Katie Britt Asks Witness About Regulating Crypto While Avoiding Rules 'That Quickly Become Outdated'

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During a Senate Banking Committee hearing on Wednesday, Sen. Katie Britt (R-AL) spoke about cryptocurrency regulation.

Transcript

00:00Thank you very much, Ranking Member. I appreciate the Chairman for holding this

00:06hearing today and being serious about creating a framework for digital assets

00:09in the United States and certainly appreciate all of you and your

00:12willingness to be here with us and testify on this important topic.

00:16Obviously it's a very complicated issue, a lot of moving parts. We've seen some

00:21fireworks today. One of the primary points is just around definitions. You

00:26know, how do we properly define digital commodity versus digital security and

00:31what does that actually mean for the role of our regulators? We know digital

00:35asset securities can share many characteristics with traditional

00:38securities but they're not inherently the same and regulation needs to reflect

00:43that. Much like applying, you know, traditional regulatory framework to a new

00:49decentralized finance system, it just doesn't work. I'm concerned about the

00:55compliance burdens for developers and for startups and how we actually strike the

01:01right balance between the two. I've seen firsthand what happens to our small

01:06businesses and our small financial institutions when you have over

01:09regulation and it becomes unsustainable. So my first question is actually for

01:15Ms. Mersinger. We are dealing with a rapidly evolving industry here and we

01:21can't predict every change, right? So how do we create a framework that puts up the

01:27proper guardrails and the clarity that we actually need today without locking in

01:32rules that quickly become outdated? I'd love your thoughts on that and kind of

01:38your thoughts on how we approach that. Thank you for that question and I will

01:42say as a former commissioner at CFTC, I believe this is a reason why there is so much interest in having the CFTC

01:51as a regulator over the digital spot market. It's because they have a

01:55principles-based regulatory regime which provides that flexibility so as

02:00technology changes those companies, those startups, those small businesses can still

02:07operate and fulfill their regulatory duties but not be subject to a

02:12prescriptive regulatory framework that locks into place the technology and the

02:19systems or the processes they're using when it's put in place. So I think the most

02:25important thing you can do is have principles-based regulatory regime and

02:29prevent having prescriptive regulations around this industry. Do we have, are there

02:35kind of permanent and durable mechanisms that would actually encourage innovation? I

02:39guess my question, you know, has the regulatory sandbox been beneficial in this

02:45regard and kind of sort of how do you see that playing out? Yeah, absolutely. There's

02:49been talk about sandboxes being a helpful tool. Okay. The both the SEC and the CFTC

02:56have exemptive authority that they can use. There's the ability to use staff no

03:01action letters and relief. So there are a lot in that. Yeah, there are a lot of tools in

03:06place that they can use to still oversee and regulate the space but not stifle the

03:13innovation that is occurring and developing. I'm going to shift gears real

03:18quick in my remaining time. Mr. Levin, I've heard the narrative that digital asset

03:23transactions are completely anonymous and, you know, beyond the reach of law

03:27enforcement. I disagree with this as with any financial instrument or new

03:33technology. There's always going to be bad actors and we should of course where

03:37any loophole exists. We should find it and close it and and not enable illicit

03:44activity. But from my understanding, blockchain technology actually can offer

03:48an enhanced level of security, perhaps even more resistant to manipulation and

03:54transactions on the blockchain offer a unique ability for tracing and tracking

03:59including analyzing trends on the ledger. So, Mr. Levin, can you speak to this both to the

04:06narrative that digital assets are untraceable and to what type of tools are

04:10available to identify and actually combat bad actors? Thank you, Senator, for the

04:15question. This is exactly the business that we at Chainalysis have been building

04:20for the last 10 years. We build tools and technology that actually allows law

04:26enforcement, regulators, businesses to actually track and trace cryptocurrency with

04:31the relevant context about where to get additional information if there is some sort

04:36of investigation or some sort of disruption action that needs to happen. I would say that

04:41there are two levels of tooling that is worthwhile the committee understanding, which

04:48is one is there are actual forensic tools that are being used in investigations where you

04:55are looking at very specific transactions of interest that have been flagged either through

05:01regulatory reporting or investigations. And then also the blockchain actually allows for a much

05:06more macro view of trends and threats that are persisting against society. And so you could

05:14actually investigate ransomware as a whole threat to the United States of America and look at the

05:21entire supply chain that causes ransomware to have impact on our communities and find where there is an

05:27opportunity for actual disruption of that supply chain for the threat.

05:33Thank you so much. And I am out of time, but would love to continue this conversation with you.

05:37In particular, how we empower our state and local law enforcement with the tools they need so that

05:43they're they're better equipped in this regard. So thank you so much. And with that, I will recognize Senator Van Hollen.

05:50Good morning.

06:09Okay.

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