MAGGIE LAKE: Hello, and welcome to this special edition of the Real Vision Daily Briefing. I'm Maggie Lake, and we are coming to you live from the MGM Grand in Las Vegas. As you know, if you've been watching, it's the RV Takeover event with amazing stuff going on. And I'm joined right now by Paul Atkins, who is at Potomac Global Partners, and also former SEC Commissioner. Thank you, Paul, for being with us.

PAUL ATKINS: Thank you, Maggie. It's great to be here.

MAGGIE LAKE: It's fantastic. It's so interesting, we've been having this two-day conference and it's all about the future of blockchain, how blockchain is going to disrupt so many parts of life as we know it really, and businesses, music, all these different industries, or at least contributed, a lot of the focus has been on all the innovation.

But importantly, we've also been having conversations about policy. The policy implications, the policy response, the policy that's needed to foster innovation, and you were in a session earlier that I was listening in on, and it was so fascinating, and it really caught my attention. And I'd love to talk about it with you a little bit, which is what's happening in the banking sector from a regulatory point of view. Now, this is not something that a lot of us wade through or have expertise in the way you do.

Give us a sense of what's happening, because we do have the major bank regulators in the US have put out a statement recently looking ahead about some guidance they expect to come out, and it's going to give us an idea of the direction they're moving in. What do we hear in that? What do we need to know about that?

PAUL ATKINS: Well, Maggie, I think if you think about technology, technology is usually disruptive to the incumbent industry or to how the government views industry and competition and all that. Going all the way back to how automobiles displaced the horse and buggy and we got traffic lights everywhere and paved roads and things like that is obviously disruptive and also huge steps forward for communication and commerce and everything else in people's daily lives, building value and wealth and all that.

The same today, we had it with internet and now we have now with the crypto assets, the digital asset environment. The regulators for the incumbent industries, have to look at the disruptive nature of this new technology and so the banking agencies are one because, of course, crypto assets have a financial component to them or use cases as stores of value and for commerce and exchanges and trade and that sort of thing. The banking regulators are focused on it because the financial institutions, banks are seeing a potential disruption to their businesses from a lot of the new--

MAGGIE LAKE: yeah, absolutely. There's a lot of components. And this is an area, an industry that sprung up so there's a little bit of catch up and a little bit of a reaction. And I know that they look at everything, they look at consumer protection, they look at what it's going to do to the traditional institutions in the way it's been going, what that change will mean, and what their role needs to be.

We know the SEC has spoken and I'll get to that in a moment, but from a banking perspective, what are the bank regulators looking at? Because there are no crypto banks per se in the way that you'd go in a traditional manner. How are they viewing this? What do we know about the way they're thinking about it? In this statement, did they give us an indication of what they might do or how they might view the industry?

PAUL ATKINS: Well, it was a very short statement, but importantly, it was issued by the three main federal banking regulators, the FDIC, Federal Deposit Insurance Corporation, the Federal Reserve and the Comptroller of the Currency, which oversees national banks and the Fed looks at state banks as well as others and so this covers the banking industry pretty much from the total federal perspective.

It was a short statement, but it was basically saying that as we look ahead to the new year or whatever, we're going to be focusing on several types of issues that have been presented to us from our regulated entities and among them was custody or lending money to people to buy crypto assets and things like that. But importantly, they had to words in there that caught a number of people's eyes in the banking regulatory advisory world. And that was whether or not these activities are legally permissible.

That's code word for if something's not legally permissible, then a bank may not do it. Then there are all sorts of consequences to that. It's just a flag as to potential, say headwinds to the crypto industry, but then also to the banks in the financial services industry who want to be more active in this area, some of whom are already there, and whether it's with respect to funding new companies, or whatever they are.

MAGGIE LAKE: While I was sitting there, I thought that was so interesting. And I am no expert in bank language, like the minute you talk regulation, which as you know, for those who-- you've plowed through, but some of us think, oh, this doesn't-- if it's not legally permissible, if they're going to look at that, if they decide it's not, what does that mean?

PAUL ATKINS: Well, there are consequences. It could mean, depending on what they come up with--

MAGGIE LAKE: Right, and that's the litmus test. They let us know, that's the litmus test we're going to be looking at.

PAUL ATKINS: That's what some folks are saying, yeah. Basically, it harkens back to a few years ago in the Obama administration, the FDIC in the main undertook with a called Operation Chokepoints. And this only came out after congressional hearings and demands for documents from the agencies and all that.

And arguably, the thing was completely illegal, what they did, but basically, they called the operation chokepoint because they were trying to strangle particular disfavored industries, let's just call it, and they were aiming at gun shops and payday lenders and things like that. But what they were trying to do was say to the existing banks that it's a safety and soundness problem, which is code word for how the whole bank regulatory structure is geared.

But if you do business, if you're banking to these sorts of things, that's creating a potential safety and soundness problem for you as a bank to do business with them, from reputation, from potential problems of whatever it is, criminality or whatever they might have been saying. The pressure was on to the bank, these particular types of legitimate enterprises, theyre not illegal at all. They're legitimate, but they became disfavored in this particular administration and among these particular regulators.

MAGGIE LAKE: And when you de-bank, what does that mean?

PAUL ATKINS: That means these folks can't have bank accounts, they can't get loans. The whole payment system, the whole lending system, completely isolated. And then of course, they can't just revert to cash because there's so many rules around if you deposit more than $10,000, and all this other stuff, that could be a suspicious transaction.

MAGGIE LAKE: As you mentioned, tell me what business can operate, households don't even do that anymore for the most part.

PAUL ATKINS: But like marijuana shops in some states, they were on that aspect too. There are consequences to all of these particular steps. That's what some people are--

MAGGIE LAKE: There's a precedent for when they're going to go and evaluate and look at whether it's legitimate or legal, and they can make a decision saying, we don't think it is, we're going to de-bank that. That's happened before.

PAUL ATKINS: That has happened.

MAGGIE LAKE: In the operation that you're talking about.

PAUL ATKINS: In questionable legality of all of that, because again, these are legitimate businesses that the government and regulators without any statutory authorizes authorization, they're reading it into their remit that Congress has given them very broad, but yeah, that's--

MAGGIE LAKE: This is happening from a regulatory point of view. It's not like Congress weighs in on it, because they have the existing power to do this.

PAUL ATKINS: We'll argue. I think give them an inch, they take a mile. I think they overdid it.

MAGGIE LAKE: Now, fast forward back to today and the reason that's a flag is because if they look at the crypto industry and say, we don't think that's permissible, there is the potential for them to, if I understand you correctly, say you can't bank these companies that have anything to do with crypto.

PAUL ATKINS: Right, so if crypto becomes a disfavored industry with respect or parts of it, who knows, with respect to these particular regulators, the consequences could be pretty severe for the functionality of the industry.

MAGGIE LAKE: All sort of companies across that area of technology.

PAUL ATKINS: Right, because there's some people who say, well, we're dealing with cryptocurrencies and so who cares what happens in the fiat area? I think that's just not realistic because there is this symbiosis and you have to mesh ultimately with the prevailing financial services industry, and people expect that with respect to how they live their everyday lives.

MAGGIE LAKE: This sounds, again, this is all potential, because we don't know. This is just a just an indication of where it may go. But that's huge if that's the case. You're talking about a very big nascent growth. Is it limited to crypto firms? Or could this be something that impacts what we call FinTech today, any of this new technology?

PAUL ATKINS: Yeah, who knows? I doubt that because the use cases, Fintech is a very broad term, but clearly, with some of the aspects of a cryptocurrency where-- this comes out in some of the hearings in Congress and whatnot, where you have a members of Congress saying, well, there's potential criminality that's being advanced by crypto assets, well, cash can do the same thing, but we're leaving that aside.

MAGGIE LAKE: Exactly. Like when we also say things are volatile, well so are every other traditional asset market we have. It's only these things are-- Does anyone else have to okay the idea of this happening, or can they do it? Is there a notice? Or do they just go in and say, you didn't pass muster?

PAUL ATKINS: A lot of this can be done through the examiners. The bank regulatory structure is unlike pretty much any other because of the vagueness of the term safety and soundness and how the laws have evolved in regulations over the last whatever it is, 70 years or so. They authority of examiners in the field is pretty broad, and so we've seen the ramifications of that in years past.

MAGGIE LAKE: If we look back, what happened, what was the fall of that follow up? But what happened? What resulted from Operation Chokepoint, what happened to those companies?

PAUL ATKINS: Well, who knows? Some probably went out of business, and others may have tried to find other ways of doing their business, but maybe some litigated, I don't know the whole story of--

MAGGIE LAKE: Can they recourse? Can they say, I'm going to disagree with you, I think you're wrong, regulator. I'm going to go to somebody else. Is there an avenue for recourse in the banking world?

PAUL ATKINS: Well, they have to have some standing, which means that they have to be able to go to a court and articulate a loss. The thing is, if an examiner tells the bank that, I don't think that's really what you all should be doing, all this stuff is done behind the scenes and so the bank is not supposed to tell somebody that, because we are all sorts of things, it gets very complicated, we're just trying to keep this pretty high level.

But the bank agencies give ratings called CAMEL ratings to banks, and how their management is, how their risk management is, and all of that sort of thing. A bank can be downgraded and a lot of times this is not shared necessarily directly with banks. It's just done with regulators. And then, of course, what has always grabbed me is that the investors of banks if the bank is a public company, have no clue about how the bank regulators are viewing the bank, all the while that the banks and their investment banks are out there selling stocks or debt securities or whatever and the investors are the last ones to know about what the bank regulators are thinking about it. All this stuff is kept very secret and behind the scenes and for good reasons originally.

MAGGIE LAKE: Traditionally, talking about basically cutting out firms from the banking sector, you would think there'd be a robust discussion around that because there were a lot of implications, as you say. They're not shareholders in the banks or shareholders in these firms or these companies that are at risk of getting de-banked.

PAUL ATKINS: From a public policy perspective, there are a lot of issues with having all this done and decided by unelected, unaccountable bureaucrats, and that's really the danger.

MAGGIE LAKE: This is against the backdrop looking at your experience as a former SEC Commissioner, there seems to be-- is it right to say there's a lot of hostility toward these new technologies? What do you make of it from being a regulator? Is that unfair to say, because I think that's a feeling within the industries? Is it unfair to say that it's being viewed in a hostile manner?

PAUL ATKINS: I think it depends on the person. For example, there's a commissioner of the SEC today, Hester Peirce, I think, is doing a very good job in trying to come up with solutions. She's proposed Safe Harbor, for example, that might allow companies to go ahead and get started in the digital asset space and improve their worth, and then go public and that sort of thing, but to give them like a safe space to try out their business model.

Things like that, people are trying. But then you have others who probably are not so-- they see more of the dangers of this technology than the potential benefits, perhaps. And there are also others who are looking at the existing laws, and existing laws if you look at them strictly have big consequences to the way the industry works. That's why if we look at the different agencies and particularly my old former agency, the Securities and Exchange Commission, they've been issuing letters from the enforcement division and others asking people like, why do you think you shouldn't be registered with the commission because what you're doing implicates the regulations and the laws--

MAGGIE LAKE: This is the question of how to classify these new technologies, is that right?

PAUL ATKINS: Exactly. Whether or not they're securities, whether or not the particular company is dealing with unregistered securities that ought to be registered. All those issues have legal implications, and then liability implications, and all of that. That's what people are discussing right now.

MAGGIE LAKE: What's the level of education and understanding about these technologies among the regulators do you think? I mentioned that-- we hear it all the time, it's exponential, the rate of change. I'm hearing, my brain is exploding as I'm trying to take in all of the innovations that's being talked about.

What is your sense as a former regulator, these are new, what's the level of understanding about the way they really operate if we're trying to make these important decisions? Like do you have access to the banking system? How should you be classified?

PAUL ATKINS: I think it varies from person to person, agency to agency. A number of the agencies have set up innovation hubs internally, the Commodity Futures Trading Commission, the SEC, the Consumer Financial Protection Bureau. They all have attempted to try to figure out what's going on, and to try to encourage people to come forward to talk about their businesses and whatnot. Mixed results I would say so we'll see how the next year develops.

But I think there's going to be a lot of regulatory activity in the next year, a lot of enforcement activity. I'm afraid of regulation through enforcement as being a really unfortunate offshoot of all this. That's very disruptive to folks who are trying to advance a business, trying to service their customers and clients and all of that.

MAGGIE LAKE: What do we need to watch for? The people who are not familiar with this complicated way of bank regulations, we're not reading through these statements all the time, how can we know what's happening? What should we be looking for to understand this? Because it sounds really important if there's the potential to unbank parts of an industry or an entire industry, that sounds again, it's potential, but how do we know how to track that? What should be we be watching out for? Is there a period where they make these decisions? What should be on our radar?

PAUL ATKINS: Well, so if you look back at Operation Chokepoints, there's no comments. They did nothing. It was all done behind the scenes. That's what made that such a disturbing if you want to call it precedents. Hopefully, it's not a precedent.

MAGGIE LAKE: Is there anything that could stop that from happening again? There is no rule it could happen again I suppose.

PAUL ATKINS: Congressional oversight and usually, of course, the regulatory agencies are in sync with the White House, but the White House should be out there, I don't know about this White House, what their views are, but I can suspect what it might be. But anyway, so that's that one aspect, but congressional oversight is very important.

MAGGIE LAKE: For people who are interested in this, what can we look for? Is there a timeframe we should be paying attention to? I interrupted you, you mentioned the operation that happened before.

PAUL ATKINS: Right. That was all done behind the scenes and everything else, with no publicity. Hopefully, and I take it from the four corners of that two-page statement that was issued that the bank regulators will come forward and issue clarifications and guidance and so hopefully, this will be this time discussed in the public realm, and that people will be able to comment on it and object or whatever, but that people will know the consequences. I think that's what we should really hope for.

But otherwise, people can pay attention to, for example, if you're a member of a trade association, like the Chamber of Digital Commerce, which is heavily involved here at this particular conference. They put out statements, they notify their members and that sort of thing. That's helpful to be involved in groups like that. Watch the newspaper, and it's always very helpful. And watch the agencies if they put out press releases, the banking agencies, the SEC, the CFTC and then look at what might come out of Congress as well.

MAGGIE LAKE: Thank you so much. This is so incredibly helpful. I feel like we all like to focus on the shiny, really cool, interesting stuff and the policy and regulation is what makes it all possible. It's incredibly important. It's off our radar sometimes, so I was so grateful that I was sitting in there and listening to