SENATE COMMITTEE ON BANKING, HOUSING, & URBAN AFFAIRS
Hearing on Oversight of the SEC
For questions on the note below, please contact the Delta Strategy Group team.
On February 12, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Oversight of the Securities and Exchange Commission.” The witness in the hearing was Securities and Exchange Commission (SEC) Chairman Paul Atkins, with his testimony here.
Below is a summary of the hearing prepared by Delta Strategy Group, which includes several high-level takeaways, followed by summaries of opening statements and discussion.
Key Takeaways
- Chairman Scott (R-SC) criticized the “regulation by enforcement” approach to crypto oversight under the previous administration, stating that it created uncertainty and drove innovation overseas. He emphasized that Congress is now working in partnership with the SEC to establish a durable statutory framework through the Senate’s version of digital asset market structure legislation. He outlined how the legislation would clearly define regulatory responsibilities, strengthen investor protections, and provide the certainty needed to foster digital asset innovation in the U.S.
- Several Senators across the aisle noted their support and the importance of advancing comprehensive digital asset market structure legislation. Comments outlined the need for clear guardrails for tokenized securities, decentralized finance (DeFi) activity, and emerging financial technologies, while maintaining investor protections and market integrity.
- Chairman Atkins emphasized the importance of close coordination between the SEC and the Commodity Futures Trading Commission (CFTC), noting he meets weekly with CFTC Chairman Mike Selig and their staffs to harmonize regulatory approaches. He stated harmonization is critical for addressing overlapping jurisdiction in areas like prediction markets and “super apps,” while allowing U.S. firms to compete more effectively with foreign competitors that do not face a regulatory divide between futures and cash market regulators.
- Senator McCormick (R-PA) raised the growth of prediction markets and asked how the SEC is coordinating with the CFTC to provide clarity, including whether rulemaking or legislation may be needed. Chairman Atkins said the issue is a major focus and emphasized close coordination with CFTC Chairman Mike Selig. He further added that while prediction markets currently fall more on the CFTC side, he noted the need for the Commissions to be interknit to address nuances and potential gaps.
- Senator Britt (R-AL) expressed concern that the SEC changes to the Consolidated Audit Trail (CAT) using exemptive relief could be reversed by a future administration, and asked about implementing structural, long-term changes. Chairman Atkins acknowledged the concern and stated the SEC hopes to pursue rulemaking this year to right-size CAT, reduce costs to $100 million annually, and address constitutional and data protection issues.
- Senator Moreno (R-OH) questioned whether individuals should be able to have self-custody of their digital assets. Chairman Atkins expressed support for self-custody of digital assets, stating that property rights should determine where assets are held, while cautioning against market fragmentation that could balkanize liquidity within the national market system (NMS).
- Senator Warner (D-VA) expressed concern regarding guardrails around agentic AI in broker-dealers and banks. Chairman Atkins acknowledged the risks of the emerging technology and stated the SEC must remain attuned to potential issues as adoption evolves
- Democratic Senators emphasized the importance of maintaining a full and bipartisan Commission. Members raised concerns about the lack of Democratic appointments, highlighting that a balanced Commission is important for durable rulemaking and bipartisan cooperation.
SUMMARY
Opening Statements and Testimony
Committee Chairman Scott (R-SC)
The SEC under Chair Atkins’s leadership reflects an approach focused on growth, opportunity, and common sense. This can be seen in how the SEC is addressing digital assets. Under the Biden administration, the regulation of digital assets was regulation by enforcement. Instead of clear rules, businesses, builders, and investors were left with confusion, subpoenas, and lawsuits. Instead of innovation growing in the U.S., much of it was pushed overseas. That approach failed investors who deserve transparency and protection, failed entrepreneurs trying to build the next generation of U.S. companies, and it failed our country at a time when global competitors are racing to lead in financial innovation. Congress is now doing its job, working in partnership with the SEC. The Senate digital asset market structure bill is about establishing clear rules of the road for this industry. It defines responsibility for regulators, protects investors, and gives businesses the certainties they need to innovate in the U.S. while keeping consumer protection paramount. Digital asset innovation will now happen here at home, not abroad. After four years of dysfunction, the SEC has once again become a partner in growth, returning to its core mission of protecting investors, maintaining fair and orderly markets, and facilitating capital formation for everyday Americans.
Ranking Member Warren (D-MA)
Our markets are the envy of the world and deliver enormous opportunity. The SEC’s job is to make sure our markets are fair and honest. The Trump SEC has gutted oversight and enforcement tools.
Securities and Exchange Commission Chairman Atkins
I support Congressional efforts to enact the Digital Asset Market Structure Clarity (CLARITY) Act. A federal framework for crypto markets is long overdue. Under Commissioner Peirce’s leadership of our Crypto Task Force, SEC staff has provided more clarity in the past year than in the prior decade, but there is no action we can take that future-proofs our rulebook more formidably than non-partisan market structure legislation. CFTC Chairman Mike Selig and I intend to provide a bridge toward legislation. Through our now joint Project Crypto, we will consider a token taxonomy to offer both investors and innovators a clear understanding of their regulatory obligations. We will also look to consider exemptions that would allow market participants to move and transact on chain.
Capital markets thrive on many factors, but they endure based on the trust of those who participate in them. To fulfill that charge, the SEC is returning its enforcement program to first principles of rooting out fraud and remedying investor harm. We have brought enforcement actions to address offering fraud, insider trading, accounting and financial fraud, and breaches of fiduciary duty by investment advisers. Markets are global, and investor protection must be as well. The SEC is returning to a core mission that remains as vital today as it was when Congress first set it for us over ninety years ago.
DISCUSSION
Chairman Scott (R-SC): Why is providing legislative clarity for digital assets is critical for U.S. competitiveness and protecting U.S. investors? Atkins: I support your efforts and agree that in the House and Senate, you have spent a lot of time and energy to come up with what I think will be a very good bill once the details are ironed out. We have been offering technical assistance to both sides of the aisle to show our support in helping the legislation come out in the right place. The real issue that is important about this legislation is to future-proof things, and to give clarity to innovators between the SEC and the CFTC. Innovators were getting caught in the crossfire of the CFTC-SEC “no man’s land.” We need to provide people with clarity as to what they need to do. The problem in the past few years was that the SEC stayed mum and did not try to accommodate this new, innovative technology. We need a firm grounding in the statute so that we cannot have any backsliding in the future.
Ranking Member Warren (D-MA): Kraken, Coinbase, Gemini, and Binance all have some tie to the Trump administration, and the SEC cases against them were dismissed. Can you list the cases the SEC is pursuing against crypto companies that have ties or donated to the Trump administration? Atkins: The cases that we have dropped were on registration issues.
Senator Rounds (R-SD): What is your philosophy on regulation and enforcement? Atkins: I believe that the law is the law, regardless of the parties involved. We have a duty to police our markets, and I take that duty very seriously. Some of the cases that were dropped happened before I arrived at the SEC in an effort by Acting Chairman Uyeda and Commissioner Pierce to withdraw things they saw as regulation by enforcement. These were mostly registration issues under Section 5 of the 1933 Securities Act. This was regulation by enforcement, where the SEC said to fill out the S-1 form. There was no effort to accommodate the new technologies of these new products that were inapposite to the forms, and I would argue, were not securities in the first place. That is a changed attitude in the SEC, and that is what accounts for most of the cases that were dropped. Seven of the nine crypto litigations that were dropped were because of litigation issues. Since the Trump administration began over a year ago, the SEC has brought five crypto-asset cases, and they are ongoing. We are active in this area; fraud is fraud, whether it is in crypto or not.
Senator Alsobrooks (D-MD): Do I have your commitment to continued cooperation in developing guardrails and direction for market structure, specifically tokenized securities? Atkins: Yes. Under current law, it says that tokenized securities are securities, and we will treat them as such. That is our position at the SEC, and our authority under that is clear, no matter how the securities are recorded.
Senator Banks (R-IN): What steps has the SEC taken to delist Chinese companies from U.S. markets and rescind Chinese broker-dealer licenses? Atkins: We have limited authority under the various securities laws. We can delist a company if it has not kept its filings current, for example. We can stop trading if there are signs of manipulative activity in the market. We have a cross-border task force that I have set up in our Enforcement Division that monitors trading. We have shut down trading on thirteen companies on NASDAQ, and more recently, one on the NYSE. Our remedies on this are limited, but we are working with self-regulatory organizations (SROs) on the issue.
Senator Banks: Should American investors trust audits they receive on Chinese companies if those auditors report to the Chinese Communist Party (CCP)? Atkins: I cannot say blanketly, but we have sworn in new members to the Public Company Accounting Oversight Board (PCAOB), and this is one of the main issues they will be tackling.
Senator Hagerty (R-TN): What was the impact of the 43-day government shutdown on the SEC’s operations? Atkins: It set us back a lot. It has thrown off a lot of our work for investigations. For a while, our rulemaking and normal operations were yet to be done.
Senator Warner (D-VA): Do you think banks and broker-dealers have appropriate guardrails in place today to ensure agentic AI does not do something illegal? Atkins: I share your concerns with that. This is a new technology, and people are still experimenting with it, so I cannot really say what is going on with respect to individual broker-dealers. Whichever way this technology grows, I think we have to be very attuned to those potential problems.
Senator Warner: How are you thinking about regulation for DeFi? Does the deregulation you have spoken about include things like anti-money laundering (AML) rules? Atkins: AML is vital, and that speech was more in the context of smart contracts. There are already developments out there to incorporate into the token itself, AML, and the Bank Secrecy Act (BSA) concerns. 3643 Ethereum on the blockchain is an example of that, where people are experimenting with things that are embedded in the token.
Senator Moreno (R-OH): How do you view the SEC in terms of functioning? Do you view yourselves as enforcing law, or creating laws through enforcement? Atkins: We should not be regulating by enforcement.
Senator Moreno: How important is it for Congress get crypto legislation that will give the SEC a regulatory framework that allows the agency to enforce laws and keep bad actors out, and make certain that good actors are given the room they need to develop and innovate in the U.S.? Atkins: We need a good law out of Congress to be enacted that would undergird our efforts. The SEC has pretty broad authority to interpret and have exemptions under the various securities laws. That has been the missing link over the past few years. The SEC has not made a real attempt to accommodate this technology. That has created a gap between what is possible and what people were actually able to achieve. Regulation by enforcement is not how I think regulators should operate. Regulators should perceive what the questions are in the industry and then address those. We have many tools to do that, and that is how a competent regulator should be operating.
Senator Moreno: What is your view on self-custody in digital assets? Should one be able to be a custodian over their digital assets? Atkins: Yes, I believe so. Your right to your property should determine where it is held. For the differences in trading, we have to make sure things do not become balkanized, for liquidity that is atomized, but for the NMS to work and provide the engine we have currently, we will have to accommodate for all sorts of different ways of doing business.
Senator Van Hollen (D-MD): Does the SEC benefit from having a diverse set of views from its Commissioners? Would you encourage the White House to reach out to Senate Democrats about potential Democratic Commissioner nominees? Atkins: Yes. I have been supportive in public and private of having a full complement of Commissioners. I think that helps with debates and everything else.
Senator Van Hollen: Do non-bank entities pose systemic risk to our economy, as we saw with the AIG taxpayer bailout? Atkins: As far as the non-backed financial institutions, we are in agreement with the Fed, Treasury, and other members of the Financial Stability Oversight Council (FSOC) board internationally, that at the current time, non-bank financial institutions do not pose a systemic risk to the banking system.
Senator McCormick (R-PA): How is the SEC working with the CFTC to provide greater clarity for U.S. market participants in prediction markets? Do you see any rulemaking on the horizon and any thoughts on the need for legislation in those areas? Atkins: That is a huge issue that we are focused on. CFTC Chairman Mike Selig is very competent. I can surely say the two agencies will be harmonized more than ever before. We meet once a week with our staff, and that is an important aspect of trying to harmonize. Prediction markets are one thing where there is potential for overlapping jurisdiction. Currently, it is more on the CFTC side, but we need to be harmonized. We will see what you all come up with here with respect to clarity. I think the SEC has enough authority. A security is a security, regardless. Some of the nuances with prediction markets depend on wording and what exactly needs to be done. That points up the potential gaps that the SEC and CFTC need to be very interknit on.
Senator McCormick: Can you outline how super apps would increase global competitiveness for U.S.-registered financial firms and the consumer protections that should guide the approach to super apps? Atkins: It comes back to harmonization with the CFTC. These are two agencies that should be very well-knit together, so that there are no gaps. As the markets have evolved over the past forty years, there are now actors in both futures and cash markets. It is incumbent on us to make this as efficient as possible for them so they can compete with foreign firms in other jurisdictions that do not have the dichotomy between a futures regulator and a cash market regulator. It is our goal to make it efficient, anywhere from cross-margining and portfolio margining to what kind of medallion you need to do x, y, and z. The more harmonized we are, the better and more efficient we are.
Senator Warnock (D-GA): If the next administration is Democratic, are there specific rules the SEC is working on that you hope will endure, or do you intend all of them to be immediately scrapped and rewritten after your term? Atkins: That is absolutely what we want to have, especially now on the crypto side. What we are doing and what we will be doing in the next couple of years will set the pace for a generation. That is why I look forward to an Act from Congress, and I will work with whoever the President appoints to be Commissioners at the SEC.
Senator Warnock: Do you agree that differentiating viewpoints at the Commissioner level would help moderate rulemakings and ensure they last beyond this administration, making the SEC a more trusted and consistent regulator? Atkins: I hope what we are working on can achieve approbation from all sides. There are benefits to all sorts of viewpoints, and I am happy to work with whoever.
Senator Warnock: Do you believe the SEC has adequate enforcement staffing and priorities to fully protect investors in our capital markets? Atkins: Yes, I do.
Senator Britt (R-AL): I am concerned that by using exemptive relief, some of the changes you have made to CAT could be reversed by a future administration. Can you speak to CAT and how we can implement structural, long-term changes? What is the timeline you see for that? Atkins: The problem with CAT from the beginning is the lack of a clear roadmap, what it was supposed to become, and what attributes it would have. A lot got added to it over the years without necessarily good management and planning. When I first got to the SEC, I called together the heads of the SROs and the teams and told them this is not going to be business as usual. We need to cut the cost down to $100 million a year, and we need to address some of these long-standing issues of constitutionality and protection of investor data. We are actively working on that, and I am happy to say that the cost has come down. We still have a number of issues to work out, so we will be engaging in rulemaking eventually to get this right-sized. It is a critical issue. I am hoping that we can address a lot of these issues this year. It is just a matter of rulemaking and the process for a notice and comment period.
Senator Blunt-Rochester (D-DE): Has Congress given the SEC more authority to police insider trading beyond general fraud? Does the SEC enforce the inside trading rules even if the tradeable asset in question is not the underlying security, such as an equity-based derivative? Atkins: Yes, I think. It depends on whether it is a security or not.
Senator Blunt-Rochester: Does the risk of insider trading go away because an asset is traded differently? As it relates to crypto, is insider trading or self-dealing, regardless of asset classification, by someone with confidential information or insider control, harmful to market integrity and investors? Are you against the concept of insider trading? Atkins: Different markets have different standards. We want to make sure the markets are transparent. As it relates to securities markets.
Senator Ricketts (R-NE): The PCAOB inspections have identified significant audit deficiencies at China-based firms serving China-based issuers. Do you believe it creates an uneven playing field when those issuers can access our markets without being subject to the same level of inspections and oversight? Atkins: Just this week, we swore in a new Chairman and new members at the PCAOB. This is something they will be focused on with respect to China-related companies and whether or not there is robust access by competent auditors operating under our rules and working with those particular companies. We put out a release this summer asking questions regarding foreign private issuers, especially ones that are headquartered in another country, incorporated in the Caribbean, and then primarily listed in the U.S. We are out to address this, and I agree with your concerns.