Remarks at the 30th Annual International Institute for Securities Market Growth and Development

Thank you to all of you for participating in the SEC’s 30th Annual International Institute for Securities Market Growth and Development.[1] It is a privilege to be here at the end of the first week of the Institute. We are gathered here because of our mutual goals of effective and efficient capital markets, that can lead to economic growth, jobs creation, higher standards of living, and the protection of investors.

The Institute provides a valuable opportunity to meet colleagues from around the world and to discuss regulatory perspectives, technology that you use or have used in the past, and to compare notes. In other words, we can learn from each other’s successes and failures. 

Today, I will provide some thoughts about a strong regulatory framework, the importance of international cooperation, and the role of technology in finance. I hope we can continue to learn from each other and continue to improve our globally connected capital markets.

Regulatory Framework

For capital markets to succeed, there should be a respect for the rule of law and the upholding of contracts. These objectives are rooted in the goals of protecting investors and promoting capital formation. While there are honest firms that seek to raise capital in the market, there are also bad actors that lie, cheat, and steal. Regulators should strive to root out bad actors and promote transparency of disclosures. Otherwise, investors may not trust the markets and will not invest due to fears that they will be defrauded.

Increased cost of capital can negatively impact a country’s economic growth and resulting job creation, infrastructure development, and decreased standards of living. When a regulator fails to address fraud and the cost of capital increases, honest entrepreneurs may also be adversely affected, and as a result, they may withdraw from the market. Removing bad actors from the market should lower the cost of capital, resulting in increased investments, greater economic growth, and more prosperity. 

However, any regulatory framework must be cost efficient. When regulation is too costly, especially relative to any benefits from that regulation, it may have the unintended consequence of interfering with capital formation and damaging the capital market’s potential. One method for reducing costs is to look for opportunities to eliminate duplicative regulations for companies that access more than one capital market and to cooperate internationally with regulators’ efforts to oversee and regulate the markets. 

International Cooperation

The importance of international cooperation cannot be overstated. In 2002, the International Organization of Securities Commissions (“IOSCO”) adopted its Multilateral Memorandum of Understanding (“MMOU”), and there are currently 130 signatories to that MMOU.[2] In 2016, IOSCO adopted the Enhanced Multilateral Memorandum of Understanding (“EMMOU”), which included additional powers to obtain and share information.[3] As one example of the importance of cooperation, last week, the Korean Financial Supervisory Service acknowledged the growing need for reciprocal international cooperation given the increasing number of cross-border issues.[4] 

Cooperation goes both ways. The SEC staff routinely seeks international assistance and the assistance that many of you have provided to us has been invaluable. In turn, the SEC has often assisted non-U.S. regulators in their investigations.

Technology in Finance

Another way that we can learn from, and cooperate with, each other is through technology. Modern capital markets have the advantage of technology, which has significantly reduced costs and made the capital markets more efficient. Last week, the SEC celebrated its 90th anniversary. Technology has come a long way in 90 years. For example, the settlement of securities transactions used to require the movement of physical securities certificates, checks, and other paper documents. Today, with the benefit of technology, that is no longer the case.[5] In fact, countries in Europe, Asia, Africa, and Latin America have stopped issuing physical certificates all together.[6] Technology allows transactions to be settled in a faster, more cost-effective manner and in much larger volumes, and thus facilitated a T+1 settlement cycle for equity securities in the United States.

New technologies and innovations might provide further efficiencies to our global markets and investors. One such technology is tokenization, or the process of converting asset rights into a digital token on a blockchain. Proponents suggest that a wide range of assets can be tokenized, including securities holdings. Tokenization may provide transactions with a higher level of security, transparency, and immutability. It also may remove the need for most intermediaries, streamlining the process and reducing transaction costs.[7]

However, as with any new technology or innovative idea, regulators should understand its costs, benefits, and risks. In November 2023, the U.K. Financial Conduct Authority’s (“FCA”) Asset Management Task force published a report detailing a “blueprint” for the implementation of tokenization for FCA-authorized funds.[8] In March 2024, a second interim report was published, highlighting use cases and the next stages for fund tokenization.[9] While the FCA continues its review of securities tokenization, it is important to highlight the depth of research they are undertaking to allow for innovation and growth while still protecting investors from harm. More importantly, other regulators can review the FCA’s research in considering what steps, if any, they might take regarding tokenization.

As technology continues to evolve, regulators will face new and challenging issues. It is important that we continue our regulatory cooperation in order to advance our shared goal of protecting investors and facilitating capital formation.

Thank you for your time this morning. I invite you to maintain communications with my office, should you return to Washington, D.C. in the future. I can be reached through the Office of International Affairs, whom I also thank for their tremendous efforts in organizing this Institute.