Do not use it to say other communities matter but to really focus on black people and be of solidarity. Watch afterwards on cspan to book tv. A hearing on efforts to regulate Virtual Currencies. With the securities and exchange commission. On actions taken by their agencies. Its just under two hours. The committee will come to order. This morning we will receive testimonies from sec chairman. And cft chairman chris giancarlo. On the growing world of Virtual Currencies and what is shown in their two currencies. Type of money that can be traded. We are used to purchase goods predominately online. They are selling virtual coins or tokens to initial coin offerings also known as icos to raise capital. Especially given that meteoric rise in valuation. Just for perspective on january it broke the 1,000 barrier and then peaked in december of 2017 as of this morning is trading at roughly 6,900. The market capitalization is a roughly 115 billion. This is an incredible rise and given that in 2013 when this committee have subcommittee topics was about 5 million. They had been more wide spread. They have noticed invoiced their opinions. They make informed decisions and ensure that the markets they oversee and participate in working up appropriately. The sec has put forth many expectations. Mainly they had issued investor bulletins. An investigative report on what characteristics make a security offering. Issued several statements on the issue. Brought Enforcement Actions against fraudsters and issued joint statements about Virtual Currency products. They have also been helping and form the markets might launching a dedicated website. Bringing Enforcement Actions against the vigils. Issuing several statements by others on the issue. In scheduling hearings on the topic. Much of the recent news about Virtual Currencies has been negative. Between Enforcement Actions brought by your agencies the hack of the International CoinCheck Exchange in the concerns raised by various regulators and market participators there is no shortage of examples this also is important to know that the Technology Innovation and ideas underlying these markets present significant positive potential. These aspects have the ability to transform for investors the composition of and the ability to access the financial landscape. Thus changing and modernizing Capital Formation and transfer of risk. Technology is forwardlooking and we look to our regulators to continue carrying out their mandates. Including Investor Protection as markets involve. I look forward to hearing more and learning more about Virtual Currency oversight. Including what their agencies are doing to ensure appropriate disclosures and safeguards for investors. Senator brown. Welcome. Good to have you both here. Virtual currencies have captured the attention of investors and speculators in the computer programmers and regulators all over the world. And i know how many people imagined how quickly and broadly that that would spread. Is nothing short to most of us ever markable to be sure its critical for our regulators to understand innovation and technology so that markets can grow and evolve while investors and consumers are protected. Understanding the risks of emerging technologies is no easy task but we are relying on you to maintain that integrity of these new markets. The volatility of bit coin has also been a remarkable define attempt to think of it as a traditional currency it is 1000 rise last year at 60 decline last night makes last month and the price drop around in the air. But that growth is shown as the intersection of ingenuity and to afferent greed. Sometimes it appears that scam artists and hackers may understand more about the technology than most Market Participants. That should concern all of us. I hope our Witnesses Today to help us understand evolution of the markets related to Virtual Currencies raise awareness and the many threats and identify their regulatory gaps. Recently explaining the threats to Investor Protection and the potential to abuses and Virtual Currency markets. I understand neither the fcc or the tfcc has the authority to police all of those. But you must make the most of the authority you have. Bit coin mania has summoned now. I hope there are lessons from that era you draw on to do your job to protect investors. In addition it may be used to find Illicit Activity especially outside of the United States. I know the Regulatory Framework in other countries its still in development and im pleased that the u. S. Has been a leader but we can do more. I hope the chairman agrees with me that the committee needs to look closely at the gaps in regulation in this area and to review our agencys ability to get ahead of the curve. As you begin to adapt to the unique enforcement and those opposed by currency. Dont forget your day jobs to pursue and punish the conduct or traditional misconduct. Very serious misconduct wherever it might appear and also means wall street. Im concerned its business as usual when it comes to violations by the big banks. The cftc imposed penalties on three big banks. Then decided those firms needed waivers under the Securities Law. That might make sense of this was an isolated incident. Something like 68 violations over the last ten years. Its very serious. Too often we see a big banks pay fines and move right along the violators wont stop breaking the law. I wait raise the issue of waivers. It is clear that Virtual Currencies and bring bring us into a new age but that does not mean we overlook the basic principles of going after the bad guys and being tough when they are repeat offenders. Thank you mister chairman. Think you senator brown. We will turn to the testimony of our witnesses. Gentlemen again we welcome both of you here and we appreciate you coming to share your knowledge and understanding on this issue with us. Chairman clayton you may proceed. The distinguished senators of the committee. I think you for the opportunity to testify before you today. On the important topic of crypto currencies the total market capitalization was estimated at 700 billion earlier this year. In 2017 initial coin offerings raised nearly 4 billion. These are local, national and international. I will attempt to level set where we stand on the regular tory perspective. They might be viewed as overly simplistic but they reflect how i present these issues. For ease of analysis i break the space into three categories. First, a Promising New Technology referred to as a distributed Ledger Technology or a block chain. Proponents of the technology assert that it will bring great efficiencies to our national and global economies included our Capital Markets. I hope that it does. And the commission looks forward to working with Market Participants included a more effective oversight to our markets. The second and third categories are crypto currencies and icos which are subsets of the products seeking to take advantage of the commercial opportunities presented by block chain technology. One is promoted to be up replacement for dollars. Some of them more widely known were introduced as a substitute for traditional currencies such as the u. S. Dollar or the euro. Those who promote these Virtual Currencies have asserted they will make it easier and cheaper to buy and sell goods. Particularly across borders. They have asserted that transaction and verification and ease and easing cost will be eliminated or reduced to date these have proved elusive in many areas. Initial coin offerings are security offerings. Their interest in Companies Much like stocks and bonds under a new label. Promoters use the term coined on an electronic ledger as compared with the stock certificate and the related injury in the companys records. If it functions at a security. It is a security. Also importantly they may have nothing to do with the distributor Ledger Technology. It does not mean you are investing in black chain related ventures. There are many problems with the way that they are operating. But to our worst particular attention. First, the markets for these products had substantially less oversight than our traditional securities markets. To be blunt if you are trading crypto currencies on the platform that looks like a Stock Exchange do not take any comfort from that look. Our Stock Exchanges have expensive rule sets in the air required to conduct surveillance. Also brokerdealers have capital and conduct requirements. These requirements and others without a doubt are necessary to protect those markets and our investors. Second, many icos are being conducted illegally. The other participants are not following the security laws. Some say this is because the law is not clear. I do not buy that for a moment. The analysis is simple. Are you offering a security if so you have a choice follow our private placement rules or conduct the Public Offering a note for professionals in these markets. Be a security they are squarely within the crosshairs. What are we doing about these problems. I look forward to discussing with you that question in more detail but we will start with a comment on jurisdiction and enforcement. We do not had direct jurisdiction over the popular markets that trade through crypto currencies. This is not an oversight as a result of a new product and market the traditional markets did not need direct regulations. They are sovereign backed and regulated with a long history. Crypto currencies on the other hand have no seven backing sovereign backing or oversight and again to be blunt are currently functioning as assets for trading and investment much more than as mediums for exchange. If ask we will work with other regulators to evaluate and address this issue including our friends at the fed. They all have a keen interest in this market. To the extent that Digital Assets are securities and i believe every ico is security. We have jurisdiction. We will enforce these laws many of them also include private rights of action. We are working with the doj and other regulators to enforce these laws. Thank you for the opportunity to testify before you today and i stand ready to work with congress on these issues and look forward to this. And distinguish members of the committee. I have submitted a written statement for the record that details the cftc work in authority over the virtual securities. It is is a slightly different perspective and that is as a dad. I am the father of three college aged children. A senior, a junior in a freshman. During the High School Years we tried to interest them in Financial Markets my wife and i set up a small brokerage account. Other than my youngest son who own shares in a Videogame Company we have not been able to pique their interest in the stock market. They are not much different than most kids their age. Something changed in the last year. Suddenly they were all talking about bit coin. They were asking what i thought and should i buy it. One of their older cousins was telling them about it and they got all excited. I imagine that may be members of this committee may have have some similar experiences into your own feelings as of late. We owe it to this new generation to respect their enthusiasm about Virtual Currencies with a thoughtful and balanced response not a dismissive one. And yet we must crackdown hard on those who try to abuse the enthusiasm with fraud and manipulation. And we much must thoroughly form ourselves. We must make good policy choices and put in Regulatory Framework to reduce risk for consumers. I suggest that the right response has at least several elements. The first is to learn everything we can we had forged a new initiative. To engage with these innovators and inform the agency about Virtual Currencies and other financial technology. Next is to put things in perspective. As of 8 00 a. M. This morning the total value is about a hundred 13 billion. That is less than the market cap of one large publicly traded company mcdonalds. The total value of all of those in the world is about 313 billion. In comparison to global money supply is around 7. 6 trillion. Because its sometimes compared to gold as an investment asset the value of all the gold in the world is around 8 trillion. Which dwarfs the size of the Virtual Currency market. The next task is to tell the public what we learn and educate consumers there is a lot of noise around Virtual Currencies and regulators must help set the record straight. They had produced a large amount of Consumer Education materials including written statements podcasts webinars and a bit coin website. We had even scheduled visits to libraries and briefings for seniors. Weve never conducted this must outreach for any other financial product. Another element as regulatory is regulatory coronation. Because no one agency is direct authority. We have to work together. That includes us the sec the fed the irs the Treasury Network and even state banking officials. And the next element is to exercise the Legal Authority like trade reporting and market surveillance. The Capital Requirements and even a cyber protections or platform safeguards if these are all standard regulations in the futures market we oversee. Through our authority over commodity driven markets we do have enforcement power over spot point markets. And with newly launched bit coin to futures you can now obtain data for that manipulation and five underlying spot markets. And that leads to the final element and the is tough enforcement. Led by the Virtual Currency we had launched several civil actions over the last few weeks cracking down on fraudsters in manipulators in more will follow. I want to quote something that they said in the wall street journal. They require us to be nimble and forwardlooking and cord needed with state, and federal colleagues. With important stakeholders including congress. Im glad to be with you today and i hope my kids are listening thank you very much. I will begin the questioning. First i will say ive have those dinner conversations with my own children. And youre right. This is an incredibly interesting but growing new area of financial challenge. Particularly among my children and yours. Both of you has set in one way or another that neither of you or your agencies had complete jurisdiction over crypto currencies whether you have sufficient jurisdiction and i would like both of you to address that question. Should congress address revising and refining our financial law so that one agency or a group of agencies had complete jurisdictions or if you look in the at the jurisdictions of all agencies do we have sufficient jurisdiction in place today. Youre always cautious about speaking for other agencies. We should all be there to come together and be there the federal banking regulators there are states involved in swell. They look at the Virtual Currency platforms and assume that they are regulated in the same way we dont need to have additional legislative authorities. I think thats a very good way to put it senator. I think that is exactly right. Is able seven different ways what we call the spot market for a bit bit coin is not a regulated marketplace. For us at the cftc we are familiar with that because we generally dont have regulatory supervision over the spot markets. That is a longstanding basis that we regulate. We surveilled and we will take enforcement action but we dont have the ability to set the standards on most markets. He also doesnt have that jurisdiction. I think the starting point for the informed conversation as there is that. There are other elements to that. Their other agencies that come to bear on this. The state regulators there is a patchwork across the nation. There has also been active in the area in terms of Money Laundering and know your customer requirements. There is a patchwork here but there is not comprehensive structure. It is an important one to be head. Youve led to my next question. Much of the currency is crossborder. The International Nature of this market is why a patchwork is probably not sufficient if its going to continue to develop as a significant market. There are reports that we all have heard that this currency are used for Illicit Activity and since and has been stepping up in that regard and i encourage them to continue to do so. In the challenge of Global Markets is a challenge that i think we face now in many regards in the 21st century. With the internet. We certainly had that challenge. As a result of the regulations together. It is really a tremendous challenge for all of us. And in this area it requires a lot of new thinking. I appreciate your remarks from both of you in this issue. I would encourage you to form that work group. And evaluate what are regulatory structures should look like in america to deal with this. Let us k