SEC Chairman's Roundtable Speech: Balancing Crypto Privacy and Financial Regulation

Source: SEC website; Compiled by: Jinse Finance

Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission (SEC), spoke at a roundtable meeting of the SEC's Cryptocurrency Working Group on financial surveillance and privacy on December 15th, local time. He stated that blockchain has extremely strong capabilities in linking transactions and senders, and if regulation is misdirected, the crypto ecosystem could be pushed into "the most powerful financial surveillance architecture in history."

Paul S. Atkins warned that if governments treat "every wallet as a broker, every piece of code as an exchange, and every transaction as requiring reporting," it will turn the industry into a "panopticon of finance."

However, he also emphasized that there is still a viable path to balance security and innovation without sacrificing personal privacy. Discussions surrounding blockchain privacy and regulatory boundaries are becoming a core regulatory issue. The following is the full text of Paul S. Atkins' speech: Ladies and gentlemen, good afternoon, and thank you for coming. First, I would like to thank Commissioner Hester Peirce and the entire Cryptocurrency Working Group for organizing today's roundtable. I would also like to thank our distinguished panel members for taking the time to come to Washington to share their insights on financial privacy in the 21st century. Before presenting my own views, I must reiterate that the views I express today are solely my own and do not necessarily represent the position of the SEC or any other commissioner. Today's roundtable participants will explore a fundamentally American question: Can people participate in modern financial activities without sacrificing privacy? This contradiction raises many important questions. On the one hand, the federal government has an obligation to protect American citizens from national security interests and threats, including through measures such as the Bank Secrecy Act to curb illicit financial activities—a measure taken by the Treasury Department and other agencies. On the other hand, the freedom for citizens to handle their personal affairs (including financial affairs) without surveillance by the government and other agencies is one of America's core values. The emergence of cryptocurrencies has provided a unique opportunity to consider this issue within the technological context of the 21st century. Since January of this year, the current administration has emphasized returning power to the American people, enabling them to handle their own affairs autonomously, including those related to cryptocurrencies. In our case, the SEC must acknowledge its achievements in balancing investor protection and privacy. The Commission has established tools such as the Integrated Audit Trail (CAT), swap data repositories, and PF forms, claiming these tools are essential for protecting investors, combating fraud, and maintaining market security. However, the federal government's insatiable thirst for data has led to the ever-expanding use of these tools, increasingly jeopardizing the freedom of American investors and burdening them with often minimal returns, as the government doesn't even use all the information submitted. For example, while the Commission created CAT with the intention of gaining a clearer understanding of trading in various markets, it ultimately evolved into a powerful system that brought the SEC one step closer to mass surveillance. As a result, we have taken steps to reduce some of the most sensitive data elements in CAT and to re-examine its scope and costs. Friedrich von Hayek, in his book *The Fatal Conceit*, slammed the belief held by many government officials that the solution to problems is to gather enough smart people in one room and collect enough information that these all-knowing individuals can use to find a perfect solution. However, we have seen how poorly this approach works in practice—perhaps it simply doesn't work at all. So how right Dr. Hayek is! With the advent of cryptocurrencies, it's easy to imagine that governments and a range of intermediaries will be able to access virtually every aspect of an individual's financial life. Regulators may have a strong thirst for data, but this inclination is clearly incompatible with the very nature of the free society that has made America so successful. Therefore, regulators must remain humble and principled while embracing the opportunities presented by cryptocurrencies. In the analog era, financial regulation was naturally limited by paper records, physical distance, and manual processes. While these delays inconvenienced governments, they also naturally limited the amount of information commissions could obtain about any American investor. However, in the digital age, these limitations have been significantly reduced, making discussions about cryptocurrencies and privacy-enhancing technologies particularly important today. Public blockchains are more transparent than any traditional financial system. Every transfer of value is recorded on a ledger that anyone can access. On-chain analytics companies have already excelled in assisting law enforcement in linking on-chain activity with off-chain identities. In other words, **if regulation is misdirected,** cryptocurrency could become the most powerful financial surveillance architecture ever. In fact, if governments treat every wallet as a broker, every piece of software as an exchange, every transaction as a reportable event, and every protocol as a node for monitoring, they will turn this ecosystem into a financial panopticon. At the same time, this technology also brings privacy-preserving tools that the simulated world cannot provide, such as zero-knowledge proofs, selective disclosure, and wallet designs that allow users to prove compliance without providing intermediaries or governments with complete financial records or personal details. We can envision a system where regulated platforms can prove their users have passed screening without permanently storing detailed records of every payment, transaction, or donation. These tools will also help our markets continue to function smoothly as they migrate to on-chain. The inherent full financial transparency of public blockchains could stifle significant financial market activity. For example, many institutions rely on the ability to establish positions, test strategies, and provide liquidity without immediately exposing these activities to competitors and predatory traders. If every order, hedging transaction, and portfolio adjustment were visible in real time, we could attract front-running, imitation, and “bandwagon selling,” making risk management more difficult. Market-making and underwriting businesses would be significantly less attractive if every inventory imbalance or client fund movement were immediately exposed to the market. This technology makes it possible to balance the government’s interests in containing national security threats with the privacy interests of the American public. But to achieve this balance better, we must ensure that the American public is not immediately suspicious when using these tools. Protecting citizens’ legitimate activities from mass surveillance while ensuring the government can perform these vital functions is the best way to protect national security and fundamental civil liberties, while also allowing room for innovation. Therefore, this is a matter of great importance—the issues before us have profound and lasting implications. At the outset of the roundtable discussion, I was eager to hear more insights from the experts on how the committee can protect the privacy of the American people, and how cryptocurrency privacy tools can reduce, rather than increase, the need for mass financial surveillance. I firmly believe that by working together, we can build a framework that ensures technological progress and financial development do not come at the expense of individual freedom. Unfortunately, due to other commitments, I was unable to attend the entire meeting, but I am delighted to be here today with you all. Thank you for taking the time to attend. I look forward to a lively discussion.