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Transcript: SEC, OCC panel discussion on digital asset regulation

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Event: Two Sides of the American Coin: Innovation & Regulation of Digital Assets
Hosted by Digital Chamber, 1 October 2020

Jay Clayton, Chairman of the U.S. Securities and Exchange Commission (SEC)
Brian Brooks, Acting Comptroller of the Currency (OCC)

Moderator: Jackson Mueller, Director, Policy & Government Relations at Securrency

Moderator: Two sides of the American Coin, a focus on innovation and regulation of digital assets. I think it goes without saying that you guys have been quite busy over the last week between the two of you, if not the last couple of weeks and months in this space.

So I really wanted to focus on a number of areas for this discussion today. The first being, talking about innovation under a mature regulatory framework. And I think listening to a number of your presentations and comments in the past, that there’s a recurring theme in both of your approaches to innovations in the digital asset space.

And that is that innovation can flourish while still complying with our respective regulatory frameworks. Now, Mr. Clayton, I’ve got about ten pages of statements from you since you became chairman of the SEC that really reflect that theme. And Mr. Brooks, you’ve been quoted quite a bit in recent weeks, and you’ve also been consistent in this messaging since really joining the OCC.

So a two part question to this larger question. Are our current frameworks sufficient to address new innovations and future developments in this space? And then are there particular areas of our current framework that are problematic for you? And that could potentially require legislative efforts to address in order to spur innovation forward.

So Mr. Claytom, let me start with you. And then Mr. Brooks can piggyback on top.

Jay Clayton, SEC: Sure. Thank you, Jackson. And the short answer is, yes. Our regulatory framework, the principles of our framework, it’s time tested and it’s been time tested through many innovations.

You know for example, if you talk about trading today, all trading is electronic. Our exchanges have gone electronic. Every trade you do, if you call your broker and say, I want this, it gets routed through an electronic, an algorithm executed electronically. That was not the case 20 years ago. It may very well be the case that just as you had stock certificates and now you have entries, digital entries for representing stock. It may very well be the case that those all become tokenized.

But you have to stay true to the principles, which is people who are distributing stock, people who are insiders of the companies for which the stock has been issued, they have responsibilities. One of the problems that we had was we got off on the wrong foot in this innovation. There was the theory that, because it was so efficient, because it could have so much promise, we could toss aside some of those principles of responsibility and transparency. I think now three years later, four years later, we are in a much better spot.

And we’re seeing the promise of blockchain technology, distributed ledger technology, bring efficiencies to that, what I say is time-tested framework.

And with that, let me turn it over to Brian.

Brian Brooks, OCC: First of all. Thanks Jackson for having us both here. I think the fact that you’ve got the OCC and the SEC sitting in the same room, talking about this tells you a lot about the maturation of what’s going on here.

And I honestly couldn’t be more excited about the partnership between our two agencies in terms of not only seeing these issues as enforcement issues, but trying to also show the other side of the coin. That’s the title of today’s talk, right? There are some things out there that have been sold in ways that I think are problematic under securities laws and other rules.

And there are also some things here that would be good for America to invest in and lead in. Right. And I think we have to show what we think is good and safe, and we need to lean into those things in the same way that we enforce the things that we think are problematic and have disclosure issues.

And that’s, I think what we’re trying to do together.

I think from the OCC’s perspective, I think a lot of the maturation of the crypto industry is about thinking about what this stuff is about. Right. And I think that anybody who’s worked in the field knows that the original concept of Bitcoin and all of these other innovations was not supposed to be to create some made up investment asset.

God knows there are plenty of things to invest in, right? Plenty of derivatives contracts and equities, and other ways of accessing volatility. If that’s what you’re looking for, you don’t need to make up something on a computer code to invest in, if that’s what you’re trying to do.

We think what’s going at the OCC is something more fundamental than that. And it may be challenging to the existing bank regulations, which is why we need to clarify them. But what we think is going on is the idea that networks are fundamentally more resilient and efficient than vertically integrated sort of control towers.

And historically the way that financial intermediation happened in this country was that you had these central control functions administered by banks as the underpinning of all of finance. There were basically single points of failure. And if a bank went down, really bad things happened, right?

We saw that in the financial crisis. All it took was one Lehman Brothers and the end of the world as we knew it arose. Same thing if a bank data center gets taken out in a hack. That bank may be unavailable for days, creating chaos in markets. Networks don’t behave that way. And what crypto tokens are fundamentally about is they’re supposed to be the assets that are powering networks.

They’re the things that are incentivizing people to connect to the networks, such that the functionality of the network, like the internet becomes very stable and resilient over time. So we see this as more of an infrastructure issue than an investment asset issue in its maturity. And the reason I think that people have seen what they’ve seen from the regulatory agencies is that we haven’t achieved maturity yet.

And so in the early days you have speculators, right? And you have people trying to take advantage of speculators. But in the mature phase, what you have is a radical new payment system that may be better than existing payment systems, which are built on antiquated technologies.

And since the OCC is in part, the administrator of the banks that operate on payment systems, we have a strong interest in trying to envision a medium term future, not a tomorrow future, where people are speculating on Bitcoin price movements. But a medium term future where these blockchain networks that have been built are basically the internet of finance.

That’s where I think this goes. And that’s kind of a mindblowing challenge to the banking model.

And so I think our responsibility as regulators on the bank side is to get out front of that and help chart a course that shows that there is a future for banks in this world. That banks play a critical role in this world, and we need to establish a framework around it so the ways they connect are safe and sound.

Moderator: Thanks guys. Going back to both Brian and Jay’s comments. Brian you’d mentioned, we haven’t achieved maturity yet in some of these areas in this space. And then Jay, you mentioned getting off on the wrong foot on some of this innovation.

And I think that goes to my second question of whether and to what extent is the continued discussions in particular among your agencies as it relates to what is and is not a security. And if you go broader than that, crypto-assets taxonomy. Has the focus on those issues in particular really prevented you from addressing other potentially less controversial developments in the blockchain and digital assets space? Such as, for instance, tokenized versions of traditional regulated financial instruments. Jay, I’ll start with you and then Brian, if you want to go as well.

Jay Clayton, SEC: Sure. And it’s a very good question to ask because you read about the problems. But we’ve got a lot of people working on areas that aren’t problematic. Areas where we’re bringing this technology to bear. And, and also, I think you can characterize a number of our recent discussions that we’ve had with the OCC as where can we be clear that it’s not a securities law issue?

That’s a lot of what Brian and I, and thanks to our great staffs have been talking about over the past few months. And how do we in the payment area, the maturation in the payment area, how do we make it clear to people that if you’re not trying to finance your network, you’re not trying to re give people a return on your network, it’s probably not a security.

But if what you’re trying to do is finance the build out of your network with your token, or provide people with a return for using the network with your token. You look at the traditional test of security: it’s pretty clear it’s a security.

And we’re working to make it clear where those lines are, so people can mature the payment system. And I think, I don’t know Brian, is that a fair way to describe our relationship?

Brian Brooks, OCC: Yeah, I think that’s exactly right. I mean, look, the collaboration we had just start with stablecoins, which is the first thing that we’ve done together.

I think came out of a view that look, Jay is not the security silo. And I am the lending and deposit silo. We’re part of a group of regulators in the government who are charged with maintaining a strong, robust financial infrastructure for the country. Right. We oversee the financial system.

And there are different ways people access capital and credit in the financial system. Sometimes they choose to take a bank loan. Other times they issue a debt security. It’s fundamentally a fungible thing. Sometimes people buy an equity. Sometimes they do something else. And I think we came together around this. Based on the view that the country would be a stronger economy with less friction if our payment system worked better.

And one of the things that can potentially help innovate the payment system and make us more internationally competitive would be leaning into stablecoin powered blockchains. So, Jay and I spent some time talking together and said, hey, on this issue, we have a strong alliance of interests where we both want to see American leadership. We both want to see a payments network that is as strong as China’s or the EU’s. And one way to do that is for us to say that banks have the authority to participate in these payment networks. And for the SEC to say, hey, stablecoins that meet certain conditions outlined in the OCC’s letters, they will not be securities.

So come to us and we’ll give you clarity. That’s a great way, I think, for government to do what it does best. Which is to provide framework rules within which industry can innovate and flourish.

Moderator: That’s great. And thank you for that. And I think this idea coordination is an interesting one, especially when the industry is converging. When you think of the different types of payments and methods for transacting out there, and in particular I just wanted to quickly go over another one of my questions.

Mr. Clayton, you talked about in the recent Senate Banking Committee hearing. You stated that the announcement of Libra was a focal point for regulators of different types to recognize that digitization and the digitization of the plumbing and other aspects of our financial system, including payments transfers is coming.

And that was quote unquote. I think for the two of you, when you think about bridging traditional investment assets as payments. When you think about the launch of Libra, MasterCard launching a CBDC testing platform, PayPal offering direct sales of cryptocurrency, the OCC recently awarding a charter to I believe it’s pronounced Jiko Bank that deals with treasury bills in particular for payments.

And then you think about the recent charter of Kraken, I believe that was in Wyoming. And even with the interaction between the Digital Dollar, stablecoins and other digital assets. Are we at a point where industry convergence is really going to drive and necessitate greater regulatory convergence in the future?

And Brian, let me start with you. And then Jay.

Brian Brooks, OCC: I would start with this comment, which is when you give that long laundry list of things, I’m reminded of the fact that in the early days of the internet, there was this massive flourishing of internet businesses, most of which failed.

And that’s okay. You know what I mean? My guess is that most cryptocurrency projects are going to fail. They’re not going to be relevant to a particular need, or they’re going to raise fundamental, legal compliance issues or something like that. I don’t think it’s our role as regulators to say that all of the things you just mentioned are good or all of them are bad.

I think, I mean, coming back to Jay’s point about principles, I think it’s about sort of articulating a framework much as the EU recently issued a framework on stablecoins just a week ago, to sort of say: things that meet these parameters are legal to bring before the market. And then the market can decide what it wants.

Things that are outside of this framework, raise real problems of investor disclosure or fraud or whatever, and probably shouldn’t come before that. But within that framework, lots of legal things are going to come to the market and fail. Just sort of like lots of companies that list on the New York Stock Exchange and were there 70 years ago have gone out of business. And again, we’re okay in a dynamic economy.

What I try to say when I talk to people about crypto is, every one of these tokens represents a different project with a different point. Some of them were fundraising schemes. You know, that raised the issues that the SEC has identified. Some of them are trying to build a network for the purpose of using the token to add access to the network.

And they’re as simple as utilities. And some of them are foundational technologies that our future banking system could be built on. So I don’t want to pick winners and losers here, but what I do think we need to do as regulators is articulate what we think blockchain adds to the ecosystem. And where the risks are and where the benefits are.

And where there are benefits we should not be stupid and get in the way of American success and competitiveness. And where there are issues of scams and frauds and other things, we shouldn’t be shy about saying so. And I think that’s what we’re trying to do today. Is to say, here are some rules.

Let me just give you one example. And I don’t mean to go on this long, but like the first thing the OCC did on crypto was come out with a custody interpretive letter to say that, hey, in the same way that banks are authorized to custody things like digital securities, or any other exotic asset, you know, vintage cars, for example, they can custody these things, subject to their normal risk management practices. And the point there was, one of the big risks in crypto is that somebody is going to steal your code and you’re going to get robbed, more or less. We can help with that.

Another thing we did is we came out with a stablecoin letter, authorizing banks to maintain the deposit accounts that back these stablecoin projects. And that’s important because some stablecoin projects have blown up because of what amount to bank runs. You know, people thought they bought something that was redeemable for currency. And when they went to redeem it, there was no money in the bank. And that’s a problem.

So I think these are kind of the OCC equivalents to things that the SEC cares about in terms of somebody’s buying a piece of the blue sky. You know, there may not actually be a business there. And that’s what disclosure obligations and registration obligations are about.

But I do think that once you establish these rules, for example, when we came out and said, you have to comply with collateral and audit standards. When we put those rules out there, the weird thing was is that the market circulation of US-based stablecoins went through through the roof because markets like rules.

They like clarity, interestingly. And I think we can have a lot of innovation once we specify what the rules are. So I think coming together as you know, joint regulators and specifying that, is going to be a good thing ultimately for the projects that are valuable.

Moderator: Jay. I’ll let you answer that question, but I think I wanted to add a little bit more to it.

You know, Brian had mentioned the need to push forward on a framework for a lot of these issues and frankly you know, for me, one of my recurring nightmares in this space is reading a 2016 government accountability office report. That on page three gave a chart of all the overlapping regulatory jurisdictions in the U.S. At the federal and then the state level as well.

So when you think about that overlap as you answer my first question. How do you know who’s going to drive this at the end of the day, right? Because it seems like as the industry converges on a number of these areas, you’re going to need regulators to band together and have a united voice on this.

So who drives?

Jay Clayton, SEC: Let me first say I enjoyed Brian’s characterization of where we are and where we’re trying to go. I thought it was quite good.

And, and who drives depends on the functionality. Okay. So we’re talking about stablecoins as an area for enhancing efficiencies in the payment system.

Well, the people who regulate the payment system, the banking regulators, they should drive this. If you’re talking about – in the preamble there was tokenization of ETFs – well we should drive that and we’re willing to drive that. Our door is wide open. If you want to show how to tokenize the ETF product in a way that adds efficiency, we want to meet with you, we want to facilitate that.

Of course, you’ve got to register it and do what you would do with any other ETF. What we don’t like. What we don’t like is when someone says, you know, the function is payments, so you really gotta look past the securities law stuff.

I can’t do that. You know, I wouldn’t be doing my job. But as you focus in on the function, we’re coordinating around that and that’s exactly what we were doing with our statement in reaction to the stablecoin letter. Which is these guys (OCC) are gonna take the lead on that. Come tell us about it.

Don’t pretend that it’s a payment system when it’s actually a financing vehicle. But we’ll kick the tires and we’ll give you our view. And then go over and see Mr. Brooks and his colleagues.

Moderator: Do you guys think at least from an international perspective, when you talk about the coordination and agency coordination here in the U.S. And just the complex system that we have currently. Is that a competitive disadvantage here? I mean, when you look at what the EU proposed last week, and I admit I haven’t read through 170 pages yet of their crypto-asset report. When you look at some of the select countries out there that are moving forward on, whether it be CBDCs and their central banks are pushing forward on that.

When you look at what China is doing with their blockchain services network. And the promotion of that and interconnectedness with various public ledgers out there. Given all of what’s happening internationally, does the fragmented system that we’re in, does that put us at a competitive disadvantage at the end of the day? Because we just can’t respond as quickly as some of these other countries can.

Jay Clayton, SEC: So I’m going to jump in on that and say every situation is different. And we’re not out of the COVID woods yet. But if you look at the response of the various U.S. Regulators around the COVID pandemic, the ability to coordinate, but also the ability to be expert in each of their areas, came to the fore.

And so I think it’s a system that’s actually well-tailored for the complexity and various functionalities of our financial ecosystem. And look, I think we’re fairly early days in blockchain technology. I’m sure it’s frustrating. But if you use the old cliche – history doesn’t repeat itself, but it rhymes – go back to the digitization of trading.

You had Island, ICE, all these things and many others that all demonstrated that there were efficiencies to be garnered. They worked through the regulatory system. In fact, many of the same issues were coming up. And now we have a modern trading environment where spreads are tighter, liquidity is greater and the like. And the same thing is probably happening in the fixed income market.

And let me just say this, I’m not worried about, you can call it fragmented, you can call it overlapping, you can call it patchwork, you can call it the multifaceted, whatever word you want to use.

And I also wouldn’t spend a lot of time worrying because I don’t see it changing. So as a pragmatic matter, you know, you probably would just want to make it work as best you can. I don’t know, Brian.

Brian Brooks, OCC: Yeah. I agree with all that. So let me just extend those remarks and say, first of all, the U.S. system may be fragmented in the sense that we have more regulators dealing with finance that some other countries do, but you’d be surprised how closely coordinated we all are.

There are various vehicles by which we all sit together and do make policy judgments. We have the Financial Stability Oversight Council (FSOC) that just met last week and discusses important issues together. We have the President’s Working Group on Financial Markets. This is looking at crypto among other things.

And so you’ll get a coordinated response out of us, I think better than most people appreciate. But what I would tell you is. The most important strength we have in this country, which a lot of these countries that have unified regulation don’t have, as well as we do, is we have a strong philosophy that markets rule in this country, you know, and our role is not to command and control the economy.

Our role is to create frameworks within which markets can function. And so I’ve said over and over again, that the most important reason I’m trying to address crypto at the OCC is not because I have a bias in favor of crypto. It’s because there are 50 million people who own this stuff. And so it’s important for Jay to make sure that what they’re buying is real and disclosed and registered and all that stuff.

It’s important for me to recognize that this stuff sits inside the banking system today, and we need some rules around it. But at the end of the day, the thing that is America’s strength and the reason that we are the most innovative country in the world is precisely because we let markets decide.

To my point about the New York Stock Exchange companies going bankrupt. The New York Stock Exchange does not refuse to list a company because they think the product is crumby, right? They let the market decide if the product’s good or not. They just have a set of rules about disclosing what that thing is.

And that’s what we’re trying to do. At least what I’m trying to do today is to let markets decide what they want. And then we’ll decide what’s legal to maximize the ability of market actors to make their decisions.

Jay Clayton, SEC: And let me just say. I think we both will let the market decide, but we both recognize that there are efficiencies that can be added to the market. But there always are.

That’s the beauty of this. And I am sure I have no doubt. One of the things that comes to mind is security interests. Security interests are incredibly paper intensive. Anytime there’s a refinancing, the filings that have to go you know, around the States and whatnot. And any of the leveraged finance lawyers on the phone know this area where digitization could add a tremendous amount of efficiency. Without a doubt.

Moderator: Let me just add in another related question, as it relates to some of these international developments we’re seeing. And you talk about markets driven and like here in the U.S. But to what extent when you see these developments, whether it’d be out of China, Europe, elsewhere, as it relates to expansion of their payments structures, or creation of monolithic centralized systems. Does that pose a threat to the promotion of our financial services abroad and the values that we hold in the U.S. and export abroad.

Brian Brooks, OCC: So maybe if I can jump on that because I think you’re really talking about the development of things like the China, e-Renminbi or the EU / ECB work around stablecoins, or the UK statement about central bank digital currency. Here’s what I think. And I’m going to come back to my market point. Countries like China, have an ability that we don’t have.

Which is they have a command and control economy and a single party, you know, sort of government. And if they want to dictate that we’re going to have this kind of a currency, they can do that tomorrow. And we can’t do that. Right. Because we’re a democracy and everything else. So that’s never going to be our strength.

Our strength is, as I’ve said in multiple other fora, we’ve already built a bunch of real time payment systems. It just wasn’t the government that did it because that’s the magic of America. We’re the people who will deliver you eight different flavors. When the Soviet union would deliver you one.

And so the question I’ve got is just what can we do as regulators to create a safe and sound environment where our private sector can be unleashed because we’re better than they are when we do that. And I think the problem we’ve had for the last 20 years or so is we haven’t given clarity to the market about which of these things we think are legal and not.

And that’s what we’re trying to start doing now. Is to say, yes, we’ve seen some projects that we think are legally problematic. Jay’s brought some lawsuits to highlight what those look like. Now we’re trying to look at the other side of the coin. Here are some things that we think are highly valuable and we’re okay with.

And so we start with the easy, low hanging fruit of stablecoin powered payment systems, as long as they are compliant with BSA/AML requirements, as long as they’re based in the U S and fully collateralized with Fiat currency, we’re more or less good with that. And if that’s the standard, we’ve already beat China because we’ve got a bunch of those networks, not just their one.

That’s our advantage. It’s markets.

Moderator: Let me go back to my previous questions on kind of coordination and agency coordination. So I’ve got both of you in this room right now from the SEC and the OCC and I think everyone that’s listening in and myself listening in from a couple of feet away, really appreciates the two agencies recognizing the potential for overlap of authority.

You know, the fact that you’re able to work together to work out some of the kinks within this system that we have. And which is not going away.

I guess the question I have for the both of you since you’ve been very active over the last a week in particular, giving me a lot of weekend homework reading. But even before that is, do you see more cooperation ahead between your two agencies and how do you see U.S. regulators moving forward on a more coordinated approach.

Does it have to be at kind of FSOC level in addressing some of these issues. Or as you guys mentioned, it can be an agency by agency basis as well. Jay let me start with you. And then Brian.

Jay Clayton, SEC: Sure. I think you outlined the answer. Which is in some cases it’s bilateral. We’ve done a lot of bilateral work and that bilateral work we’ll feed into work at the Presidential Working Group or at the FSOC or otherwise. There’s no set structure for coordination. We have a lot of structures that facilitate coordination, but as things come up …

Chairman Tarbert over at the CFTC and I, we have a standing call every Monday. Some days it’s a half hour, some days it’s ten minutes. Where are we going to be better if we resolve things at that level quickly? So there’s a lot more coordination than you see. We certainly don’t like announce every time we talk to each other. That would be quite cumbersome. But there’s a lot of discussion.

Brian Brooks, OCC: Yeah. I think that’s absolutely right. I think that broadly over time, it would be good, in the same way that the government has a policy on things like housing finance, you know, it’ll be good for the government to have a broad policy framework for this kind of stuff.

But like everything, it tends to start small. You address the easy questions first because they’re big and easy. And I think that’s what we’re talking about with these Fiat backed stablecoins. And then you get to more complicated questions, like the Libra situation that you raised a few minutes ago. You know, that’s got a lot of other issues going on with it. And what do we think about that? It touches multiple of our agencies. At the end of the day I think you’ll see us address some framework questions as a government, and then you’ll have single agencies and bilateral cooperation on things that don’t have the same breadth of implication.

But I think there are things you can expect to see coming out of us. I mean, we’ve already said a few things. We’ve said banks can custody crypto-assets. We’ve said that banks can hold deposit accounts in support of stablecoins. Should we say something about bank’s ability to plug into blockchains and actually issue stablecoins?

I don’t know. And I don’t know what the right answer is. But I know the market’s asking those questions and we’ll have to figure that out. You know, do we believe, for example, that banks should be node validators on a blockchain for other assets? Again, I don’t know, but that’s where these things lead and some of these things are broad enough to mention that we’ll coordinate on it, for sure. That’s what we do well.

Moderator: We talked about a lot over the last couple of minutes about regulatory coordination. But I want to focus now on is, industry led oversight and primarily as questions for you, Jay, but then Brian, feel free to jump in as well. One of the things that I read about a week or two ago was authored by David Weild, former vice chairman at NASDAQ.

And he was interviewed in the recent article in Forbes where he suggested the need for the U.S. Government to empower a cross industry commission to remove bottlenecks against innovation. And particularly as it relates to listing settlement and custody of securities tokens. And we’ve previously heard from the CFTC Commissioner Brian Quintenz on the importance of self regulatory organizations in this space. Given how encompassing the digital asset terminology is, is there a certain area or several areas underneath that kind of all encompassing term that you believe would either merit an SRO. Or you would be okay with kind of industry looking to join together in an SRO?

Jay Clayton, SEC: Well, I’m going to go back to the point I made. What is the functionality that you’re providing? If the functionality that you’re providing is, you know, exposure to a venture? Well, that’s a security and we have an SRO for that.

If there’s something fundamentally new. Not that the technology is fundamentally new, but what you’re providing is fundamentally new, then you would think about that. But, the short answer is I haven’t seen something that’s fundamentally new in terms of functionality. Like the OCC knows more about payments and bank participation in payments than anybody else.

I don’t think if we change the technology that’s used to facilitate payments, we don’t need to add an SRO to the OCC. That’s kind of how I feel about this. I don’t know, Brian?

Brian Brooks, OCC: I couldn’t agree more. One of the things that I found surprising when I was actually working in cryptoland was how an industry whose underlying product was designed to make things simpler and faster, made the policy side of it so needlessly complicated. So there were multiple different groups getting together saying we need an SRO. We might need two SROs at one point, somebody said. Or possibly a whole new government agency or a Commission.

Listen, the point of crypto, like the point of all innovation in any area is to take aspects of life we’ve lived with our whole lives and just make it easier.

So we didn’t need a new Commission when cell phones got invented. We had an FCC and they adopted a rule around cell phones and that was fine. And here we are and we have lots of different kinds of smart phones out there. I think it’s the same thing here.

I’m now just reiterating what Jay said. You know, keep it simple, stupid. The people who’ve been successful in DC are the people who remember: keep it simple, stupid. If you’re trying to issue rights in a venture, like Jay says, that’s equity. We all know what that is.

I think security tokens are great. Jay’s agency has now issued guidance about crypto ATSs and custody. And now there’s clarity about how that’s supposed to work. Fantastic. Some crypto tokens are about value transmission and payments. We’ve issued guidance around that. I think it’s not in the industry’s interest to have a whole bunch of governance organizations around this.

It’s in the industry’s interest to do what they do well, which is invent product. Okay. We will try and create clarity around legal frameworks, using the tools we’ve got and where I think we’re moving faster than the government ever has before. So that’s the great news. But industry is great at building product and that’s what it should do.

Government’s terrible at building products. So it shouldn’t. But it should set rules. That’s what we’re good at.

Moderator: Brian, I’ve got a couple more questions. I know we’re kind of wrapping up here for time. But Brian, let me direct this question to you. Because I know it’s right in your wheelhouse. You’ve said in a recent interview, where you discussed how the old debates and previously held distinctions between banking versus investment banking or banking versus securities and I quote ‘all fell away in light of economic demand’. When you talk about the payment space and you’ve done so for the past couple of minutes now, but how are these changes occurring in the payment services technologies really driving change throughout the financial services industry?

And how can regulators encourage responsible innovation and progress in this space?

Brian Brooks, OCC: Well, I would just pick up on the point that Jay has been making for a while now, which is it’s really about sort of functional regulations. So the comment that I made that you quoted was based on an insight that was written in a famous article in 1982.

It was about whether banks are special or not. And that article was talking about the idea that in the late seventies and early eighties as debt securities and asset backed securities were first becoming a thing. Suddenly it looked like banks’ role as lending institutions may not be special. And maybe that there are ways of borrowing that don’t involve a bank.

And that created an existential crisis for what banks were. Because people realized that debt securities and bank loans are basically fungible. And a company can choose to raise money by going to the bank or by issuing a debenture. And when you realize that, you start to realize that the hermetic walling off of investments on the one hand and banking on the other hand, maybe kind of an atavism.

So having said all of that, when we look at the world of payments, what I’ve sort of said is historically we think of banks as providing three core functions, deposit taking, payments and lending. We’ve seen in the last ten years that it might be more profitable to offer some of those services on an unbundled basis.

This is why we have multiple hundred billion dollar companies that are just payments companies. That business that they’re doing was exclusively done inside of banks 15 years ago. Nobody but banks did that business. And now suddenly an enormous amount of the activity has moved outside of banks.

So that’s kind of a big deal. Crypto is just the newest, at least certain aspects of crypto, the newest evolution of that trend. Here’s a way of offering that service, as Jay says, way more efficiently. But let’s not kid ourselves. It’s still a banking service. That’s what the word means. It’s a kind of financial intermediation that allows you to pay me for some service I provided you.

And at some level, I think it’s important for me as a functional regulator of banking activity to extend supervision and charter authority to that activity. And crypto is just an evolution of that same thing, I believe.

Moderator: Let me kind of try and wrap things up here. I want to quickly touch on the way forward for your agencies. And Mr. Clayton, I think it’s no secret that you are likely to move on from your current role shortly. And certainly the upcoming election will likely lead to some leadership changes among the agencies, regardless of the outcome.

Given all that the two of you have accomplished over the past several years or several months at your respective agencies and all the changes that have and will take place in the digital assets space in the future. How would you like your agencies and successors to proceed on oversight of the digital asset space and what mile markers are you setting now that you hope your agencies will reach or at least follow in the near future?

Jay, let me start with you. And then Brian, you can jump in.

Jay Clayton, SEC: Well, for those of you who think we’re handling things in a responsible way, fear not. I have a great staff. These people, day in and day out, this is what they do. And they do a great job. And then for those of you who were hoping for some radical change in approach, you’re going to be sorely disappointed, I imagine.

But I think one thing that happens in these jobs, is that over time you become more attuned to how the regulatory framework of your agency impacts the marketplace and that dynamic. And how to use your obligation to be transparent, to facilitate competition, to facilitate innovation.

And largely what Brian and I are doing today, I hope you agree with this, and what we expect to continue to do, is be as transparent as possible as to how we look at this and how our staff’s look at it, which hopefully will continue to foster innovation, but will make any transition a lot easier.

Brian Brooks, OCC: I would echo all of that and I would go further and just say the things we’re talking about today, happily aren’t political. You know, there’s things at both of our agencies that are kind of political.

I mean, if you’ve got a new Controller and if there was a Democrat administration, you might see a little bit more bank enforcement, you might see a different kind of approach to consumer protection than we believe is appropriate, whatever.

But I think these kinds of things, these are infrastructure issues. I think both parties want the country to be competitive globally. They both want the country to continue to be an engine of economic growth. I really do believe that. And you know, some of the ideas I’m talking about, I like to sell them and make them super glossy, but they were originally the idea of President Obama’s Controller.

And some of them are not. Some of them are new with me. So I would say a lot of these things are sort of our response to permanent changes in the marketplace. Those are not going to go away after the election, regardless of who wins. And I would echo Jay’s comment. I think the staffs are very, very committed to the idea of safety and soundness and growth.

That’s what these agencies are fundamentally about. I don’t see that changing.

Moderator: So let me just end it there and let me say thank you to you both for agreeing to do this. It’s been a great opportunity to ask you some questions about it.

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