Changing Regulatory Landscape for Cryptocurrency Issuance | Former SEC Commissioner Troy Paredes

hello and welcome to the digital assets report I'm Jane King at the New York Stock Exchange and with me today Troy apparatus of an parade of strategies the founder of consulting firm so we'll talk a little bit more about that in a second and also a visible and RAC of liquid in capitalism origin welcome again so Troy let's start with you so you've got really an interesting background so you were form an SEC Commissioner as recently as 2013 so a lot of this fresh you're appointed by president george w bush in june of 2008 and also hosts a podcast yes so let's start with the sec talk to me a little bit about your background and what you did at the sec and then we'll kind of bring it to today beside the privilege of being an SEC Commissioner as you mentioned I was sworn in in August 2008 so right before the financial crisis oh my goodness right we all remember that we all remember that so therefore all the financial crisis and the aftermath and their five-year terms and I left in August 2013 one of these I found to be interesting about serving as a commissioner is the sheer breadth of what you do as a commissioner when you really appreciate what them with the scope is of the SCC's mission and mandates you think about the offering process you think about the intermediaries investment advisors broker dealers exchanges you think about a whole host of other market participants across the equity markets in the fixed income markets and riveted markets and the like it's just a fascinating opportunity well and a lot has changed just since you left which isn't that long ago 2013 we're gonna talk about a lot of that today icos and cyber currencies and digital assets and all that so let's start with the Senate Banking Committee testimony that just recently happened the SEC chairman Clayton L so the CFC CFTC chairman what was kind of your takeaway or your headline from that testimony yeah he's a big takeaway was that both the chair of the SEC and of the CFTC Clayton and Jim Carlo very much focused on thinking about whether or not the regulatory environment is appropriate for the developments when it comes to crypto currencies when it comes to initial coin offerings I think they both indicated that they're very much interested in thinking through with other regulators and you and I think also around the globe whether or not there needs to be some additional legislation maybe additional regulation I think that's going to be an ongoing discussion I took some comfort if you will in the fact that not only one are they focused on these questions but number two neither Clayton nor Giancarlo seems quick to rush to judgments that they want to take a thoughtful approach and get it and get it right and that they realize that there's more to this than either of those two agencies perspectives or simply for that or for that matter there's more to this than simply the u.s. perspective at the same time one of the things we have seen both agencies doing is being willing to use their enforcement authority and that is to say from their perspective look those agencies have have indicated they believe they do have a lot of regulations and rules that currently apply and that when they make the judgment that those rules and regulations and the underlying statutes have been violated they've not been reluctant to bring enforcement actions and I think we're going to see more of that and we have seen a lot lately Vince I mean there's been a lot of enforcement action against some of these early icos some of them have lost money I mean how what's your take on that testimony as well as where we are right now with this as Troy said I think the testimony is very clear as we talked on the show before it people thought the regulator's were sleeping they are absolutely not and I think you're seeing increasing messaging that started with the 21a at the Dowell report more comments from Commissioner commissioners and chair Clayton specifically and even in his informal comments when you start to see op-eds in the Wall Street Journal right different pathway so I think the marketplace has been fairly warned so I think the enforcement actions will increase and increase perhaps with severity and I think it's been the lower hanging fruit if you would the most egregious obvious participants and I think you might see start to see the unregistered issuers than being registered brokers and finders that could find themselves in a bit of trouble going forward and one of the things just to underscore is that chairman Clayton not just with respect to icos tokens they're crypto space but generally he has focused on retail and what can the SEC do to protect retail investors from misconduct right and so when you think about offerings that go out to retail that's gonna be very much front and center when it comes to the SEC focus yeah because they sometimes have had the least amount of information and so they're the ones who need the protection the most if we go back to the core tenets and it was one of the great balances that having gotten to know troy a bit while he was at the commission and his pro business pro small business pro capital formation but balancing that with investor protection and I think what we find quite often is the smaller retail investors we don't have the ability to fend for themselves that we end up in a situation of seeing them to be the most exploited and when we look at the positioning of tokenization as a security and recognizing it as a security we have a clear rule book to comply with from AML from suitability know your customer reggae Plus rig D 506 C so I don't think we need a lot of new invention around that and existing ways to protect investors are right there for us and here's an interesting I think simple way to put a lot of these points which is once the SEC determines that a particular token or digital asset business security then you trigger the entirety of the federal securities laws and so to the point that we have lots of rules and regulations on the books that's a threshold question and going back to what folks at the Commission have said including chairman Clayton time and time again including at the hearing of the tokens that they've indicated that they've seen they think fall within the bucket of being securities and if they do then again you're off to the races in terms of the entirety of the regulatory regime being triggered now do you is your sense that they understand the balance between free markets innovation progress versus regulation do you think that they get that there needs to be a balance there I do and I think it's evidenced by if you will the tone at the hearing and other things that have been said by folks that Commission Chiz you did not see a rush to say the following we need legislative authority to do a B and C or X Y & Z they flag certain questions they have but have said look we're still thinking this through and we want to think it through collectively with other regulators at the federal level as well as at the state level I think what that reflects is is the technology is new all things considered and they want to make sure they get it right but part of getting a ride is striking these balances what you don't want to do maybe here I'm speaking now more in terms of myself and putting on my hat as former commissioner the one thing I'd be very mindful of is why I want to make sure we want to make sure we have a sound regulatory environment but that's important for investors to have trust frankly a sound regulatory environment can itself be important to facilitate capital formation because it can help spur participation in the marketplace at the same time you want to make sure that you don't have so many regulatory burdens complexity duplication or even simply uncertainty that you end up discouraging stifling chilling what could be very beneficial innovation for the marketplace and so trying to strike that right balance I think is gonna be IX I hope is going to be front and center but that's gonna take a little bit of time to go through well that's one of the things that people who love cryptocurrencies love is the decentralization of it and here you've got regulators who you know so it's kind of a strange place to be so they have to kind of figure that out they have to thread that needle very carefully I think so absolutely well as we've talked about Jane it's about the collaboration at this point it is the innovative nature of crypto currencies that are being recognized as securities now because we have better guidance it is blockchain and it's the intersection of regulation with that so modernisation of securities law meeting innovative technologies to more efficiently foster capital formation for job creation and growth while being mindful and cognizant of investor protection so I think we're early day still and both sides of the equation getting more comfortable with the process okay so the headlines I guess a regulation and enforcement of the bad players but kind of staying away from the good players of letting the market work and I think trying to figure it out yes again in terms of in terms of how to make sure that that balanced destruct and I know I keep saying try to figure it out but again I go back to my time at the Commission and one of the things I worry about a lot is if you rush to judgment chances are when you rush you're gonna miss the mark and some measure of patience to try to figure things out can be important but also recognizing that during that period where you're trying to think things through and get it right that itself can be a period of uncertainty which can be challenging and so this is all what the regulator's are trying to strike evened out 21a that Vince made reference to whether one agrees or disagrees I know there are strong views around that 21a but if you think about it as an important effort to try to provide some indication as to what the Commission is thinking so that folks at least know how to organize their affairs and their compliance efforts accordingly that can be helpful in terms of trying to wring out some of the uncertainty and perhaps we'll see more perhaps not 21 A's but perhaps we'll see other indications from the Commission to give people certainty as to how they're approaching it so people don't catch yeah you'll get caught off guard okay big questions announce time for people in the industry to step in I think it makes I think I'm sure really important point because I missed it and I think the viewers would love to hear it I didn't catch the name of Troyes podcast okay appetite for disruption on iTunes Google Play say that one more time you say appetite appetite for disruption we focus on regpack we focus on thin sack a lot of its focused on crypto digital assets blockchain more broadly so you can hear it wherever you check out your pocket I'm definitely gonna listen likes I'm very interested in this space so thank you so much Vince : re a CEO of liquid M capital also troy parade us parade of strategies founder and thank you as well for joining us I'm Jane King at the New York Stock Exchange you've been watching the digital assets report have a great day

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