New SEC Chair Signals Major Shift Toward Innovation in Crypto Policy

In his fourth day on the job, the new Securities and Exchange Commission (SEC) Chairman Paul Atkins took a pro-innovation stance on cryptocurrency in a marked departure from the prior administration’s enforcement-first approach.

Speaking at the agency’s third Crypto Task Force roundtable on Friday (April 25), Atkins sharply criticized the regulatory direction taken under the Biden administration and pledged to tackle the “long festering issues” surrounding digital assets and blockchain technology.

“Innovation has been stifled for the last several years due to market and regulatory uncertainty that unfortunately the SEC has fostered,” said Atkins, who previously served two terms under former President George W. Bush.

The remarks of the SEC chair set the stage for a major pivot in U.S. crypto policy, one that could encourage the growth of the digital assets market domestically rather than pushing it abroad.

Market participants “deserve clear regulatory rules of the road,” Atkins said, adding that he will work to establish a “rational fit-for-purpose framework for crypto assets.”

Atkins said SEC Commissioner Hester Peirce will be leading efforts to create this framework. He praised her “principled and tireless advocacy for common sense crypto policy,” noting she has “justly earned the title of ‘crypto mom.’”

“This is important work,” he said. “As entrepreneurs across the United States are harnessing blockchain technology to modernize aspects of the financial system, I expect huge benefits from this market innovation in terms of efficiency, cost reduction, transparency and risk mitigation.”

The SEC roundtable centered on one of the thorniest regulatory challenges: how broker-dealers and investment firms can safely hold custody of digital assets in compliance with federal securities laws.

Seamus Rocca, CEO of bitcoin-enabled Xapo Bank, told PYMNTS that the SEC’s renewed focus on crypto customer is a “welcome step.”

“Secure custody of digital assets isn’t a technical nice-to-have — it’s the foundation of investor trust. But rules must reflect reality,” Rocca said.

Crypto custody is fundamentally different from traditional finance and needs “purpose-built infrastructure, not a retrofitted playbook. While crypto exchanges may seek to provide bank-like services, it’s vital to ensure that consumers are aware of the stark difference in compliance and oversight,” he added.

Read more: Stablecoins Push to Go Mainstream Amid Crypto Renaissance

A big issue causing no small angst is that today’s regulatory framework — built around physical possession of paper stock certificates — is not well-suited to blockchain technology.

“We just have a different system now with the digital asset ecosystem, and it doesn’t fit squarely within the rules that were written for a completely different system,” said Susan Gault-Brown, a partner at Allen Overy Shearman Sterling LLP.

Other panelists at the roundtable echoed the sentiment that traditional models of custody don’t fit.

“In crypto, we’ve created a technological infrastructure where you don’t need intermediaries and you don’t need counterparties,” said Larry Florio, general counsel of 1kx, a crypto fund manager. “There’s unique abilities that come with that, and there’s unique risks too.”

Adam Levitin, law and finance professor at Georgetown Law, noted: “We’re trying to fit a technology designed to be a peer-to-peer payment system into a system for centralized trading, and it’s not a good match.”

Levitin said the traditional understanding of a custodian is someone who’s going to physically hold your assets.

“They’re going to have a vault or something, and we’re going to make sure that the door is a sufficient number of inches thick, and then it’s fireproof for 24 hours,” he said. “That’s a really different set of skills than are required to secure crypto.”

Several panelists advocated for a principles-based approach to custody regulation rather than focusing on the technology since it’s hard for rules to keep up with digital advances.

“Principles-based rule is probably better than a technology-based one (since) technology is changing quickly,” said Mark Greenberg, vice president of consumer business and product at Kraken. “Keys should be held in systems, not by people, and that means that the old rule of ‘not my keys, not my crypto’ probably doesn’t apply anymore in that respect.”

A recurring theme was the need for regulatory flexibility to accommodate rapid technological change. If custody rules are too prescriptive, several panelists warned, they risk becoming obsolete as technology evolves.

Several panelists said lack of regulatory clarity drives innovation overseas.

“What was probably most shameful about the last four years was that we received approvals in multiple foreign jurisdictions, and we were essentially hamstrung in our hometown,” said Baylor Myers, vice president of corporate development at BitGo. “It was really shameful and sad, and hopefully that’s about to change.”

Brandon Russell, CEO of Etana Custody, agreed. He said that foreign regulators were clearer about their rules, which helped crypto firms a lot.

“If you’re going to look to foreign regulation as some kind of guiding light, that’s probably the biggest takeaway — there was clarification pretty early on that allowed those markets to evolve,” he said.

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