# Shaping the Next Chapter of U.S. Financial Innovation - A Conversation w, Paul Atkins, Chairman, SEC

- Channel: [DC Fintech Week](https://streameth.org/dc-fintech-week)
- Date: 2025-12-21
- Watch: https://streameth.org/watch/yt-Szowi1-gnqQ
- YouTube: https://www.youtube.com/watch?v=Szowi1-gnqQ

## Transcript

I am absolutely delighted to have our finale for the day. Um, again, this is a a a project DC fintech week where we get uh really the people who are shaping our financial systems, shaping our regulatory systems to participate. And I could think of no better person than than Paul Atkins to to to join us in this final conversation on really shaping the next chapter of uh American financial innovation. So with that uh why don't I welcome the chairman uh to the stage and let's get to it. [applause] Uh so uh as I was saying uh backstage uh Chairman Atkins is is uh he's an amazing uh person. Uh when I was just a little junior professor, he actually would say hi to me and I was like a that's Paul Atkins and it's always been um it's it's particularly um uh fun uh to have you here in your in your new role. But um you've worked for the SEC now a couple of times. I mean this is not your your your first three times. Okay. So when you think about the the evolution of the of the agency and now what it means for you to take the chairmanship at this point in time um uh you know obviously what's what's what's changed what's familiar but but is there something about this particular point in time that uh resonates with any of those past experiences or maybe diverges a bit? Well, I think uh you know it's one of the first >> great to be here and seeing you all here and Chris uh congratulations on attracting a great uh crowd here. So, um, yeah, it's, uh, the SEC, the more things change, the more they stay the same, I guess, is a good motto. Like some of the same issues that, you know, we've dealt with back, I was in the in the chairman's office in the early 90s, came back as a commissioner in the as of course come out as chairman. So, a lot of the same issues, but with a new twist. So for example, what you all are interested in um you know the technology side is really front and center. That's job one for us to uh tackle the whole issue of uh crypto and digital assets and and tokenization and all of that sort of thing. And so we're doing that with Relish um because it's about time that it happened. I think the the agency um you know had two iterations. one was ostrich with a head in the sand. Uh hoping maybe this would all go away. And then the second was um basically regulation through enforcement. Um so we're doing neither of those. We want to make sure that we build a strong framework to actually attract um people back into the United States who may have fled, but then also to um be able to build a framework that makes sense for the future so that innovation can thrive. And I like to say that we're the securities and innovation ex commission now. So uh anyway, >> well you know in in in practice I mean there are a lot of things that you're um uh sort of facing both in terms of challenges and and and opportunities. U maybe can you give us a quick rundown of maybe your your top priorities? um uh as I had mentioned there's a there's a term called tech debt where in engineering when you kind of want to build something and you let certain issues lay to the side they kind of build up become a bigger challenge to deal with later sometimes you can have regulatory debt you know when certain kinds of issues are not addressed headon and even as a enabling factor for innovation I mean there are a lot of things out there that you could be focusing on what what are your your your priorities what do you think are are the things that you think need to really be tackled um head on. >> Well, I mean, some of it's a little bit like the New York City subway system, you know, it's a lot of deferred maintenance that needs to be done, let's say. Um and but then also, uh new roads to be paved. So, um in just about every single division of the SEC, there's updating to do whether it be rules or u method of operation, just even internal functioning of the SEC. It really, for example, with crowd here is interested in innovation and new products. um the SEC lacks any sort of project management function at all. But so I what I intend to do create is a way like you go to a deli or bakery and you take a number the same thing will happen um at the SEC because a lot of products span various divisions of the SEC and also by the way different agencies these days. So what we have to do is make sure that we are focused on uh you know trying to move things through the agency that they don't just stand uh around and and take years to get through as a lot of they bounce around various internal parts. There needs to be accountability and a project management function. >> So uh thinking about the securityities innovation commission you know that innovation in your mind you know have a lot of priorities things that you have to do. um you kind of mentioned uh enabling innovation in in the market and now you're you're obviously talking about what innovation means for the agency and in in terms of uh how it operates. Um product management was one uh of of the areas that you're thinking about. Um when you think about embedding innovation into a regulatory agency more more generally, uh what what does that actually mean? Maybe you can flesh that out a little bit more in terms of uh uh how does a regulatory agency enable innovation? >> Well, first of all, by being upfront about it. You know, here in the past, um there was, I'd say, a bit of a disingenuous approach by saying, "Oh, just come in and talk to us. You know, here we have a form on the website. It's really easy to fill out." not ba basically ignoring the fact that people hire you know a whole failank of lawyers and accountants and investment bankers and you know who knows what else to fill out these registration forms and you're also filling it out to the government and you know it's there's a section of the criminal code that makes it uh illegal and a criminal uh offense to you know do an untruth say an untruth to the government. So all of those factors come into play. So that is we have to be basically embracing new ideas and if the idea is no good the marketplace will um you know soon tell the developers of that but for example with crypto we uh first you know I'm very lucky um uh coming back to the SEC one reason why I agreed to take the job is that um two of the commissioners used to be council of mine Hester purse cryptomama and um and then also Mark ua So here uh and then Caroline Krenshaw is also there so she's a pleasure to work with as well. But the the good thing about this is that you know we're in sync and we can tackle these problems and I feel safe and uh justified in uh being able to be more productive by uh delegating some things to them. So that's really you know a great aspect of it. But the crypto as aspect is our job one just because I think we're probably 10 years behind or so here in the United States just because of the history um of what's gone on. But we have to catch up. And so that's part of the embrace of innovation. And so we have a a great team that's working basically full-time on these issues. And so I mean you've already seen some of the products of that with respect to um roundts that we've hosted some of the issues that we've u mooded and so we'll be bringing um uh you know various types of solutions here to the four like I've been talking about an innovation exemption and with a goal maybe of having like a super app where um uh you know there are many different agencies that are concerned about crypto but why should you have to go and uh register at multiple agencies if we all are focused on the same kind of goal and why can't we have mutual recognition among them so some of that will be solved in Congress and others I think uh between the regulatory agencies will be able to uh solve that >> so uh obviously crypto is a major uh uh thematic priority uh as is just more broadly onchain finance tokenization of real world assets was something that we've that I moderated a panel on just a couple minutes ago uh and other panels have talked about market structure and the changes that tokenization of securities uh could bring to market structure. How are you looking at tokenization as a as a thesis? Um where do you think the SEC is most likely going to lean in? uh and uh what what would you like to see uh when you think about the development and really the the intersection between the agency's policym and rulem and this particular um uh development in our markets. Well, I think tokenization is is necessary with we have this technology distributed ledger technology which to me is the most exciting part about all of uh crypto and it's not necessarily the coins and all of that. I mean they will come and go but the DT aspect you know putting things on chain I think is just presents huge uh potential benefits for financial services and elsewhere for de-risking you know the markets uh and who if you have we're now at T+1 we could get to T0 and we'll probably have to build in speed bumps to keep um you know the fat finger problem or something like that uh to happen but to have immediate DVP RVP um for you know transactions I think is unbelievably um great and then the transparency that that brings in it solves a lot of compliance issues as well. Um and then it just makes it much more I'd say democratized and accessible for various products to be tokenized uh and to have uh people have access to that. So I think it's it would solve potential problems that we haven't even thought about all the ways that it could morph in over time. >> So uh I kind of jumped the dun excuse the pun for securities lawyer and law prof uh in terms of one of the questions in in the sense of okay you know tokenized securities embedded in that word is the word securities. I I I can't help but ask it, especially since we're still waiting on um different market structure legislation. Um and and certainly um Hester Bur and Mark have actually been in very involved in in this program in DC Finite Tech Week in in previous in previous years. But uh how we test uh is this still a a standard? Is this still a rule that or or a a a framework for establishing the regulatory perimeter? Um, what do you think are the strengths, weaknesses, future of of of the Howie test? >> Well, the that I I think that's been a bit of a red herring. I'll be uh, you know, maybe off one tangent on that one. Um but so if you think about the Howie test that's was back in 1946 or whenever the Supreme Court came with that because there's this term investment contract in the Securities Exchange Act of 1934 that the um drafters didn't bother to define. So the court took a stab at it and for 1946 with that particular set of facts before it uh you know it came up with you know it's four-part test and and whatnot that most of you all probably know. If not you can search for that on the internet and get an answer really quickly on that one if you don't know about it. So anyway, so but that is the law of the land as far as um you know invest what a investment contract is. But I think we have to be more particular when we try to look at its application to this new technology. So I would argue that the various coins um almost always are not securities and that the you have to to find an investment contract you have to look at the entire um ecosystem around that particular coin or or customer offering or whatnot um to see that you know it's the promises that are being made by those folks who have developed it and so that itself is the contract not the orange like in Howie not the orange tree that was planted and have to has to be tended and watered and fertilized but it's the um it's the actual promises around it. Uh so and I would compare the token to the to the orange that is the uh what's traded >> does uh and again you know uh these are issues that have been um debated uh a little bit agnosium but but given the fact that you are now in the chair it's just interesting to to sort of hear your your thoughts um the term decentralization especially when you move out of let's call it institutional defi into uh def defy or institutional onchain finance to to defy decentral centralization still pops up as a conceptual policy consideration. Is is that relevant? Is the concept of decentralization relevant to the to the SEC and to your understanding of either what is a security or just as a policy matter as to what's preferable or to be aspired to? >> Well, you know, I I think uh I mean we'll see how the market develops frankly. I mean the you can't expect what we confront today in 2025 uh will look like in 2029 or 2035. Um, so I think we have to make sure that we approach this all in a in a a very flexible aspect. And so, you know, with respect to what the SEC looks at and the CFTC and the others, you know, again, we all need to be working in sync and be harmonized across the board. And uh, so that's what I really look forward to doing and what we already uh are doing. We had a a nice round table about a week or two ago for harmonization between the CFTC and SEC. So the thing that I just I hope doesn't end up uh is kind of what we've had you know here uh on and off for the last 40 50 years between the two agencies. You have two fortresses and you have a no man's land in between. And that field is littered with the corpses of a bunch of new products would be new products that never made it because of the battle between not at the commission level but really at the staff level over the years. And so portfolio margining, which is something I think we can tackle and solve with, you know, the the spirit that we now have between the two agencies, single stock futures and that sort of thing. um some aspects of of swaps. So I I think that that's only with the extent sort of um uh product uh universe that we have now. So much less looking at the future where um you I think we can really make efficiencies stick and and working together. So, uh, and also by the way, just as a quick aside, I mean, the idea of thinking of it as a as a super app, thinking about the regulatory coordination as an app in and of itself is is is very clever and and really gets at what's been a very long-standing challenge of of how do you get different agencies with their own institutional uh, sense of urgency to sort of coordinate on on on the same page is has never been very uh, easy here in Washington. Shocker. Um but but just to get back to that issue, you know, you'd mentioned swaps, you'd mentioned some of these other um products. Uh when [clears throat] you talk when I talk to my friends in decentralized finance, you know, there's a lot of energy in trying to figure out what institutional DeFi looks like, like how exactly do you get institutional actors to decentralized finance? And you know I I I do observe and I and I share with them the the the fact that sometimes even if certain liquidity pools are not regulated the financial institutions uh often are um or they may be considering other kinds of operational risk uh issues. What what at a 10,000 foot level would be required to get DeFi trad uh >> that's the only t-shirt now people. That's right. So, well, I don't know. I think again, I think the, you know, this is going to be an evolution in the marketplace. So, you have traditional financial institutions that are also now playing catchup to those who are, you know, kind of native crypto uh types of uh you know, institutions or trading platforms or whatever. We do have laws that uh you know that uh kind of lean one way. But the good thing is that uh we at SEC with respect to um our statutes have pretty broad authority for exemptions to be made. And so I think we can be um you know very forwardleaning in that and um and in order to accommodate uh new ideas. I mean to to whatever I mean to extent but so we'll have to cross those bridges as we get there. But for now, you know, our real uh project uh to focus on is to embed the idea of innovation around the agency to accommodate uh new products um that as they come forward and then police the markets to make sure that um you know investors are protected um and that um you know they're not getting trampled uh upon by uh you know what whatever may be out there. So, um, one of the, and I promised I was going to ask almost every regulator this this question, uh, starting early in the morning with the president Fatiff who dropped by to Travis Hill to Governor Waller and now for yourself. Um, you know, I' I've I've now been in I've been in Washington for a long time and and you know, I've I've come to sort of feel sorry for the heads of agencies because [clears throat] I mean, it you know, it's it's it's a tough job. I mean you get blamed when things go wrong but you never are given credit when things uh go right. I always makes a little bit of surprise. I mean you you you know this and and you yet once again you know embrace public service in that in that um uh in this moment but you know experimentation is not something that you normally associate uh with regulatory agencies. uh innovation is not always although I do tell people when you look paperwork crisis in the past like there have been moments in which the SEC has been sort of nudged to move but on a personal matter and as a regulatory matter like how do you navigate policym um and even embrace disruption and and market forces as a as a as a regulator um when disruption is ultimately disruptive. >> Right. Well, I mean, the the history of the SEC, frankly, except for the last few years, um, has been one that it might not be at the vanguard of leading the way towards innovation, but it's never really stood, you know, afford the, you know, the the the stream that's going forward. So, for example, back there was called what's called the paperwork crisis back in the 60s where you had paper certificates. If you've never seen one of those, they're >> I tell my students about this all the time and and they're like, "No, no, they were everywhere." like papers were like on the floors and everything. Uh yeah, it's a hugely important sort of moment. >> Yeah. So you had uh clerks running from one down in Wall Street, you know, and and other financial centers around the country running with their carts of boxes full stacked high with these paper stock certificates to go to the transfer agency and then once they get and then you know entered in and then going to the other broker and to the new uh customer and whatnot. So the pay there was a big bull market in the late60s and so the New York Stock Exchange had to close down at least one day a week if not two to catch up on the paperwork. So imagine that today and so that so then the SEC worked with the um industry and set up a co-op called the depository trust and clearing corporation which still exists and the whole idea of a global certificate then you had book entry securities. So that's one I worked for Richard Breeden in the early 90s and there was a new um uh product uh that was the S&P 500 uh you know ETF so spiders that had been wafting around I talked about project management earlier wafting around the agency for some like three years or something. So one day Richard came in and you know threw on my desk this big uh filed stack of papers and said can you find out why this thing hasn't been approved yet? So basically it had gone bouncing around like a pinball over over different uh divisions of the agency and um the agency heads asked Richard well you know how do we know that the market will accept this if we approve it and Richard said how do you think we're going to find out so that means like let it out there let the market decide and the same with Arthur Levit um with uh reggga ATS to set up a the bespoke um you know chance for um non-exchange changes um to set up their alternative trading systems for institutions and whatnot. So those sorts of examples are where the SEC has stepped forward to um to basically help power uh changes and sometimes you know it gores somebody's ax but uh and the S&P 500 spiders at first didn't take off and then because the market was unsure about it but then boom after several months it really did soar and look where it is now. So those sorts of things, you can never tell what it'll be, but um but again, you know, we should be as an agency trying to facilitate um these um experiments. And so if we can come up with uh you know or what we're talking about with an innovation exception to uh in a in a controlled way to allow people to uh test their ideas you know in a in a controlled uh environment um and get a proof of concept and then go public or whatever with that. So >> so yeah uh when talking again I mean the paperwork crisis is a great example. I mean earlier um we had a a great demo with AWS looking at u sort of intelligent uh processing of of of documents intelligent documents and documentation in and of itself. You obviously have blockchains that provide a lot of uh transparency or new kind of transparency for financial services. Um and it opens up both the financial product vector but also new kinds of ways of thinking about compliance and supervisory technology even even within agencies. Have you given very much thought to that and and and uh how experimentation from that end would be um either delivered from the private sector or or from the SEC itself. >> Well, I don't know. I think it I think we should rely on the private sector to do uh you know the experimentation and whatnot. I think I get a little bit uh skeptical for the government basically to do that. We're not really I think equipped uh to do it but uh but obviously there's lots of um ideas in the private sector and you know I really you know we shouldn't be stifling them unless they're true ripoff schemes and things like that. Obviously, we have to be attuned to that and we have, you know, plenty of we have arsenal of weapons, I guess, that we can use um for people who do that and we're still using that in the in the cryptosphere as well if uh people are are not uh you are crossing the line. >> So again, another shift because your your work is broad uh deep um and and you're really thinking about fundamental market structure issues. Um, you know, I I I'd heard you talking about making IPOs great again, which made me chuckle because you're bringing attention to something I've written about and I told you about before like from my earliest days and I'm no longer a young professor. So, it's it's been an issue that's that's been around >> fossil now. I'm getting there, you know, step by step. And you know like the the the decline of public markets relative to the rise of private markets has accelerated over over time. Right. And um as we said becoming a public company is no longer always that mark. It's no longer the gold star all the time. H how do you think about that reform process? like how do you how do you really reinvigorate those uh the IPOs and and being a public company? >> Yeah. Well, first of all, we are so um blessed uh in this country to have such robust private markets where people are willing to risk their capital to uh invest and promote good ideas and things like that. So, and lose their money um you know if it doesn't work out. So that that risk appetite is something that Europe uh would love to have. I was on a trip over there, four cities in five days, one of these crazy trips. But every stop, London, Paris, Frankfurts, Brussels, everyone was talking about we wish that we had an American investment ethic uh over here and that um you know that our citizenry would be um you know accepting of risk and not risk averse and not just putting things in the bank but actually you know putting uh money to work in investments. So we're so blessed to have that. So what so as those markets have grown uh you know we um that's taken the shine off the public markets. It used to be cool to be public. You've arrived. You've I've done my IPO ringing the bell and and all of that. Um and so that's not so much anymore for a lot of reasons. One is litigation. Two is just the weight of uh disclosure and the cost of going through the disclosure and hiring lawyers, accountants and everything else. And then finally is the corporate governance scene of uh you know how there have been abuses and weaponization of uh basic things like shareholder proposals and and all of that. So we're out to change that. We've already announced a difference of a change in philosophy at the SEC. will um uh let people go IPO if they have a bylaw that requires mandatory arbitration and also with respect to fee shifting loser pays if they have that bylaw um you know they they'll be accelerated just like anyone else. Um we're going to be working on uh you know lessening the regulatory burden but making it smart regulation. We're not talking about, you know, throwing the rule book out, but there's so much information whenever I go to meet with portfolio managers or even uh normal investors. You know, the first thing I hear is please, please, please, there's so much uh data that information that is put out by public companies that we can't separate the wheat from the chaff. And that's what Thood Marshall when he wrote a seinal uh opinion for the Supreme Court back in 1976 TSC Industries versus Northway he that's when he articulated the standard of materiality and saying it's what a reasonable investor not a particular investor not Black Rockck not Blackstone or whoever but the objective reasonable investor would need to know in order to uh make an investment decision. and and he articulated the problem of the potential information overload if people just dump all sorts of information uh that's not uh you know easily digestible. So we have to pay attention to those basic building blocks of why we have disclosure and that's helping people discern what the difference is between uh you know what what what's material and what's not. >> Yeah. Yeah, I mean I I I had a conversation maybe a year or two ago with with some of the the folks over on uh people, you know, like Dan Gallagher and others over at Robin Hood and, you know, to sort of think about like what does disclosure even mean in an age of of of, you know, gamifying or figuring out ways in which people can access information that's not as much of an overload and not as burdensome as, you know, for the issuers. I think it's a really interesting and important area. Um uh I I did uh ask your predecessor a couple of questions on the accredited investor standard. Um uh he may not have liked all all those questions but uh you know uh I I do think it's it's important and I um but where do you see the future of the accredited investor standard? Um, and is this at all sort of falling in your sort of vista of of uh to-do items or priorities uh over the next couple years? >> Yeah. Well, so that's uh a multifaceted question. I guess >> I'm a law professor. That's why I do. It's like we could write an essay about this, but accredited investor is the for those who aren't into all this. Um it's the concept of uh substituting wealth or income for you know somebody's and then discerning that that person has sophistication if he has more than x amount in the bank or earns more than whatever um and then you know he can either know it himself to to make the investment or can hire people. So that's a really blunt tool and so uh you know there've been uh discussions over the years of you know well why can't we have you have a driver's license why can't you have an investor's license and you know things like that. So we're looking uh at all of those things. Um but uh you know in the meantime uh you know we have an executive order from the president that uh is directed uh to us and to the department of labor to look at uh the ability of normal investors to be able to put a portion of their investments into private funds that um in the past were only for um you know accredited investors. So we will be coming out with we'll be working handin glove with our labor colleagues and we'll be looking at at those sorts of things and uh and to to allow access for that into uh 401ks and and other products and then to IAS and whatnot. So I think that would be if you look at the current state of the market um the S&P 500 you know you have the magnificent 7 and um and so the the market is way tiered uh towards uh tilted towards that end we have um with respect to you know the rest of the the S&P 500 or the public markets as a whole um it's um you know we have half the number of public companies as we did uh 30 years ago and so people are staying private. So to have a well- diversified portfolio I think uh most portfolio uh managers and uh investment advisors would say you should have some exposure to the private markets and so what that will mean we will be working on that but let's just say that we have to have guard rails around it. We can't just throw open the gates and have Wall Street dump some of their trash down that um that particular uh lane, but uh you know, be looking at liquidity, valuation, you know, where people would be standing in the capital stack of whatever they're investing in. Uh looking at um you know, making sure that uh uh these investments are are properly calibrated to the criteria investment criteria of of people. So one people have been talking about so lifestyle target date funds that sort of thing. So that's that's an idea but still you have to have whatever goes in there has to the valuations have to be right. They have to come to a they can't just linger on forever. You can't sell to somebody who's 86 years old something that will you know come to a term in you know 25 years. So, you know, we have to those sorts of things will be relying on the fiduciaries uh that are involved in all that. So, I think it's an exciting time and I think that will be good for the for the American people. >> I I mean that is exciting. I I love the idea of, you know, in essence looking at portfolio diversification as one element of investor protection, right? Um and and I I I applaud that direction and it's I'll be watching eagerly and with interest. I guess you know we're we're we're about out of time. So I I I did want to ask uh one question that's that's always very helpful. I mean we've seen and I think it's useful for this crowd. We are in Washington DC. Uh we see changes obviously in in policy every couple of years um and they could be very meaningful. How does a regulatory agency how does a chair of the SEC sort of futureproof their work? How do you how do you make sure that whatever you deliver on the policy end? It's just not something that reverts back and forth um from one administration to the other. What what's what's your thinking about that? >> Yeah. Well, that's a real tragedy. We shouldn't have a pingpong match and I think that's a sign of a banana republic, frankly. Uh so anyway, so we what we have to do and I like the term future proof. We we need to what we do futureproof it. So by that means the acceptance uh by the marketplace and by investors you know if we have undergirling from Congress uh on the statute side and we'll see right now there's a market structure bill working its way through Congress and so hopefully that will um you know be on the president's desk by the end of the year um as he had asked and um and then uh you know to uh through uh you know other sorts of means through the courts and whatnot. I think uh as we focus on the basics on the standards of financial materiality on openness on uh you know access by the broadbody public to the uh some of these products uh I think that's the way we can do it and then uh we have the administrative procedure act so if we have good thoughtful rules that are backed up by um by economic analysis um and by comparison say to you know what's done um you know in in the states or or elsewhere around the world. I think all that helps to futureproof it so that it's not you know battle of personalities or you know left versus right or whatever. we're talking about investors and I really don't think that these issues, you know, should be political, um, ultimately. And so, um, you know, we're talking about how people invest and save for the future, for their families, um, for health, education, and all that. >> Chairman Atkins, thank you. Thank you. Thank you so much for your time. Uh, with that, everyone, we are concluding day one of DC Fintech Week. Let's give it up. Thank [applause] you. >> [music]