SEC's new chairman Paul Atkins: Building a new framework for on-chain securities regulation to make the U.S. a global center for encryption assets.

Source: SEC

Compiled by: Azuma, Odaily Planet Daily

Editor’s Note: On May 12, local time in the United States, the Special Working Group on Crypto Assets under the U.S. Securities and Exchange Commission (SEC) held its fourth cryptocurrency roundtable, with the theme "Tokenization: Asset on 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 cryptocurrency for the first time in his capacity as SEC chairman (Note: During the third meeting, Paul Atkins, who had just been in office for four days, gave an opening speech but only said 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 the core priority of his tenure is to establish a sound regulatory framework for crypto-asset markets, with clear rules for the issuance, custody and trading of cryptocurrencies, while continuing to curb illegal activities. In addition, the SEC's regulation of cryptocurrencies will no longer rely on much-maligned enforcement actions, but instead use existing rule-making, interpretation, and immunity powers to set precise standards for market participants.

The following is the full text of Paul Atkins' speech:

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

The topic discussed this afternoon is timely — securities are increasingly migrating from traditional (or "off-chain") databases to blockchain-based (or "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 can be easily transmitted, modified, and stored has unleashed tremendous innovative potential for the music industry. Audio has broken free from the shackles of static fixed formats, suddenly achieving compatibility and interoperability across multiple devices and applications. It can be combined, split, and programmed to create entirely new products. This has also given 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 entirely new methods of issuance, trading, holding, and usage. For example, on-chain securities can utilize smart contracts to transparently distribute dividends to shareholders on a regular basis; tokenization can also turn relatively illiquid assets into liquid investment opportunities, facilitating capital formation. Blockchain technology is poised to open up numerous innovative application scenarios for securities, nurturing new market activities that current SEC regulations have yet to cover.

To realize President Trump's vision of making the United States a global hub 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 stifle the development of blockchain technology.

My core priority during my term is to establish a reasonable regulatory framework for the cryptocurrency market, to formulate clear rules for issuance, custody, and trading, while continuously curbing illegal activities. Clear rules are crucial to protecting investors from fraud — especially in helping them identify illegal and non-compliant schemes.

The SEC has entered a new era. Policy-making will no longer be achieved through temporary enforcement actions, but will use existing rule-making, interpretive, and exemptive powers to set precise applicable standards for market participants. Enforcement will return to the original intent of congressional legislation—focusing on actions that violate legal obligations, particularly those 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 a working group on crypto assets. For a long time, the SEC has suffered from the problem of 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 the crypto asset policy - issuance, custody, and trading.

Issue

First, I will push the SEC to establish clear and reasonable guidelines for the issuance of securities-type crypto assets or investment contract-type crypto assets. Currently, only four crypto asset issuers have completed financing through registered issuance or exemptions 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 conventional securities, such as stocks, bonds, or notes, it is also difficult for the issuing entity to determine whether the crypto assets constitute "securities" or are subject to investment contract rules.

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 a "shoot first, then question" mode of law enforcement and supervision. While they claim to be open to talking to potential registrants ("Consult Now"), 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 consider this reliance on staff statements to be extremely ad hoc – action at the SEC level is critical and necessary, and I have asked staff to evaluate 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 autonomy in choosing methods for cryptocurrency asset custody. Recently, the staff eliminated a significant barrier to businesses offering cryptocurrency custody services by rescinding Staff Accounting Bulletin No. 121 (SAB-121). This bulletin was a major mistake — the staff had no authority to replace the committee's actions on such a broad scale without notifying the rulemaking process. This move not only caused unnecessary confusion but also had an impact far beyond the SEC's jurisdiction. However, besides repealing SAB-121, we can take further measures to promote competition in the compliant custody services market.

It is necessary to clarify the criteria for determining a "qualified custodian" under the Investment Advisers Law and the Investment Company Law, and to set reasonable exemptions for common operations in the cryptoasset market. Many advisors and funds use self-custody solutions, which are more advanced than the technology used by some custodians in the market to ensure the safety of their assets. As a result, custody rules may need to be updated to allow advisors and funds to self-custody under certain 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 clearly stems from the significant restrictions imposed by this model. Brokers have never been prohibited from custodial services for 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.

Transaction

In addition, I support allowing registered entities to trade a richer variety of products on the platform according to market demand — these businesses had been prohibited by previous SEC regulations. For example, some brokers are attempting to launch a "super app" that integrates securities, non-securities, and other financial services. Current securities laws do not prohibit registered brokers with alternative trading systems from providing non-securities trading services, including "pair trading" of securities and non-securities. I have asked staff to study how to modernize the ATS regulatory framework to better accommodate crypto assets, while evaluating whether further guidance or rules are needed to support the listing and trading of crypto assets on national securities 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 can be granted to registered and unregistered entities attempting to launch new products and services—these innovations may not fully comply with existing regulatory requirements.

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