The Chairman of the U.S. Securities and Exchange Commission Delivered a Speech on the Regulation of Encryption Assets

At the tokenization roundtable, the chairman of the U.S. Securities and Exchange Commission delivered a keynote speech on the regulation of encryption assets. He emphasized the importance of the migration of securities from traditional databases to blockchain systems and likened this transition to the evolution of audio from analog to digital formats.

The chairman pointed out that the migration to on-chain securities could fundamentally change various aspects of the securities market. For example, on-chain securities can utilize smart contracts to regularly distribute dividends to shareholders, and tokenization can also enhance asset liquidity. He believes that blockchain technology will bring new application scenarios for securities, potentially exceeding the considerations of existing regulations.

In order for the United States to become a global leader in the encryption field, the SEC must keep pace with innovation and consider adjusting regulations to accommodate on-chain assets. The chairman emphasized that rules designed for traditional securities may not apply to on-chain assets and could even hinder the development of blockchain technology.

The chairman stated that the Securities Regulatory Commission will establish clear rules to regulate the issuance, custody, and trading of encryption assets, while cracking down on illegal activities. He emphasized that clear rules are crucial for protecting investors, especially in helping to identify illegal scams.

The Securities Regulatory Commission will no longer rely on temporary enforcement actions to formulate policies, but will use existing rule-making, interpretation, and exemption powers to establish practical standards for market participants. Enforcement will return to the original intent of Congress, focusing on fraud and market manipulation.

The chairman also mentioned the recently established special task force for encryption currency, believing that it reflects how various departments of the Securities Regulatory Commission collaborate to provide the public with the clarity and certainty it needs.

In terms of issuance, the chairman hopes to establish clear and reasonable guidelines for encryption assets that are classified as securities or bound by investment contracts. He acknowledged that there are currently few registered issuance institutions for encryption assets, partly because it is difficult to meet the relevant disclosure requirements. The chairman stated that he will promote the development of new guidelines, considering whether additional guidance, registration exemptions, and safe harbors are needed to pave the way for the issuance of encryption assets within the United States.

Regarding custody, the chairman supports providing registrants with more autonomy to decide how to custody their encryption assets. He believes it is necessary to clarify which types of custodians meet the relevant legal definitions of "qualified custodians" and to specify reasonable exceptions to the requirements for qualified custody. The chairman also mentioned that it may be necessary to update custody rules to allow for self-custody in certain cases.

In terms of trading, the chairman supports allowing registrants to trade a greater variety of products on its platform and to engage in new activities in response to market demand. He has requested staff to explore methods for designing a modernized ATS regulatory framework to better accommodate encryption assets. Additionally, he has asked to consider whether further guidance or rule-making is needed to facilitate the listing and trading of encryption assets on national securities exchanges.

The chairman stated that while establishing a comprehensive encryption asset regulatory framework, participants in the securities market should not be forced to go abroad for blockchain technology innovation. He hopes to explore the possibility of granting conditional exemptions to institutions seeking to launch new products and services that may be incompatible with existing regulations.

Finally, the chairman expressed hope to coordinate with government and congressional colleagues to make the United States the best place in the world to participate in the encryption asset market.