets into liquid investment opportunities, facilitating capital formation. Blockchain technology is expected to bring a wide range of innovative use cases to securities, giving rise to many new market activities that current regulatory frameworks have not yet considered.
To make the United States the "global Crypto Assets center" envisioned by President Trump, regulators must keep pace with innovation and consider whether regulatory reforms are needed to accommodate on-chain securities and other Crypto Assets. Rules designed for off-chain securities may be incompatible or unnecessary for on-chain assets, and may hinder the healthy development of blockchain technology.
As the SEC Chair, one of my key responsibilities is to establish a reasonable regulatory framework for the Crypto Assets market, creating clear rules for the issuance, custody, and trading of Crypto Assets, while firmly combating illegal activities. Clear rules are crucial for protecting investors from fraud, particularly helping them identify illegal schemes.
The SEC has ushered in a new day. Policymaking will no longer rely on ad hoc enforcement actions. Instead, we will utilize existing rulemaking, interpretation, and exemptions to provide practical standards for market participants. The enforcement approach will return to the original intent of Congress, which is to regulate violations of these established duties, particularly in terms of fraud and market manipulation.
This work requires coordination among multiple divisions within the SEC, so I am pleased to see that Commissioner Uyeda and Commissioner Peirce have collaborated to establish the Crypto Assets Task Force. For a long time, the SEC has faced challenges with policy-making being done in silos. This task force demonstrates how our various policy divisions can work together to provide the clarity and certainty that the public has long needed.
Now, I will focus on three core areas of Crypto Assets policy: issuance, custody, and trading.
Issuance
First, I hope the SEC will establish clear and reasonable issuance guidelines for Crypto Assets classified as securities or subject to investment contracts. Currently, only four Crypto Assets issuance institutions have completed registration issuance and issuance under Regulation A. Issuance institutions generally avoid such issuance channels, partly because it is difficult to meet the relevant disclosure requirements. If the issuance institution plans to issue something other than traditional securities ( such as stocks, bonds, or notes ), they find it challenging to determine whether their Crypto Assets constitute "securities" or are subject to investment contracts.
In the past few years, the SEC initially adopted what I call an "ostrich mentality"—seemingly hoping that Crypto Assets would disappear on their own. It then shifted to a strategy of "enforcing first and asking questions later." Although the SEC claims to be willing to communicate with potential registrants and encourages them to "come directly for consultation," this assertion has proven to be largely ephemeral and often misleading, as the SEC has not made the necessary adjustments to the registration forms regarding this new technology. For example, the S-1 form still requires detailed information about executive compensation and the use of funds, which may not be important for investment decisions related to Crypto Assets. Despite the SEC having previously adjusted forms for asset-backed securities and real estate investment trusts, it has not made corresponding adjustments in response to the growing interest in Crypto Assets among investors in recent years. We cannot promote innovation through a "square peg in a round hole" approach.
I am committed to pushing the SEC to develop a new approach. SEC staff recently issued a statement regarding certain registration and offering disclosure obligations and clarified that certain offerings and crypto assets are 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 harbors may not be fully suitable for certain types of cryptoasset offerings. I believe that these statements are only temporary measures – a comprehensive action by the SEC is essential and necessary. At the same time, I have asked SEC staff to consider whether additional guidance, registration waivers, and safe harbors are needed to open a pathway for cryptoasset issuance in the United States. I believe that the SEC has broad discretion to accommodate the crypto industry under securities laws, and I intend to use that authority to the fullest.
Custody
Secondly, I support providing more autonomy to registrants, allowing them to decide how to custody Crypto Assets themselves. SEC staff recently rescinded Staff Accounting Bulletin No. 121, removing a significant barrier for companies wishing to offer Crypto Assets custody services. This bulletin itself was a serious error. Staff do not have the authority to take such broad action outside of formal SEC action and without notifying and commenting on rulemaking. This action caused unnecessary confusion, with impacts far exceeding the SEC's jurisdiction. However, there is much more that the SEC can do beyond simply repealing SAB 121 to enhance the competitiveness of the legitimate compliant custody services market.
It is necessary to clarify which types of custodians meet the "qualified custodian" qualifications set forth in the Investment Advisers Act and the Investment Company Act, and to specify reasonable exceptions to the qualified custody requirements to accommodate common practices in the crypto assets market. Many advisers and funds can utilize self-custody solutions, which employ more advanced technology to protect crypto assets compared to some custodians in the market. Therefore, custody rules may need to be updated to permit self-custody in specific situations.
In addition, it may be necessary to abolish the "special purpose broker-dealer" framework and replace it with a more reasonable system. Currently, only two special purpose broker-dealers are operating, which is clearly due to strict restrictions imposed on these entities. Broker-dealers have never been restricted from acting as custodians for non-securities crypto assets or crypto asset securities, but the SEC may need to take action to clarify the applicability of customer protection and net capital rules in such activities.
Trading
Third, I support allowing registrants to trade a wider variety of products on their platforms and to engage in activities previously prohibited by the SEC in response to market demand. For example, some brokerage firms are attempting to enter the market with "super apps" that offer integrated trading of securities, non-securities, and other financial services. Federal securities law does not prohibit registered broker-dealers with alternative trading systems from facilitating non-securities transactions, including "pair trading" between securities and non-securities. I have asked SEC staff to assist in designing a modernized ATS regulatory framework to better accommodate Crypto Assets. Additionally, I have requested staff to explore whether further guidance or rulemaking is needed to facilitate the listing and trading of Crypto Assets on national securities exchanges.
While the SEC and its team are working to establish a comprehensive regulatory framework for Crypto Assets, participants in the securities market should not be forced to go overseas for blockchain technology innovation. I would like to discuss whether conditional exemptions are appropriate for registrants and non-registrants seeking to bring new products and services to market if these products and services may be incompatible with existing Commission rules.
I look forward to coordinating and collaborating with the Trump administration and my colleagues in Congress to make the United States the best place to participate in the global Crypto Assets market.
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New SEC Chairman: A New Chapter in Crypto Regulation as Issuance and Custody Transactions Will Be Fully Reformed
The new chairman of the SEC details new directions for Crypto Assets regulation
I am very honored to share my views with all the excellent guests at today's tokenization roundtable.
The topic of today's discussion is highly timely, as more and more securities are migrating from traditional ( "off-chain" ) databases to blockchain-based ( "on-chain" ) distributed ledger technology systems.
The transition of securities from off-chain to on-chain systems can be compared to the evolution of audio recording from vinyl records to tapes and then to digital formats decades ago. Once audio content is digitized, it becomes easier to transmit, modify, and store, bringing significant innovation to the music industry. Audio has freed itself from the constraints of fixed formats, achieving compatibility and interoperability across various devices and applications. It can be restructured, segmented, and programmed to create entirely new products. This has also propelled the development of new hardware devices and streaming business models, greatly benefiting consumers and the U.S. economy.
Just as the digital audio revolution completely reshaped the music industry, the migration of securities to the blockchain has the potential to disrupt every aspect of the securities market, as it can create entirely new ways of issuing, trading, holding, and using securities. For example, on-chain securities can periodically and transparently distribute dividends to shareholders through smart contracts. Tokenization can also turn illiquid assets into liquid investment opportunities, facilitating capital formation. Blockchain technology is expected to bring a wide range of innovative use cases to securities, giving rise to many new market activities that current regulatory frameworks have not yet considered.
To make the United States the "global Crypto Assets center" envisioned by President Trump, regulators must keep pace with innovation and consider whether regulatory reforms are needed to accommodate on-chain securities and other Crypto Assets. Rules designed for off-chain securities may be incompatible or unnecessary for on-chain assets, and may hinder the healthy development of blockchain technology.
As the SEC Chair, one of my key responsibilities is to establish a reasonable regulatory framework for the Crypto Assets market, creating clear rules for the issuance, custody, and trading of Crypto Assets, while firmly combating illegal activities. Clear rules are crucial for protecting investors from fraud, particularly helping them identify illegal schemes.
The SEC has ushered in a new day. Policymaking will no longer rely on ad hoc enforcement actions. Instead, we will utilize existing rulemaking, interpretation, and exemptions to provide practical standards for market participants. The enforcement approach will return to the original intent of Congress, which is to regulate violations of these established duties, particularly in terms of fraud and market manipulation.
This work requires coordination among multiple divisions within the SEC, so I am pleased to see that Commissioner Uyeda and Commissioner Peirce have collaborated to establish the Crypto Assets Task Force. For a long time, the SEC has faced challenges with policy-making being done in silos. This task force demonstrates how our various policy divisions can work together to provide the clarity and certainty that the public has long needed.
Now, I will focus on three core areas of Crypto Assets policy: issuance, custody, and trading.
Issuance
First, I hope the SEC will establish clear and reasonable issuance guidelines for Crypto Assets classified as securities or subject to investment contracts. Currently, only four Crypto Assets issuance institutions have completed registration issuance and issuance under Regulation A. Issuance institutions generally avoid such issuance channels, partly because it is difficult to meet the relevant disclosure requirements. If the issuance institution plans to issue something other than traditional securities ( such as stocks, bonds, or notes ), they find it challenging to determine whether their Crypto Assets constitute "securities" or are subject to investment contracts.
In the past few years, the SEC initially adopted what I call an "ostrich mentality"—seemingly hoping that Crypto Assets would disappear on their own. It then shifted to a strategy of "enforcing first and asking questions later." Although the SEC claims to be willing to communicate with potential registrants and encourages them to "come directly for consultation," this assertion has proven to be largely ephemeral and often misleading, as the SEC has not made the necessary adjustments to the registration forms regarding this new technology. For example, the S-1 form still requires detailed information about executive compensation and the use of funds, which may not be important for investment decisions related to Crypto Assets. Despite the SEC having previously adjusted forms for asset-backed securities and real estate investment trusts, it has not made corresponding adjustments in response to the growing interest in Crypto Assets among investors in recent years. We cannot promote innovation through a "square peg in a round hole" approach.
I am committed to pushing the SEC to develop a new approach. SEC staff recently issued a statement regarding certain registration and offering disclosure obligations and clarified that certain offerings and crypto assets are 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 harbors may not be fully suitable for certain types of cryptoasset offerings. I believe that these statements are only temporary measures – a comprehensive action by the SEC is essential and necessary. At the same time, I have asked SEC staff to consider whether additional guidance, registration waivers, and safe harbors are needed to open a pathway for cryptoasset issuance in the United States. I believe that the SEC has broad discretion to accommodate the crypto industry under securities laws, and I intend to use that authority to the fullest.
Custody
Secondly, I support providing more autonomy to registrants, allowing them to decide how to custody Crypto Assets themselves. SEC staff recently rescinded Staff Accounting Bulletin No. 121, removing a significant barrier for companies wishing to offer Crypto Assets custody services. This bulletin itself was a serious error. Staff do not have the authority to take such broad action outside of formal SEC action and without notifying and commenting on rulemaking. This action caused unnecessary confusion, with impacts far exceeding the SEC's jurisdiction. However, there is much more that the SEC can do beyond simply repealing SAB 121 to enhance the competitiveness of the legitimate compliant custody services market.
It is necessary to clarify which types of custodians meet the "qualified custodian" qualifications set forth in the Investment Advisers Act and the Investment Company Act, and to specify reasonable exceptions to the qualified custody requirements to accommodate common practices in the crypto assets market. Many advisers and funds can utilize self-custody solutions, which employ more advanced technology to protect crypto assets compared to some custodians in the market. Therefore, custody rules may need to be updated to permit self-custody in specific situations.
In addition, it may be necessary to abolish the "special purpose broker-dealer" framework and replace it with a more reasonable system. Currently, only two special purpose broker-dealers are operating, which is clearly due to strict restrictions imposed on these entities. Broker-dealers have never been restricted from acting as custodians for non-securities crypto assets or crypto asset securities, but the SEC may need to take action to clarify the applicability of customer protection and net capital rules in such activities.
Trading
Third, I support allowing registrants to trade a wider variety of products on their platforms and to engage in activities previously prohibited by the SEC in response to market demand. For example, some brokerage firms are attempting to enter the market with "super apps" that offer integrated trading of securities, non-securities, and other financial services. Federal securities law does not prohibit registered broker-dealers with alternative trading systems from facilitating non-securities transactions, including "pair trading" between securities and non-securities. I have asked SEC staff to assist in designing a modernized ATS regulatory framework to better accommodate Crypto Assets. Additionally, I have requested staff to explore whether further guidance or rulemaking is needed to facilitate the listing and trading of Crypto Assets on national securities exchanges.
While the SEC and its team are working to establish a comprehensive regulatory framework for Crypto Assets, participants in the securities market should not be forced to go overseas for blockchain technology innovation. I would like to discuss whether conditional exemptions are appropriate for registrants and non-registrants seeking to bring new products and services to market if these products and services may be incompatible with existing Commission rules.
I look forward to coordinating and collaborating with the Trump administration and my colleagues in Congress to make the United States the best place to participate in the global Crypto Assets market.