WASHINGTON, DC – The federal government could harness the crypto sector’s potential for mass surveillance if left unchecked through formal policies, SEC Chairman Paul Atkins said, arguing that the industry is also, alternatively, capable of designing systems that screen users for adequate protections against illicit finances without jeopardizing their privacy.
“It’s not a huge leap to imagine a steady migration toward a future in which the government, in a constellation of intermediaries, can examine nearly every dimension of an individual’s financial life,” Atkins said at a roundtable on financial surveillance and privacy hosted at the agency’s headquarters in Washington on Monday, the sixth cryptocurrency-related roundtable this year.
“While regulators may have a voracious appetite for data, that propensity is obviously and fundamentally incompatible with the kind of free society that has made America great,” he said.
The president highlighted the agency’s long-running fight over so-called consolidated audit trail (CAT) technology intended to monitor U.S. markets with a more immediate snapshot and post-2008 financial crisis rules that required more reporting by investment firms to the SEC.
“Unfortunately, the federal government’s insatiable desire for data has expanded these tools in ways that increasingly put the freedom of American investors at risk,” Atkins said. And the latest blockchain technology could be abused as the “most powerful financial surveillance architecture” in history, he said.
Government policies must protect the public’s legal financial transactions from “mass surveillance.”
Digital asset surveillance and privacy have often been most associated with prosecutions by the US Department of Justice and the Treasury Department, especially its Financial Crimes Enforcement Network (FinCEN) and sanctions arm as they seek to combat illicit finance. But the SEC will soon propose rules to regulate its sector of the industry.
The SEC under Atkins has sought to move forward to meet the crypto agenda set by President Donald Trump. Its “Crypto Project” has advanced several initiatives, including strictly defining the scope of crypto securities, seeking standards for tokenization of securities, and establishing an “innovation exemption” that allows crypto companies to easily test new products.
He has routinely spoken about how closely he hopes to work with the SEC’s sister agency, the Commodity Futures Trading Commission, on joint oversight of cryptocurrency markets. It advocates for a regulated system where cryptocurrency investors can seamlessly run their businesses at convenient and unique outlets where regulatory boundaries are not evident. However, Atkins, unlike previous chairman Gary Gensler, has also argued that most digital assets do not check the securities box and will be outside the scope of his agency.
For years, the federal government has waged a legal conflict with the crypto space, particularly with developers of privacy-protecting operations like Tornado Cash. While Trump-appointed regulators have backed away from that fight and said software developers should be protected, some of those cases have already been resolved with convictions of crypto experts.
SEC Commissioner Hester Peirce, who led the agency’s task force on cryptographic issues, said that “the government should avoid imposing regulatory obligations, including Bank Secrecy Act obligations, on a software developer that does not have custody of users’ assets with the ability to override users’ choices.”
Atkins warned of the government’s next steps as cryptocurrency legislation and regulation is underway.
“If the government’s instinct is to treat every wallet as a broker, every piece of software as an exchange, every transaction as a reportable event, and every protocol as a convenient surveillance node,” Atkins said, “then the government will transform this ecosystem into a financial panopticon,” a kind of conceptual prison of constant observation conceived by an English philosopher.
