Innovation Revolution: How Technology is Shaping the Future of Finance (U.S. House Committee on Financial Services)

Hearing	Innovation Revolution: How Technology is Shaping the Future of Finance
Committee	U.S. House Committee on Financial Services
Date	December 4, 2024

 

Hearing Takeaways:

• Efforts to Promote Business Capital Formation: Committee Members, Mr. Kohli, and Mr. Ward expressed interest in federal policies that could promote business capital formation opportunities. They stated that these policies would support economic growth and innovation, which will benefit all Americans.
  • Private Capital Markets: Committee Members, Mr. Kohli, and Mr. Ward discussed how there the number of investment opportunities in the private capital markets are increasing while the number of U.S. companies pursuing initial public offerings (IPOs) is declining. Committee Republicans largely attributed this decline in IPOs to onerous regulatory requirements on companies seeking to go public. They raised concerns that this decline in IPOs is reducing investment opportunities through preventing retail investors from investing in innovative companies and through delaying when companies go public. Rep. Sean Casten (D-IL) and Mr. Ward suggested however that this decline in IPOs can largely be attributed to the fact that institutional investors have increasingly pursued private capital market investment opportunities, which reduces incentives for companies to go public. Mr. Kohli and Mr. Mr. Ward further stated that it can be advantageous for startup companies to remain private for longer so that these companies can pursue ambitious long-term projects without being subject to burdensome disclosure requirements.
  • The U.S. Security and Exchange Committee’s (SEC) Accredited Investor Standard: Several Committee Members, Mr. Kohli, and Mr. Ward raised concerns that the SEC’s accredited investor standard is unfairly restricting retail investor access to lucrative investment opportunities in the private capital markets. The SEC’s accredited investor standard sets minimum net worth and income requirements for a person to participate in private capital market investment opportunities. The Members and the hearing’s witnesses expressed interest in expanding the SEC’s accredited investor standard to include a qualitive element so that a person with a low net worth and/or income could become an accredited investor through demonstrating financial sophistication. They suggested that this demonstration of financial sophistication could be accomplished through passage of an examination. They stated that expanding the SEC’s accredited investor standard would expand access to lucrative investment opportunities and increase access to capital for startup companies. Rep. Casten raised concerns however over proposals to increase access to investment opportunities for less sophisticated investors without providing sufficient protections for these investors.
  • Allowance for Tax-Advantaged and Tax-Deferred Accounts to Contain Private Stock Holdings: Full Committee Vice Chairman French Hill (R-AR), Rep. Bill Huizenga (R-MI), and Mr. Ward expressed interest in considering policies that would enable private company employees to transfer private stock holdings from taxable accounts to tax-advantaged and tax-deferred accounts. Mr. Ward noted how private stock holdings can often be one of an employee’s greatest sources of wealth and how these holdings are illiquid in nature. He stated that the ability for these employees to move some of their private stock into a tax-advantaged and tax-deferred vehicles (such as retirement accounts) and pull out some of their current account liquidity will provide new liquidity access for these employees.
  • Ability of Closed-End Funds to Participate in Private Investment Opportunities: Rep. Ann Wagner (R-MO) discussed how retail investors are permitted to participate in private investment opportunities through closed-end funds. She noted however that SEC staff have issued informal guidance that prohibits closed-end funds from investing more than 15 percent of net assets in privately offered funds unless the closed-end fund’s shares are exclusively available to accredited investors. She mentioned how she had proposed the bipartisan Increasing Investor Opportunities Act to overturn the SEC’s informal guidance and enable closed-end funds to more fully invest in private funds. Mr. Kohli and Mr. Ward expressed support for the legislation. Rep. Casten also expressed interest in the concept of public funds that could invest in private funds.
  • Crowdfunding: Rep. Wagner, Rep. Young Kim (R-CA), and Mr. Kohli also expressed interest in the potential for crowdfunding to be used as a tool to enable startup companies to raise capital from numerous parties. Mr. Kohli remarked that startup companies tend to choose crowdfunding pathways for two reasons. He indicated that the first reason is to obtain investments from their customers. He indicated that the second reason is that the startup company does not expect outsized returns and instead strives to be a “lifestyle business.” He noted how venture capital firms tend to seek out investments with the potential for outsized returns.
  • Funding of Underserved Private Companies: Committee Members expressed interest in ensuring that private capital investments are distributed across a diverse group of entrepreneurs and to all regions of the U.S. They lamented that current private capital investments are primarily concentrated within coastal regions. Mr. Kohli and Mr. Ward stated that the creation of more emerging managers and venture funds located across the U.S. would result in a broader disbursement of investments. They noted that investors tend to make investments in nearby communities, which can cause entrepreneurs to move to coastal areas to obtain investments. They highlighted however that many non-coastal regions have burgeoning investment and entrepreneurship communities that will support more geographically diverse investments.
  • Concerns that Private Capital is Disproportionately Flowing to a Limited Number of Sectors: Rep. Barry Loudermilk (R-GA) raised concerns that the benefits of venture capital to founders appear to be concentrated in a limited number of sectors. He mentioned how 77 percent of venture capital investments in 2019 had been in the software and biotechnology industries. Mr. Ward remarked that public policies can address the concentrated nature of venture capital investments in certain industries. He attributed the current concentration to improper capital formation regulatory frameworks.
  • Non-Bank Financial Technology (FinTech) Companies: Mr. Kohli further recommended that the U.S. promote the formation of non-bank FinTech companies. He stated that these non-bank FinTech companies could develop innovative products that provide unique opportunities to access capital.
• Digital Assets and Blockchain Technology: Committee Members, Ms. Dixon, Mr. Kohli, and Mr. McCauley expressed interest in the potential for digital assets and blockchain technology to revolutionize financial system participation through democratizing networks, reducing friction, and lowering costs. They discussed how blockchain technology already has numerous use cases, including streamlining humanitarian aid disbursements, facilitating secure cashless payments to workers, tokenizing financial products (such as money market funds) to facilitate investments, enabling non-alterable transparent record keeping systems for government documents, and supporting smart contracts that can self-execute. They expressed interest in the functioning of the blockchain technology and digital assets space and potential policies to address these emerging technologies.
  • Lack of Clear Rules for Digital Assets: Several Committee Members, Ms. Dixon, Mr. Kohli, and Mr. McCauley expressed frustration with the U.S.’s lack of regulatory clarity for digital assets. They noted how other countries have adopted their own regulatory frameworks for digital assets. They stated that the U.S.’s lack of regulatory clarity for digital assets hampers domestic digital assets innovation and undermines the U.S. digital assets industry’s global competitiveness. Full Committee Chairman Patrick McHenry (R-NC) and Rep. Wiley Nickel (D-NC) highlighted how the U.S. House of Representatives had advanced the bipartisan Financial Innovation and Technology for the 21st Century (FIT21) Act to provide a clear regulatory framework and robust consumer protections for digital assets. 
  • Federal Stablecoin Legislation: Several Committee Members, Ms. Dixon, Mr. Kohli, and Mr. McCauley expressed interest in developing federal legislation to provide regulatory clarity for stablecoins. Stablecoins are cryptocurrencies that have their values backed by reference assets (such as the U.S. dollar). Ms. Dixon discussed how the stablecoin market has now surpassed $190 billion and highlighted how almost 99 percent of these stablecoins are U.S. dollar-denominated. Supporters of federal stablecoin legislation expressed hope that such legislation would support the continued dominance of U.S. dollar-backed stablecoins and would enable the U.S. to influence global stablecoin standards. Rep. Gregory Meeks (D-NY) and Mr. McCauley asserted that any federal stablecoin legislation must maintain a state pathway for licensing stablecoin businesses and maintain federal minimum standards for such licensing. Rep. Nydia Velázquez (D-NY) also expressed concerns that current federal stablecoin legislative proposals fail to maintain traditional separations between banking and commercial activity. However, Ms. Dixon disputed these concerns and asserted that the current stablecoin legislative proposals would maintain this separation. She noted how most bank stablecoin issuers are not involved in payments and are merely leveraging assets for payments. She also noted how non-bank stablecoin issuers cannot hold fractionalized reserves and must instead back their stablecoins on a 1:1 basis.
  • Impact of Digital Assets on the U.S. Dollar: Rep. Brad Sherman (D-CA) expressed concerns that the growing popularity of cryptocurrencies could reduce demand for U.S. dollars, which would undermine the U.S.’s status as a global reserve currency. He stated that this status is key for enabling the U.S. to obtain cheap financing and to impose sanctions. Ms. Dixon and Mr. McCauley contended however that increasing the popularity of U.S. dollar-backed stablecoins would enhance the U.S. dollar’s global strength.
  • Loss of Banking Services for Digital Asset Businesses: Several Committee Members expressed concerns over recent reports that digital asset businesses had lost access to banking services and asserted that the Biden administration’s purported actions must be reversed. Both Ms. Dixon and Mr. McCauley had testified that their organizations had recently lost access to banking services. Mr. McCauley stated that his company, Anchorage Digital, had lost access to banking services because of January 2023 joint-guidance from the U.S. Federal Reserve, the U.S. Federal Deposit Insurance Corporation (FDIC), and the U.S. Office of the Comptroller of the Currency (OCC). He noted how this joint guidance had warned banks against participating in the cryptocurrency industry.
  • Bank Participation in the Digital Assets Space: Mr. McCauley mentioned how the OCC under the first Trump administration had issued three letters that had enabled banks to participate in the digital assets space. He called on the second Trump administration to reinstate these letters.
  • Use of Digital Assets in Illicit Finance: Rep. Bryan Steil (R-WI) expressed interest in ensuring that current federal policies to prevent illicit finance are sufficient for addressing the digital assets space. Ms. Dixon contended that the U.S.’s current rules and regulations for preventing illicit finance are sufficient for addressing the digital assets space. She stated that digital assets technology provides unprecedented transparency and noted how a digital asset can be tracked from origin. She remarked that federal policymakers should first review and leverage existing tools for addressing illicit finance before new legislative changes are pursued.
  • Concerns Regarding the Capabilities of Regulators to Oversee Digital Assets: Rep. Mike Flood (R-NE) raised concerns that regulators lack sufficient human capital to keep pace with innovation, which can undermine the ability of regulators to oversee the digital assets space. Mr. McCauley recommended that the U.S. permit federal regulators to own cryptocurrencies. He noted how current ethics rules bar federal regulators from owning cryptocurrencies. He stated that this current prohibition can hamper federal regulators in developing a fuller understanding of cryptocurrencies. He also recommended that federal regulators follow the federal regulatory agencies that have developed expertise regarding digital assets. He identified the OCC as a regulator that has developed expertise regarding digital assets.
  • Artificial Intelligence (AI) Technology Applications for Blockchain Technology: Ms. Dixon expressed optimism regarding the potential for decentralized finance (DeFi) with AI technology-driven risk assessment. She noted how there exist concerns regarding the parties participating on DeFi platforms and commented that AI technology-driven risk assessments can help address these concerns. She also stated that smart contracts that use AI technology could support automated compliance and fraud prevention. She further noted how AI technology could support blockchain-based identity verification and optimized blockchain trading and asset management.
• AI Technology: Committee Members and the hearing’s witnesses further expressed interest in addressing the impact of AI technology on financial services. They stated that while AI technology enables financial services firms to manage risk, combat fraud, and underwrite services at lower costs, they also warned that AI technology poses risks to consumer data and existing jobs. They expressed interest in developing policies to ensure that AI technology is developed and deployed in a safe and responsible manner.
  • Impact on U.S. Jobs: Rep. Al Green (D-TX) and Rep. Sylvia Garcia (D-TX) raised that AI technology could displace many current jobs, which would cause significant disruptions. Ms. Dixon, Mr. Kohli, Mr. McCauley, and Mr. Ward suggested however that AI technology could enhance worker productivity, which would ultimately result in a net gain in jobs. Mr. Butler stated that while AI technology could ultimately support a net gain in jobs, he asserted that policymakers must recognize and address the technology’s potential to eliminate many current jobs. He remarked that the U.S. must address job losses resulting from automation through traditional bargaining tools and labor support programs that have been necessary in previous technological evolutions. 
  • Potential for Bias in AI Models: Rep. Green then also raised concerns how biases within generative AI models will cause these models to produce biased outputs. Ms. Dixon remarked that the U.S. must identify desired outcomes of generative AI models and ensure that the datasets and large language models (LLMs) supporting these models are not too narrow. She stated that public policy can address these bias concerns through setting standards for the datasets and LLMs underlying generative AI models.
  • Self-Directed AI Systems: Rep. Brad Sherman (D-CA), Rep. Emmanuel Cleaver (D-MO), and Mr. Butler expressed concerns that AI systems could be developed that could change themselves without human direction. They warned that this capability could make it impossible for these AI systems to be safely managed. Rep. Sherman expressed interest in developing legislation that would establish a program to monitor and prevent self-awareness, ambition, volition, and self-direction in AI systems. He stated that if the U.S. were to develop a safety protocol for AI systems, then the U.S. could urge the rest of the world to apply the developed safety protocol to their own AI systems.
  • Data Protection: Several Committee Members and Mr. Butler expressed concerns that companies can engage in extractive and exploitative customer data collection practices. They stated that the need to train AI models can increase incentives for companies to engage in these practices. They expressed interest in developing clear rules that limit unnecessary data collection and use. They added that consumers should be able to choose whether their data is collected and how their collected data is used. Rep. Bill Foster (D-IL) and Mr. Butler also commended the U.S. Consumer Financial Protection Bureau (CFPB) for recently finalizing its open banking rule (which enables people to switch between different financial services providers while having their privacy protected) and for proposing a rule to restrict the sale of personal data via financial data brokers.
  • Data Transparency: Full Committee Ranking Member Maxine Waters (D-CA) and Mr. Butler raised concerns over the lack of data transparency regarding AI models. They stated that data transparency is key for determining whether AI models are fair and pose systemic risks (such as disinformation and discrimination). Full Committee Ranking Member Waters mentioned how her state of California is working to address these challenges and had recently enacted a law to provide training data transparency for AI models. She explained that this law requires AI technology developers to make certain information public regarding the data that has been used to train generative AI systems.
  • Data Security: Rep. Pete Sessions (R-TX) and Mr. Butler expressed interest in ensuring that novel financial innovations contain robust data security protections. Mr. Butler expressed optimism regarding the continued evolution of zero trust security strategies. He explained that these zero trust security strategies require financial institutions to approach all computing and communications elements as inherently untrustworthy. He stated that zero trust security strategies will result in the development of safer systems and expressed support for these strategies. He also remarked that that data collection restrictions would improve data privacy and data security and elaborated that uncollected data cannot be breached. Ms. Dixon commented however that much of the fraudulent activity that is occurring involves social engineering techniques (such as password guessing) rather than innovative technologies.
  • Identity Verification: Rep. Foster and Mr. Butler remarked that identity verification and data privacy work in tandem and asserted that both issues must be addressed together. Rep. Foster elaborated that most privacy regimes allow for customers to request that companies disclose the data being held related to them. He stated that these requests necessitate that customers verify their identities to obtain the data being held related to them. He asserted that digital forms of identification are necessary for these verifications. Mr. Butler called for the U.S. to consider ways to decentralize identity verification measures. He stated that governmental entities and credit reporting agencies (CRAs) have long controlled consumer identities and that the U.S. cannot sufficiently regulate the CRAs. He further remarked that insecurities in the identity verification system have imposed significant hardships. However, Rep. Warren Davidson (R-OH) raised concerns over efforts to establish digital identity regimes and warned that these regimes could enable a “surveillance state.” 
  • Access to Open-Source AI Technologies: Mr. Kohli remarked that while companies currently do not experience significant challenges adopting AI technologies, he warned that aggressive regulation of open-source AI technologies could create adoption challenges. He noted how startup companies tend to rely on open-source software and expressed concerns that regulation could restrict the availability of open-source AI software.
• Exemptive Relief: Full Committee Chairman Patrick McHenry (R-NC), Rep. Erin Houchin (R-IN), Ms. Dixon, Mr. Kohli, and Mr. McCauley further discussed the importance of empowering federal agencies to provide exemptive relief when dealing with innovative technologies. They stated that this approach enables regulators to better understand emerging technologies before adopting more robust regulatory frameworks. They commented that this approach ensures that innovations are not unduly hampered.

Hearing Witnesses:

1. Ms. Denelle Dixon, CEO & Executive Director, Stellar Development Foundation
2. Mr. Avlok Kohli, CEO, AngelList
3. Mr. Nathan McCauley, CEO & Co-founder, Anchorage Digital
4. Mr. Henry Ward, CEO & Co-founder, Carta
5. Mr. Alan Butler, Executive Director, EPIC

Member Opening Statements:

Full Committee Chairman Patrick McHenry (R-NC):

• He recounted how his father had run a lawn care business and stated that his father’s ability to obtain a credit card had enabled him to start the business.
  • He commented that the credit card was the greatest financial innovation at the time when his father had started his business.
• He remarked that technology could be used to lower the cost and enhance the availability of credit and asserted that the U.S. should deploy technology more readily for credit purposes.
• He lamented however that the U.S. is currently lagging Europe in terms of technological invention, innovation, and adoption.
  • He added that the U.S. is failing to adopt legal frameworks to support the use of technology within finance.
• He remarked that the Committee under his leadership has pursued policies to address capital formation, digital assets, consumer finance, and AI technology.
  • He commented that the pursuit of these policies is necessary to ensure that the U.S. remains the global leader in innovation.
• He stated that onerous regulatory requirements have constrained U.S. public capital markets, which has resulted in a “dearth” of IPOs.
  • He commented that this dearth of IPOs has led Americans to have fewer investment choices in their financial portfolios.
• He also noted how retail investors have missed out on opportunities to invest in companies during high growth periods because companies are remaining private for longer periods of time.
  • He indicated that the U.S.’s accredited investor standard reserves these high yield investment opportunities for people that are already wealthy and described this situation as illogical.
• He remarked that the Committee has prioritized capital formation opportunities through strengthening public capital markets, creating new avenues for entrepreneurs to raise capital, and increasing opportunities for more Americans to invest in private capital markets.
  • He noted these efforts had culminated in more than a dozen bipartisan bills, as well as the Expanding Access to Capital Act of 2023 (which had passed the U.S. House of Representatives).
• He then discussed how digital assets and blockchain technology promise to revolutionize financial system participation through democratizing networks, reducing friction, and “dramatically” lowering costs.
  • He lamented however that the U.S.’s lack of clear rules for digital assets and blockchain technology and the SEC’s “regulation by enforcement” agenda have caused digital assets activity to move abroad.
• He highlighted how the U.S. House of Representatives had passed the FIT21 Act to provide a clear regulatory framework and robust consumer protections for digital assets.
  • He noted how this legislation had received bipartisan support, which included 71 votes from House Democrats.
• He then discussed how financial institutions are increasingly using technology to develop innovative products and services, expand access to credit, and increase efficiency.
  • He asserted however that “overzealous” regulators are stifling this innovation and commented that these actions are harming small businesses and consumers.
• He stated that Republicans have worked to provide clarity for partnerships between banks and FinTech through true lender and valid when made policies and through advancing legislation to create “innovation-focused regulatory sandboxes.”
  • He commented that these regulatory sandboxes have proven successful in his state of North Carolina.
• He then mentioned how he and Full Committee Ranking Member Maxine Waters (D-CA) had recently formed the bipartisan Working Group on AI and had introduced two bipartisan bills to address the growing use of AI in the financial services and housing industries.
  • He expressed hope that additional bipartisan bills would result from the Working Group’s efforts.
• He commended the Committee’s work to foster innovation and noted how much of this work has been bipartisan.
  • He expressed hope that this work would influence the Committee’s future work on innovation and would eventually result in legislation being passed into law.

Full Committee Ranking Member Maxine Waters (D-CA):

• She first acknowledged that the hearing would be Full Committee Chairman Patrick McHenry’s (R-NC) last hearing as Chairman and commended him for his tenure as Chairman.
  • She recounted how she had worked with Chairman McHenry to pass a national emergency rental assistance program, make investments in community development financial institutions (CDFIs) and minority depository institutions (MDIs), reauthorize the Terrorism Risk Insurance Act (TRIA), reauthorize the Export-Important Bank of the U.S. (EXIM Bank), and pass crowdfunding legislation.
• She also mentioned how she had worked with Chairman McHenry to develop bipartisan legislation to address stablecoins and expressed hope that this legislation would ultimately be enacted into law.
• She lastly expressed interest in using the hearing to consider how technology will impact the future of finance.

Witness Opening Statements:

Ms. Denelle Dixon (Stellar Development Foundation):

• She discussed how her organization, Stellar Development Foundation, is a non-profit U.S.-based organization that works to create equitable access to the global financial system using the Stellar network.
• She remarked that the use of new technologies (including blockchain technology) has improved and enhanced the global financial space.
  • She applauded the Committee for its bipartisan work to decipher the benefits of new technologies, address the misconceptions surrounding these technologies, and demonstrate the true value of innovation.
  • She called it important for the U.S. to be a global leader in FinTech.
• She stated that blockchain technology innovation is not meant to replace the existing financial system and instead seeks to make the global financial system more interoperable and accessible.
• She remarked that digital wallets and stablecoins built on blockchain networks combined with cryptocurrency-to-cash on-ramps and off-ramps using the Stellar network would improve the financial system.
  • She noted how the Stellar network functions in over 180 countries and 475,000 locations.
• She remarked that current use cases demonstrate the impact of combining new and traditional technologies in finance.
  • She indicated that these use cases include streamlining humanitarian aid disbursements, facilitating secure cashless payments to workers, and reducing barriers for Americans to access tokenized financial products.
• She stated that blockchain technology is improving financial access, removing financial barriers, streamlining the movement of money, providing new product opportunities for traditional finance, and saving financial institutions and organizations millions of dollars.
• She also remarked that stablecoins have improved payments and highlighted how U.S. dollar-backed stablecoins have the highest global demand.
  • She noted how stablecoins provide a global digital asset with price stability, which enable swift and low-cost transfers of value and easy currency conversions.
  • She commented that these features of stablecoins address critical financial needs in volatile or underserved regions.
• She discussed how the stablecoin market has now surpassed $190 billion and highlighted how almost 99 percent of these stablecoins are U.S. dollar-denominated.
• She stated that stablecoins provide people around the world with a practical means of holding and spending U.S. dollars.
  • She asserted that the U.S. dollar’s popularity within this market necessitates U.S. leadership on stablecoin issues.
• She applauded the Committee for its work to develop legislation that would provide regulatory clarity for cryptocurrencies and blockchain technology and expressed hope that the Committee will continue this work.

Mr. Avlok Kohli (AngelList):

• He discussed how his company, AngelList, supports the infrastructure for startup companies through providing a platform for emerging and established fund managers.
  • He testified that AngelList currently supports $125 billion in assets across more than 23,000 funds and noted how the platform’s syndicates have invested in over 12,000 startup companies.
• He noted how startup companies are disproportionately responsible for technological, medical, and scientific breakthroughs and called startup companies a “cornerstone” of economic growth and job creation.
• He remarked that the enactment of the Jumpstart Our Business Startups (JOBS) Act in 2012 has fundamentally changed the startup company ecosystem.
  • He commented that this law had included several key provisions that transformed how startup companies and fund managers access capital.
• He discussed how the JOBS Act allows for general solicitation and asserted that this provision had modernized how startup companies and funds raise capital.
  • He noted how this provision had enabled entrepreneurs and fund managers to openly connect with investors and commented that this provision has democratized access to funding.
• He also noted that the JOBS Act enables crowdfunding platforms to operate without the need for broker-dealer registration and called this provision “pivotal” for AngelList.
  • He asserted that this provision has enabled AngelList to scale up, reduce friction in the investment process, and create efficiencies that benefit both investors and entrepreneurs.
• He further stated that the JOBS Act’s provision increasing the number of allowable investors in small venture funds from 100 to 250 has empowered a generation of emerging fund managers and has increased investor access.
  • He commented that these fund managers play a critical role in sourcing and supporting startup companies at their earliest stages.
• He remarked however that the financial system must continue to evolve and expressed interest in how targeted policies regarding emerging technologies could support financial services innovation.
• He first discussed how AI technology represents the most significant technological advancement of the current time and stated that AI technology provides investors with broader access to insights and better investment decision making tools.
  • He also commented that AI technology enables financial services firms to manage risk, combat fraud, and underwrite services at lower costs.
• He remarked that the U.S. must adopt “sensible” AI technology regulations that encourage responsible innovation without creating “unnecessary bottlenecks.”
  • He also commented that the U.S. must attract and retain the world’s top technical experts to ensure the U.S.’s continued leadership in innovation.
• He then stated that the U.S. must modernize banking and payments infrastructure and warned that outdated infrastructure would inhibit startup companies and fund managers from innovating at scale.
  • He asserted that providing clear and consistent regulatory frameworks for blockchain technologies will support streamlined operations, reduced costs, and capital deployments.
• He further discussed how startup companies are remaining private for longer periods of time so that the companies can pursue more ambitious long-term projects.
  • He noted however that private capital markets have historically suffered from illiquidity, which limits participation and capital efficiency.
• He stated that emerging financial technologies are supporting greater liquidity and lower transaction costs.
• He asserted that regulation should support efforts to enhance liquidity in a manner that promotes reinvestment and innovation.

Mr. Nathan McCauley (Anchorage Digital):

• He discussed how his company, Anchorage Digital, is an institutional cryptocurrency platform that houses the U.S.’s only federally-chartered cryptocurrency bank.
• He lamented how the U.S. has ceded its global leadership within the cryptocurrency space to other countries that are providing regulatory for digital assets.
  • He commented that this regulatory clarity is supporting foreign development of stablecoins and cryptocurrency-related financial services.
  • He also commented that the U.S.’s failure to provide regulatory clarity for the cryptocurrency space is causing the U.S. to lose cryptocurrency talent and resources.
• He remarked however that the U.S. currently can provide regulatory clarity to the cryptocurrency space and regain its global leadership within this space.
• He discussed how Anchorage Digital’s bank charter allows the company to operate under a national OCC-granted charter.
  • He noted that Anchorage Digital is the first and only federally-chartered cryptocurrency bank.
• He stated that Anchorage Digital can provide regulated cryptocurrency custody, staking, settlement, and other services to institutional clients.
• He indicated that while Anchorage Digital’s bank charter subjects the company to the highest security, compliance, and customer protection standards, he remarked that Anchorage Digital benefits from a level of regulatory clarity that other cryptocurrency companies do not receive.
  • He described this situation as “unfair, un-American, and anti-innovation.”
• He stated that Anchorage Digital’s experience demonstrates how sound federal regulations can protect customers and support innovation.
  • He asserted that the cryptocurrency industry and the American people deserve the same level of regulatory clarity.
• He recounted how he had co-founded Anchorage Digital to enable financial institutions to hold crypto assets in a safe, secure, and regulated manner.
  • He testified that Anchorage Digital currently safeguards tens of billions of dollars of cryptocurrencies for some of the largest protocols, investors, and sovereign wealth funds in the world.
• He remarked that the participation of financial institutions within the cryptocurrency space will continue to grow as financial institutions realize the potential for cryptocurrencies to revolutionize the financial system.
  • He commented that blockchains provide a way to transfer value in a secure, fast, inexpensive, and transparent manner without the need for multiple centralized intermediaries.
• He also noted how blockchains can support smart contracts, which can enable workers to gain more direct ownership of their outputs.
• He further discussed how tokenized forms of non-financial assets would benefit from the features of blockchain technology.
  • He mentioned how California had recently placed 42 million car titles on a blockchain to create a non-alterable transparent record of ownership and commented that this record is meant to reduce lien fraud.
• He expressed Anchorage Digital’s excitement in providing core infrastructure to support the blockchain technology industry’s growth.
• He called on the U.S. to provide clear rules governing cryptocurrencies so that consumers and businesses can safely participate within the cryptocurrency ecosystem.

Mr. Henry Ward (Carta):

• He discussed how his FinTech company, Carta, builds infrastructure for the private capital markets.
• He remarked that private capital serves as the U.S.’s “economic and innovation engine” and asserted that the U.S. must bolster and broaden its impact to more companies, investors, and communities.
  • He noted how private capital includes angel investors, venture capital firms, private equity firms, and limited partners.
• He discussed how Carta seeks to build a system of record for equity ownership in private capital markets and stated that Carta’s goal is to broaden the “ownership economy” and expand economic opportunities.
  • He recounted how Carta had itself relied upon private capital to fund its early stages.
• He testified that Carta currently supports more than 45,000 private companies with over 2.5 million shareholders and over $2 trillion in equity.
  • He also mentioned how Carta provides fund administration services for nearly 3,000 funds representing over $150 billion in assets.
• He discussed how private capital provides the long-duration risk-forward that entrepreneurs need to pursue ambitious goals.
• He noted how venture capital and private equity-backed companies create the bulk of net new jobs in the U.S. and have produced 50 percent of IPOs since 1980.
  • He highlighted how eight of the current top ten publicly-traded companies had once been startup companies backed by venture capital.
• He discussed how Carta helps connect startup company founders and investors to private capital and asserted that public policy plays a key role in capital formation.
  • He commended the Committee for its bipartisan work under Full Committee Chairman Patrick McHenry (R-NC) to expand investor access to opportunities, broaden capital formation for startup companies, and help the U.S. remain competitive and innovative.
• He remarked that the U.S. should expand investor access to private capital markets and commented that private capital markets deliver strong returns and enable diversification for investors.
  • He predicted that private capital markets will continue to grow in future years and asserted that access to this growth should not be limited to wealthy individuals.
• He stated that federal policies should create more opportunities for retail investors to access diversified private funds.
• He then remarked that the U.S. must broaden the startup company ecosystem to more communities and stated that the U.S. should empower fund managers to invest early, locally, and diversely.
  • He commented that the U.S. could support emerging fund managers through raising fund sizes and investor limits.
  • He also commented that the U.S. should expand qualifying investments to include fund-to-fund investments and secondaries.
• He further called on the U.S. to modernize its regulatory framework governing private capital and commented that industry expectations regarding private capital are evolving.
  • He indicated that these evolving expectations include the need for faster data-driven information.
• He stated that the U.S. should adopt a regulatory regime governing private capital that lower barriers, reduces costs, and improves capital allocation capabilities.

Mr. Alan Butler (Electronic Privacy Information Center):

• He discussed how his organization, the Electronic Privacy Information Center (EPIC), is an independent non-profit advocacy group that works to secure digital privacy rights.
• He expressed appreciation for the Committee’s work to deploy stronger financial privacy protections and expressed support for innovations that would make financial services more secure, resilient, and accessible for consumers while respecting data privacy.
  • He commented that businesses, policymakers, and civil society will need to work together to achieve these innovations.
• He lamented that the term “innovation” is often used to obscure extractive and exploitative practices that do not serve the interests of users.
• He remarked that technology can provide people with faster and more secure access to opportunities, create new opportunities for entrepreneurship and financial security, and increase trust within the digital marketplace.
  • He asserted that these positive innovations require adequate guardrails and robust oversight.
• He discussed how the U.S. financial sector has experienced significant changes over the previous two decades with the development of new technologies and business models.
  • He indicated that these new technologies and business models include cryptocurrencies, digital assets, digital payment platforms, digital payment applications, and crowdfunding.
• He stated however that these new technologies and business models bring new risks and that policymakers must therefore pursue new and innovative approaches to protect consumers from new risks.
  • He mentioned how consumer scams and other frauds are increasingly occurring and noted how identity theft remains one of the largest looming threats for Americans.
  • He also mentioned how there has occurred a “broad and troubling” trend toward commodifying and monetizing personal data (including sensitive financial data) in ways that enrich data brokers at the expense of consumers.
• He remarked that the U.S. requires privacy and security protections that meet the needs of the 21st century and recommended that policymakers consider four key concepts: trust, security, privacy, and fairness.
• He remarked that a healthy financial marketplace requires trust built on a clear set of rules and institutional guidelines.
  • He warned that the erosion of trust threatens the viability of the digital economy.
• He stated that consumers cannot trust financial providers if they feel that their data and assets are at risk.
• He contended that consumers currently have no effective control over what happens to their data and noted that consumers fear that their data is being sold and used without their consent.
  • He asserted that these consumer fears are well founded and that the U.S. must reestablish consumer control over data to build trust in FinTech.
• He then stated that security must remain a top priority in finance because finance has become the most breached industry.
  • He commented that there is important and innovative work occurring on authentication, risk management, and infrastructure meant to secure financial data, consumer accounts, and critical systems.
• He contended that future financial services should not be based on previous privacy models and called for clear rules that limit unnecessary data collection and use.
  • He noted how the U.S. has experienced a rapid expansion in the scale of data collection and a fundamental shift in how collected data is used and impacts consumers.
• He stated that the U.S.’s current financial privacy regime is rooted in a “stunted” understanding of privacy protection and a narrow view of the financial industry.
• He asserted that the U.S.’s privacy rules should align the data practices of financial services firms with the interests of consumers.
  • He commented that this should entail permitting data collection and uses that are “reasonably necessary” with financial goods and services while limiting unnecessary data collection and prohibiting secondary data uses that do not serve the interests of consumers.
  • He also commented that data collection restrictions would improve data privacy and data security and elaborated that uncollected data cannot be breached.
• He further called on policymakers to remain vigilant against unfair business practices that take advantage of the power and information imbalances that are inherent within the financial system.
• He lastly discussed how many revolutionary technologies carry new risks and stated that standards of fair dealing must evolve with these technologies.

Congressional Question Period:

Full Committee Chairman Patrick McHenry (R-NC):

• Chairman McHenry asked Ms. Dixon to discuss blockchain technology’s benefits and most promising innovations.
  • Ms. Dixon highlighted how most of the world lacks access to banking infrastructure that is similar to the U.S.’s banking infrastructure. She also noted that many foreigners desire U.S. dollars and want to receive U.S. dollar remittances in a cheap, efficient, and secure manner. She stated that blockchain technology can support these foreigners in accessing U.S. dollars. She mentioned how the Stellar Development Foundation has worked with the Office of the United Nations High Commissioner for Refugees (UNHCR) to support the delivery of international aid in a fast and secure manner. She highlighted how this work has security benefits for aid recipients because these recipients do not need to hold physical currency. She emphasized that this distribution of international aid is conducted using U.S. dollar-backed stablecoins. She further mentioned how the ability for people to receive aid via blockchains helps to support local economies in developing countries.
• Chairman McHenry interjected to commend the Stellar Development Foundation’s successful work using blockchain technology to support international aid distributions. He then asked Mr. Kohli to identify companies that have benefited from AngelList’s platform. He also asked Mr. Kohli to provide recommendations for improving private capital markets.
  • Mr. Kohli mentioned how Uber had raised its first round of funding on AngelList and indicated that AngelList had connected Uber to more than half of its initial angel investors. He commented that Uber has subsequently had a significant impact on the U.S. economy. He also mentioned how productivity software company Notion had raised early capital using AngelList’s platform. He then expressed agreement with Mr. Ward’s recommendation that the U.S. permit more investors to invest in private venture funds. He commented that this action would support the formation of more startup companies, which would in turn lead to more innovation.
• Chairman McHenry then noted how the U.S. is experiencing a decline in the number of public companies. He also stated that the best investment returns currently occur within the private capital markets. He asked Mr. Ward to provide recommendations for addressing these issues in a safe manner.
  • Mr. Ward remarked that the U.S. should not necessarily focus on increasing the number of public companies. He stated that private capital markets are better suited for supporting companies that are pursuing more ambitious or longer duration ideas. He contended that the U.S. should work to improve the management and operation of private capital markets for both companies and investors rather than push to have companies go public earlier.
• Chairman McHenry then noted how Anchorage Digital is the only nationally-chartered trust dealing in cryptocurrencies and other tokenized assets. He asked Mr. McCauley to discuss how the provision of a federal regulatory regime for cryptocurrency businesses (such as Anchorage Digital) benefits the public.
  • Mr. McCauley remarked that Anchorage Digital’s federal regulatory regime provides the public with trust and transparency. He stated that Anchorage Digital’s status as a national bank enables institutional investors to hold digital assets in a compliant, regulated, safe, and secure manner. He remarked that this setup benefits institutional investors and their downstream investors. He mentioned how Anchorage Digital provides custody services for some of the largest exchange-traded funds (ETFs) and commented that this provision of custody services benefits ETF investors.

Full Committee Ranking Member Maxine Waters (D-CA):

• Ranking Member Waters mentioned how she had worked with Full Committee Chairman Patrick McHenry (R-NC) to improve access to capital and to establish a legal framework for stablecoins. She then remarked that there exists an opportunity for Congress to address data privacy issues in a bipartisan manner. She asserted that consumers deserve ownership over their own data and commented that this ownership would include consumer control over how their data is shared. She mentioned how she had previously advocated for having corporations compensate consumers for the use of their data. She noted how research indicates that consumer data rights improve consumer financial decision making and increase competition through enabling consumers to change their financial products. She asked Mr. Butler to identify the most important principles for consumer data privacy. She also asked Mr. Butler to address how establishing these principles would improve outcomes for consumers.
  • Mr. Butler called it important for consumers to have a “meaningful ability” to control the use of their data. He stated that this would require functional knowledge and enforceable rights. He remarked that consumers currently must accept the privacy practices of firms and noted that consumers cannot influence how their data is being used. He also discussed how the financial services industry’s high switching costs limit the ability of consumers to move between systems. He stated that this dynamic undermines competition amongst firms on privacy practices. He remarked that data minimization practices (which would limit the amount of collected consumer information) should be incorporated into the financial services industry’s operations. He commented that these data minimization practices would enable consumers to make better informed data privacy decisions and be better protected from corporate practices involving consumer data.
• Ranking Member Waters then raised concerns that generative AI technology could create new systemic risks within the financial markets. She stated that current data collection practices for generative AI applications are largely opaque. She commented that many consumers may be unaware of the details regarding the training data used in their AI services. She mentioned how her state of California is working to address these challenges and had recently enacted a law to provide training data transparency for AI models. She explained that this law requires AI technology developers to make certain information public regarding the data that has been used to train generative AI systems. She asked Mr. Butler to recommend generative AI technology disclosures that would be most beneficial for consumers. She also asked Mr. Butler to address whether data transparency requirements could protect consumers from systemic harms (including misinformation, discrimination, and data privacy risks).
  • Mr. Butler described data transparency requirements as a “critical first step” for training data sets. He stated that the ability to test the underlying logic of AI systems in a public and transparent manner is key for determining whether the AI systems are fair and pose systemic risks (such as disinformation and discrimination). He commented that a lack of understanding of an AI system’s data inputs makes it difficult to evaluate the quality of the AI system’s outputs.

Full Committee Vice Chairman French Hill (R-AR):

• Vice Chairman Hill first commended Full Committee Chairman Patrick McHenry (R-NC) and Full Committee Ranking Member Maxine Waters (D-CA) for their bipartisan efforts to promote financial innovation. He highlighted how Chairman McHenry and Ranking Member Waters had worked together to address AI technology, FinTech, blockchain technology, and stablecoins.

Full Committee Chairman Patrick McHenry (R-NC):

• Chairman McHenry interjected to thank Full Committee Vice Chairman French Hill (R-AR) for his work to develop and pass the FIT21 Act.

Full Committee Vice Chairman French Hill (R-AR):

• Vice Chairman Hill then mentioned how venture capitalist Marc Andreessen had recently accused the Biden administration of targeting cryptocurrency and FinTech companies over the previous four years. He stated that this targeting resembles the Obama administration’s Operation Choke Point. He expressed hope that Republicans could halt and reverse this purported targeting of cryptocurrency and FinTech companies in 2025. He asked Ms. Dixon and Mr. McCauley to indicate whether their organizations and companies had lost access to banking services in recent years.
  • Ms. Dixon testified that Stellar Development Foundation had lost access to banking services and indicated that the organization had needed to approach ten different banks.
• Vice Chairman Hill interjected to ask Ms. Dixon to indicate the reasons that banks have provided for denying Stellar Development Foundation access to banking services.
  • Ms. Dixon testified that banks have not provided Stellar Development Foundation with explanations for denying banking services for the Foundation. She mentioned how the Foundation had originally maintained a relationship with a bank for six years and had not experienced any issues during this period. She indicated that this bank had then decided to terminate their relationship with her foundation and had not provided a reason for this termination.
  • Mr. McCauley testified that Anchorage Digital had lost access to banking services in June 2023. He attributed Anchorage Digital’s loss of banking services to January 2023 joint-guidance from the U.S. Federal Reserve, the FDIC, and the OCC. He noted how this joint guidance had warned banks against participating in the cryptocurrency industry. He stated that Anchorage Digital’s bank had indicated that their decision to terminate banking services had been based on Anchorage Digital’s involvement in the cryptocurrency space. He called Anchorage Digital’s loss of bank services “particularly surprising” because Anchorage Digital is a national bank.
• Vice Chairman Hill asked Ms. Dixon and Mr. McCauley to indicate whether their banks had received verbal or written guidance from bank regulators to terminate their relationships with cryptocurrency organizations and companies.
  • Ms. Dixon testified that Stellar Development Foundation had been told that their bank had received verbal guidance from bank regulators to terminate their relationships with cryptocurrency organizations and companies.
• Vice Chairman Hill called the use of verbal guidance from bank regulators to persuade banks to stop serving cryptocurrency organizations and companies “concerning.” He asserted that the bank regulators are attempting to dodge their obligations under the Freedom of Information Act (FOIA) through their use of verbal guidance. He recounted how the Obama administration had sought to limit the firearm industry’s access to banking services. He lamented how FDIC Chairman Martin Gruenberg had been appointed to lead the Agency, despite his involvement with Operation Choke Point. He remarked that legal businesses should have the freedom to access financial services and stated that the Committee would further pursue this issue. He then commended Carta and AngelList’s work to expand capital availability, accessibility, and affordability to startup companies of all sizes. He noted how the number of Americans working for publicly traded companies is between 10 percent and 15 percent. He asked Mr. Ward to provide recommendations for how the Committee could work with the U.S. House Committee on Ways and Means to expand private company ownership opportunities for private company workers through the retirement system.
  • Mr. Ward expressed support for enabling private company employees to transfer private stock holdings from taxable accounts to non-taxable and tax-deferred accounts. He noted how a young employee working for a private company has two main sources of financial wealth: a retirement account and private stock holdings. He indicated that the employee in this scenario often cannot cash out their private stock holdings in the near term.
• Vice Chairman Hill interjected to indicate that his question period time had expired and requested that Mr. Ward submit his full answer to the question in writing for the hearing’s record.

Rep. Nydia Velázquez (D-NY):

• Rep. Velázquez asked Mr. Kohli and Mr. Ward to discuss how their companies are connecting rural and underserved small businesses to investors. She also asked Mr. Kohli and Mr. Ward to discuss how greater diversity among investors results in more diverse investments.
  • Mr. Kohli remarked that the creation of more emerging managers and venture funds located across the U.S. would result in a broader disbursement of investments. He commented that investors tend to make investments in nearby communities. He stated that AngelList is focused on facilitating the creation of more emerging managers and venture funds that can invest in their own communities. He also discussed how startup companies can support capital formation opportunities for both businesses and consumers. He commented that private capital investments often have multiplicative effects that benefit a large number of small businesses and local economies.
• Rep. Velázquez asked Mr. Kohli to address how the U.S. could improve access to capital for rural and underserved areas.
  • Mr. Kohli recommended that the U.S. promote the formation of non-bank FinTech companies. He stated that these non-bank FinTech companies could develop innovative products that provide unique opportunities to access capital.
  • Mr. Ward noted that entrepreneurs will move to where investors are located and that employees will move to where entrepreneurs are located. He remarked that reducing the cost of setting up funds and investor communities will promote access to capital in new areas. He discussed how there are many U.S. regions with emerging investment ecosystems within the U.S. (including Nashville, Austin, and Boston). He stated that increasing access to capital would enable new regions to develop investment ecosystems.
• Rep. Velázquez then discussed how blockchain technology is primarily being used to facilitate payments within the financial services sector. She stated however that blockchain technology is continuing to evolve. She asked Ms. Dixon to address how blockchain technology can be used to provide access to capital for underserved businesses and rural businesses.
  • Ms. Dixon discussed how tokenized money market funds are now being issued that have lower entry levels than traditional money market funds. She also noted how blockchain technology enables the creation of smart contracts with access to global capital. She commented that these smart contracts provide greater access to funding for parties that cannot access traditional funding sources. She further remarked that blockchain technology enables people to connect with new types of financial infrastructure. She noted how these new types of financial infrastructure can connect with traditional financial infrastructure and have lower fees. She concluded that blockchain technology provides greater capital access opportunities for traditionally underserved populations.
• Rep. Velázquez then remarked that a “central tenet” of the U.S. banking system is the separation between banking and commercial activity. She stated that various stablecoin legislative proposals fail to recognize this separation for stablecoin issuers. She noted how these legislative proposals would permit non-financial commercial businesses to own a stablecoin issuer. She asked Ms. Dixon to indicate whether it is important to maintain a separation between financial and commercial activity with regard to the issuance of stablecoins and other digital assets.
  • Ms. Dixon remarked that the Committee can preserve the separation between financial and commercial activity within the stablecoin space. She stated that the Committee’s bipartisan stablecoin legislation would provide such a separation. She noted how most bank stablecoin issuers are not involved in payments and are merely leveraging assets for payments. She also noted how non-bank stablecoin issuers cannot hold fractionalized reserves and must instead back their stablecoins on a 1:1 basis. She expressed support for prohibiting non-bank stablecoin issuers from holding fractional reserves and asserted that this prohibition would protect the traditional banking infrastructure and consumers.

Rep. Pete Sessions (R-TX):

• Rep. Sessions first applauded Full Committee Chairman Patrick McHenry (R-NC) for his leadership of the Committee. He then expressed interest in ensuring the protection and security of financial accounts. He raised concerns that bad actors (including state actors and criminal gangs) could use quantum computing and supercomputing to hack into financial accounts. He asked Mr. Butler to discuss the U.S.’s ability to protect financial accounts from these bad actors.
  • Mr. Butler noted how fraud, scams, and identity theft are among the top concerns of consumers and mentioned how data breaches have harmed the financial industry. He remarked that the U.S. must improve security related to financial account access and improve the security of the assets held within financial accounts. He also stated that financial tools that increase the speed and efficiency of value transfers can be more prone to scams.
• Rep. Sessions interjected to comment that he is focused on protecting the assets held within financial accounts. He expressed concerns that bad actors can use supercomputers to hack into financial accounts and extract all of the assets from these accounts.
  • Mr. Butler remarked that the U.S. must work to improve the security of financial institutions. He expressed optimism regarding the continued evolution of zero trust security strategies. He explained that these zero trust security strategies require financial institutions to approach all computing and communications elements as inherently untrustworthy. He stated that zero trust security strategies will result in the development of safer systems and expressed support for these strategies.
• Rep. Sessions asked the other witnesses to address how the U.S. could improve the security of financial accounts.
  • Ms. Dixon remarked that innovation must keep pace with evolving frauds. She stated that much of the fraudulent activity that is occurring involves social engineering techniques (such as password guessing) rather than technological innovation. She remarked that while AI technology would help to reduce fraud risks, she commented that both good actors and bad actors will continue to leverage technology for their own purposes.

Rep. Brad Sherman (D-CA):

• Rep. Sherman remarked that this hearing is focused on three topics: capital formation, AI technology, and cryptocurrencies. He mentioned how the U.S. Senate is currently considering three bills related to capital formation that had passed the Committee unanimously: the Fair Investment Opportunities for Professional Experts Act, the Accredited Investor Definition Review Act, and the Middle Market IPO Cost Act. He called on the U.S. Senate to advance these three bills. He also called on Congress to pass two additional bipartisan bills related to veteran housing: the Disabled Veterans Housing Support Act and the Housing Unhoused Disabled Veterans Act (HUDVA). He then described AI technology as a “powerful tool” that is already impacting Americans. He expressed concerns that AI technology could eventually lead to the evolution of autonomous entities. He stated that trillions of dollars will be spent on developing AI technology and commented that this technology can have benefits. He expressed interest in developing legislation that would establish a program to monitor and prevent self-awareness, ambition, volition, and self-direction in AI systems. He stated that if the U.S. were to develop a safety protocol for AI systems, then the U.S. could urge the rest of the world to apply the developed safety protocol to their own AI systems. He called these efforts to control AI systems important for future generations. He then recounted how President-elect Trump had previously raised concerns about cryptocurrencies in 2019. He noted how President-elect Trump had previously questioned the value of cryptocurrencies and had warned that unregulated cryptocurrencies could facilitate unlawful behavior. He also mentioned how President-elect Trump had recently threatened Brazil, Russia, India, and China with tariffs if these countries were to develop their own currency. He remarked that President-elect Trump recognizes that currencies that are designed to undermine the U.S. dollar’s power would harm the U.S. government. He elaborated that the U.S. dollar’s status as a global reserve currency helps to finance the U.S. government and supports the U.S.’s ability to impose sanctions. He asserted that President-elect Trump now supports cryptocurrencies based on self-interest and noted President-elect Trump’s involvement in the cryptocurrency company World Liberty Financial. He expressed hope that President-elect Trump would re-adopt his previous concerns regarding cryptocurrencies.

Rep. Roger Williams (R-TX):

• Rep. Williams first thanked Full Committee Chairman Patrick McHenry (R-NC) for his leadership of the Committee. He then discussed the growth of AI technology in financial services and stated that AI technology can enhance fraud detection, personalize financial planning, automate customer support, and improve credit scoring and loan approvals. He remarked that Congress must continue to study the consumer benefits of AI technology and work to develop future AI technology legislation. He asked Ms. Dixon to discuss how AI technology has benefited the financial services industry. He also asked Ms. Dixon to provide specific examples of these benefits.
  • Ms. Dixon expressed optimism regarding the potential for DeFi with AI technology-driven risk assessment. She noted how there exist concerns regarding the parties participating on DeFi platforms and commented that AI technology-driven risk assessments can help address these concerns. She also stated that smart contracts that use AI technology could support automated compliance and fraud prevention. She further noted how AI technology could support blockchain-based identity verification and optimized blockchain trading and asset management. She remarked that the aforementioned applications are a “real boon” to the blockchain technology industry.
• Rep. Williams then remarked that there exist many barriers that impede private businesses from going public, including greater costs and greater regulatory requirements. He attributed the decrease in IPOs since 2021 to these challenges. He asserted that Congress must create a more favorable environment for businesses to go public. He commented that enabling more companies to go public will broaden access to diverse investment opportunities for retail investors. He asked Mr. Ward to identify the greatest barriers that private companies face when seeking to go public.
  • Mr. Ward remarked that current regulatory requirements do impede private companies from going public. He stated that one of the greatest challenges that companies face when going public is making quarterly disclosures. He commented that these quarterly disclosure requirements can be difficult for companies that have not achieved sufficient scale, lack predictable revenues, and possess complex business models that are difficult to articulate to investors. He stated that while the U.S. should make it easier for companies to go public, he also asserted that the U.S. should make it easier for companies to remain private so that companies can better address the aforementioned challenges.
• Rep. Williams then asked Mr. Kohli to identify actions that Congress can take to ensure that entrepreneurs can more efficiently raise money through private capital markets.
  • Mr. Kohli recommended that Congress increase the number of investors that are eligible to participate in private venture funds. He noted that investors participating in private venture funds are already accredited investors. He stated that increasing the investor base of private venture funds would result in more capital flowing to startup companies. He commented that having more startup company investments will create a “pipeline” of companies that can eventually go public.

Rep. Gregory Meeks (D-NY):

• Rep. Meeks applauded Full Committee Chairman Patrick McHenry (R-NC) and Full Committee Ranking Member Maxine Waters (D-CA) for their efforts to develop a federal stablecoin bill. He described the bill as a “remarkable step forward” in clarifying the regulatory framework for stablecoins. He expressed hope that Congress would pass some form of federal stablecoin legislation. He mentioned how the New York Department of Financial Services (NYDFS) has created a BitLicense regime for virtual currency businesses. He expressed pride in the NYDFS’s BitLisense regime. He asked Mr. McCauley to discuss the importance of both preserving a state pathway for stablecoin regulation and providing federal minimum regulatory standards for stablecoins as part of any potential federal stablecoin legislation. He commented that these federal minimum standards would ensure that there does not occur a “race to the bottom” regarding state stablecoin standards.
  • Mr. McCauley expressed support for the U.S.’s system of federal and state financial regulation. He mentioned how Anchorage Digital had started as a state-chartered trust bank and had converted into a national trust. He expressed support for enabling states to maintain authorities over trust licensure and stablecoin licensure as part of any new federal legislation. He remarked that the NYDFS’s innovation and leadership has been helpful to the digital assets industry.
• Rep. Meeks then noted that while venture capital investments have reached record highs in recent years, he highlighted how just 3 percent of venture capital investments have gone to women, African American, and Latino founders. He asked Mr. Ward to discuss the challenges that diverse founders face when raising capital.
  • Mr. Ward noted that existing regulations dictate that entrepreneurs can only raise capital from parties with whom the entrepreneur has a prior relationship with. He stated that this regulation limits the number of possible investors that entrepreneurs can approach for investments. He also commented that this regulation creates capital formation challenges for less-connected entrepreneurs. He mentioned how he is from Michigan and stated that he had needed to move to San Francisco to obtain venture capital financing for his company. He commented that Michigan does not have the same level of venture capital financing opportunities as San Francisco. He remarked that democratizing both investors and access to investors will improve capital formation opportunities. He applauded the Committee for its work on SEC Regulation CF and SEC Regulation A.
• Rep. Meeks asked Mr. Ward to indicate whether the U.S. could lower barriers for emerging managers to raise capital without eliminating important safeguards.
  • Mr. Ward answered affirmatively.
• Rep. Meeks then noted how Ms. Dixon had asserted that stablecoin technology can expand access to the current financial system. He also mentioned how Ms. Dixon had stated that stablecoins can enable cross-border transfers that can serve as a “lifeblood” to certain communities. He asked Ms. Dixon to further discuss how stablecoins could be beneficial to all Americans (including those that have been excluded from the traditional financial system).
  • Ms. Dixon remarked that many Americans are currently excluded from the traditional financial system. She stated that stablecoins can be leveraged to enable these Americans to transfer value and make payments. She discussed how traditional international remittances often have fees ranging between 8 percent and 15 percent and commented that stablecoin transfers have lower fees. She remarked that U.S. dollar-backed stablecoins provide safety and stability for value transfers. She noted that while the U.S. has products that allow for lower cost payments and value transfers (such as Venmo), she emphasized that Venmo relies upon its users having bank accounts and credit cards. She indicated that stablecoins do not require users to have bank accounts and credit cards. She concluded that stablecoin technology could be a “life force” for many Americans.

Rep. Barry Loudermilk (R-GA):

• Rep. Loudermilk asked Mr. Ward to provide a brief description of Carta.
  • Mr. Ward discussed how companies have traditionally managed their shareholders and the investments of their shareholders using paper, stock certificates, and spreadsheets. He stated that Carta digitizes this process and indicated that this digitization saves startup companies tens of thousands of dollars in annual legal fees. He also stated that this digitization has made it easier for entrepreneurs to create their companies.
• Rep. Loudermilk asked Mr. Ward to discuss how Carta has created value for its customers.
  • Mr. Ward remarked that one of the greatest costs facing startup companies is the legal fees associated with incorporating a company, receiving investments, and issuing stock. He noted how these legal fees can total tens of thousands of dollars. He stated that Carta helps to reduce these costs to a couple thousand dollars annually. He commented that these reduced costs have created more entrepreneurs.
• Rep. Loudermilk then remarked that investors are becoming more interested in private capital markets because of the decline of public capital markets. He also noted how many Americans are increasingly skeptical of private capital markets. He mentioned how critics argue that certain private capital strategies saddle portfolio companies with significant amounts of debt and that private companies generally underperform public companies. He remarked however that the success of venture capital firms appears to contradict some of these criticisms. He stated that the benefits of venture capital to founders appear to be concentrated in a limited number of sectors. He mentioned how 77 percent of venture capital investments in 2019 had been in the software and biotechnology industries. He asked Mr. Ward to provide an explanation for the concentrated nature of venture capital investments in certain industries.
  • Mr. Ward remarked that one main advantage of private capital markets is that private capital markets provide diversification against public capital markets. He lamented that only accredited investors can access the diversification provided by private capital markets. He expressed support for expanding investor access to private capital markets.
• Rep. Loudermilk noted how the venture capital market has existed for decades. He asked Mr. Ward to address whether the concentrated nature of venture capital investments in certain industries is attributable to the venture capital model or can be addressed through public policies.
  • Mr. Ward remarked that public policies can address the concentrated nature of venture capital investments in certain industries. He attributed the current concentration to improper capital formation regulatory frameworks. He called on Congress to pursue regulatory reforms for the private capital markets.
• Rep. Loudermilk noted how supporters of the venture capital model often cite the intangible benefit of expertise for startup companies that might lack sufficient acumen to scale their products or expand their markets. He asked Mr. Ward to indicate whether the largest venture capital firms are well-suited to provide this benefit outside of the software and biotechnology industries.
  • Mr. Ward answered affirmatively. He remarked that Carta would not exist if the company had not received private capital investments. He stated that Carta’s investors had provided the company with necessary capital, networks, and support.

Rep. Al Green (D-TX):

• Rep. Green mentioned how Goldman Sachs had estimated in 2023 that approximately two-thirds of current jobs are subject to some degree of AI automation and that generative AI technology could substitute up to one-quarter of current work. He raised concerns over the impact of generative AI technology on job security. He asked the witnesses to respond to these concerns.
  • Mr. Ward recounted how there had been concerns that the invention of calculators would result in fewer jobs. He stated however that calculators ultimately supported the creation of more jobs.
• Rep. Green interjected to remark that the invention of calculators had caused slide rulers to disappear. He commented that the disappearance of slide rulers had caused slide ruler manufacturing jobs to be eliminated.
  • Mr. Ward remarked that the slide ruler manufacturing jobs that had been lost due to the invention of calculators had been replaced by even more calculator manufacturing jobs. He expressed support for this tradeoff. He remarked that technological advancements have historically caused jobs to change (rather than disappear). He further stated that all technology has resulted in net job gains. He predicted that this trend would continue with AI technology.
• Rep. Green asked the witnesses to indicate whether they agree with Mr. Ward’s response.
  • Ms. Dixon responded affirmatively.
  • Mr. Kohli responded affirmatively.
  • Mr. McCauley answered affirmatively.
  • Mr. Butler remarked that while Mr. Ward’s response has some validity, he described Rep. Green’s concerns regarding the impact of automation on the labor force as significant and real. He stated that the U.S. must measure and consider the impact of automation and AI technology on the current workforce as it monitors the adoption of automation and AI systems. He also stated that the U.S. should consider whether the adoption of automation and AI systems would replace good labor with bad outputs. He commented that this replacement is occurring in many contexts. He remarked that there already exist some policy interventions for evaluating automation and AI systems before these systems are implemented.
• Rep. Green then discussed how biases within generative AI models will cause these models to produce biased outputs. He asked the witnesses to discuss how the U.S. could address potential biases in generative AI models.
  • Ms. Dixon remarked that the U.S. must identify desired outcomes for generative AI models and ensure that the datasets and LLMs supporting these models are not too narrow. She stated that public policy can address these bias concerns through setting standards for the datasets and LLMs underlying generative AI models. She remarked that bias is currently a problem within the generative AI space and asserted that the U.S. must address this problem.

Rep. Frank Lucas (R-OK):

• Rep. Lucas remarked that the banking and financial services landscape has changed “dramatically” since he had joined the Committee in 1995. He stated that the U.S. has been at the forefront of these changes. He asked the witnesses to explain how the U.S.’s continued leadership in financial innovation would benefit his constituents.
  • Ms. Dixon expressed interest in ensuring the U.S.’s continued leadership in financial innovation. She mentioned how other countries have already passed their own stablecoin and digital asset market structure policy frameworks. She indicated that the U.S. has not passed their own policy frameworks for these topics. She noted how many other countries tend to develop their policies based on U.S. policies and commented that this enables the U.S. to influence global financial standards. She warned that the U.S.’s failure to set global financial standards will result in worse outcomes and a weakened U.S. dollar. She expressed support for the Committee’s work to promote the U.S.’s global leadership in financial innovation.
  • Mr. Kohli remarked that increasing capital formation would support more innovation. He stated that most public companies were originally funded through venture capital. He asserted that policies that promote capital formation will therefore result in innovation that benefits all Americans.
  • Mr. McCauley noted how all Americans hold U.S. dollars and remarked that federal stablecoin legislation could help support the U.S. dollar’s continued global dominance. He commented that the U.S. dollar’s continued global dominance would benefit all Americans.
  • Mr. Ward remarked that the U.S. should be an exporter of technology and asserted that the U.S. benefits when the world uses U.S. technologies.
  • Mr. Butler remarked that the Committee plays a “critical” role as an oversight body that can shepherd innovations towards benefiting and empowering consumers. He noted how some innovations can create risks and commented that the Committee can protect consumers from innovations that facilitate frauds and scams.

Rep. Emanuel Cleaver (D-MO):

• Rep. Cleaver raised concerns over the emergence and the development of AI technology. He mentioned how more than half of all Americans have experimented with generative AI technology during the previous year. He stated that AI technology advancements could democratize opportunities for Americans if deployed responsibly. He stated however that AI technology can also pose “great risks” to Americans. He asked Mr. Butler to indicate whether entities that are developing and deploying generative AI technologies require updated guidelines to address the risks of these technologies. He also asked Mr. Butler to comment on Congress’s current work to address generative AI technologies.
  • Mr. Butler remarked that the federal government must provide more guidance and direction for assessing the risks of different types of AI systems (including generative AI systems). He mentioned how California had recently proposed regulations to address automated systems that can impact finance and housing decisions. He also noted how California’s recently proposed regulations would set standards for evaluating the efficacy and bias of these systems. He also expressed agreement with Full Committee Ranking Member Maxine Waters’s (D-CA) interest in ensuring that AI systems are transparent. He commented that a lack of understanding regarding the inputs that go into AI systems would make it difficult to assess the efficacy and bias of the outputs of said systems.
• Rep. Cleaver then asked the witnesses to comment on the prospect of algorithms being developed that can change themselves without human direction.
  • Mr. Butler remarked that concerns that algorithms will be developed that can change themselves is a legitimate concern. He stated that lack of transparency in many algorithms makes it difficult to evaluate the decisions of these algorithms and raises questions regarding whether these algorithms can be regulated.

Rep. Ann Wagner (R-MO):

• Rep. Wagner first thanked Full Committee Chairman Patrick McHenry (R-NC) for his tenure as Chairman. She then discussed how retail investors are statutorily permitted to participate in private investment opportunities. She noted that these private investment opportunities include private capital funds via closed-end funds (which are subject to protections under the Investment Company Act of 1940 (ICA)). She noted however that SEC staff have issued informal guidance that prohibits closed-end funds from investing more than 15 percent of net assets in privately offered funds unless the closed-end fund’s shares are only available to accredited investors. She emphasized that the SEC had not pursued rulemaking to establish this prohibition. She mentioned how she had proposed the bipartisan Increasing Investor Opportunities Act with Rep. Gregory Meeks (D-NY) to overturn the aforementioned informal guidance from the SEC. She stated that this legislation would enable closed-end funds to more fully invest in private funds. She mentioned how the U.S. House of Representatives had passed this legislation with “significant” bipartisan support. She asked Mr. Kohli and Mr. Ward to indicate whether the Increasing Investor Opportunities Act would benefit retail investors, startup companies, and small businesses.
  • Mr. Kohli remarked that the Increasing Investor Opportunities Act would increase the amount of capital available to startup companies. He commented that this legislation would especially benefit earlier stage startup companies. He also called for there to be more formal rulemaking regarding private investment opportunities.
  • Mr. Ward expressed support for the Increasing Investor Opportunities Act and thanked Rep. Wagner for proposing the legislation.
• Rep. Wagner expressed hope that the Increasing Investor Opportunities Act would be passed into law. She then discussed how angel investors must typically meet the standards of being an accredited investor. She stated that current accredited investor requirements unfairly restrict access to the private markets to wealthy investors. She mentioned how the U.S. House of Representatives had passed multiple bills that would expand the accredited investor definition. She commented that these bills would increase the number of investors that could participate in small and emerging company investment opportunities. She asked Mr. Kohli to explain how these bills would promote innovation.
  • Mr. Kohli remarked that expanding the accredited investor definition from merely assessing someone’s total asset holdings to employing a qualitative judgment on the investor will “significantly” increase the amount of available capital for investment. He expressed support for policy proposals that would change the accredited investor definition.
• Rep. Wagner then mentioned how Full Committee Chairman McHenry has been working to enable crowdfunding opportunities for more than ten years. She remarked that crowdfunding can be a “great way” for startup company founders to raise necessary capital. She asked Mr. Kohli to explain why a startup company would choose to raise capital through crowdfunding. She also asked Mr. Kohli to provide recommendations for how Congress could improve crowdfunding regulations.
  • Mr. Kohli remarked that startup companies tend to choose crowdfunding pathways for two reasons. He indicated that the first reason is to obtain investments from their customers. He indicated that the second reason is that the startup company does not expect outsized returns and instead strives to be a “lifestyle business.” He noted how venture capital firms tend to seek out investments with the potential for outsized returns.

Rep. Sean Casten (D-IL):

• Rep. Casten remarked that there exist two different narratives regarding how public markets have changed since the 1990s. He indicated that the first narrative argues that companies face greater challenges going public and that regulatory burdens contribute to these challenges. He indicated that the second narrative argues that institutional investors are pursuing investment opportunities outside of the public capital markets. He mentioned how he had run private equity-backed companies for 16 years prior to entering Congress and stated that he had only experienced the second narrative. He commented however that many members of Congress contend that the first narrative is correct. He remarked that he had been jealous of public companies during his time running private equity-backed companies because public company investors were less prone to intervene in a company’s management decisions. He noted however that the public companies had complained that they were subject to greater disclosure rules than private companies. He commented that these concerns from private and public companies were both valid. He stated that investor protections constrain both private and public companies in different ways. He elaborated that private companies are limited to raising capital from sophisticated investors and that public companies have disclosure obligations to protect unsophisticated investors. He raised concerns over increasing access to investment opportunities for less sophisticated investors without providing sufficient protections for these investors. He then noted how Mr. Kohli had suggested that illiquidity in private capital markets limits participation and that innovation can address this illiquidity. He asked Mr. Kohli to indicate whether these illiquidity concerns are addressable absent a regulatory regime that provides robust investor protections.
  • Mr. Kohli remarked that there exist opportunities for rulemaking to promote liquidity flows into private capital markets without providing unsophisticated investors with access to these markets. He expressed agreement with Rep. Casten’s concerns regarding opening up private capital markets to unsophisticated investors. He remarked that private capital markets help to support startup companies in building stable businesses over time. He commented that startup companies that receive private capital investments can be better situated to achieve stability, predictability, and reliability when they go public.
• Rep. Casten interjected to note how Mr. Ward had previously stated that institutional investors generally lead financial markets and that retail investors tend to follow institutional investors. He expressed interest in the concept of public funds that could invest in private funds. He asked Mr. Ward to indicate whether he would support adopting measures to ensure that such public investment funds that invest in private funds were managed by sophisticated investors.
  • Mr. Ward first expressed agreement with Rep. Casten’s view that changes in public markets are attributable to the fact that institutional investors began to pursue investment opportunities outside of the public capital markets. He also stated that many investors in the public capital markets are unsophisticated and noted how many of these investors do not read the disclosures of public companies. 
• Rep. Casten interjected to comment that many investors cannot not afford the losses associated with bad investments.
  • Mr. Ward noted however that public capital market investors have no cap on losses. He remarked that there should be more investor access to private capital markets and that this access should be structured. He stated that professional management of retail investor participation in private capital markets could help to “liberate” these markets.
• Rep. Casten indicated that his question period time had expired.

Rep. Bill Huizenga (R-MI):

• Rep. Huizenga asked Mr. Ward to address how the U.S. could expand private company ownership opportunities for private company workers through the retirement system. He also stated that the SEC has recently sought to curtail venture capital investments in private capital markets. He asked Mr. Ward to comment on how curtailing venture capital access to private capital markets would harm U.S. innovation. He further raised concerns that some Committee Members are liberally using the term “unsophisticated investor.” He noted that the current federal definition for what constitutes a sophisticated investor is based on an investor’s level of wealth. He commented that wealth and sophistication should not be conflated.
  • Mr. Ward remarked that Congress could support entrepreneurs through permitting employees to hold the private stock of their companies within their retirement accounts. He discussed how the two main sources of net worth for employees of venture capital-backed or private equity-backed companies tend to be their retirement accounts and their shares of their private company’s stock. He stated that both of these holdings are illiquid in nature, which can pose problems for these employees. He remarked that the ability for these employees to move some of their private stock holding into a tax-advantaged vehicle (such as a retirement account) will enable the employees to pull some of their current account liquidity from the tax vehicles. He commented that this change will provide new liquidity access for these employees.

Rep. Sylvia Garcia (D-TX):

• Rep. Garcia expressed interest in assessing the quality of the data that goes into AI systems. She discussed how the use of generative AI technologies has recently experienced “massive growth in the financial services sector. She noted that generative AI technologies rely upon vast amounts of data, which may include public and/or private data sources. She asked Mr. Butler to elaborate on how AI systems may use personal data.
  • Mr. Butler remarked that current rules governing data collection and use have not kept pace with AI technology’s evolution and expanded use. He stated that there does not exist transparency regarding many data sources for AI systems. He also stated that there does not exist guarantees that user information going into AI systems is safe and secure from leaks, breaches, and unauthorized uses. He remarked that the use of AI systems within the financial services sector raises special concerns regarding the sensitivity of the information that individuals might put into AI systems. He asserted that Americans require guarantees that their data being put into AI systems will be protected and will not be used in harmful ways.
• Rep. Garcia remarked that Americans (including herself) are concerned that their data is being sold and that they are powerless to address the unauthorized use of their data. She asked Mr. Butler to discuss how Americans can protect their own data given the growth of AI technology, cryptocurrencies, and other financial innovations.
  • Mr. Butler remarked that the unauthorized use of consumer data is a substantial and daunting problem for individuals. He noted how many companies without direct consumer relationships are using consumer data without the knowledge of consumers. He remarked that the U.S. must therefore ensure that consumers know how their data is being used and empower consumers to limit access to their data. He also stated that the U.S. must address data brokers to better link data collection and use with the service that the consumer is using.
• Rep. Garcia then discussed how many of her working-class constituents are concerned that automation will threaten their jobs. She asked Mr. Butler to discuss how the U.S. could respond to job losses resulting from automation and support these displaced workers.
  • Mr. Butler remarked that the U.S. must address job losses resulting from automation through traditional bargaining tools and labor support programs that have been necessary in previous technological evolutions. He stated that the U.S. must ensure that technological innovation benefits all workers.

Rep. Andy Barr (R-KY):

• Rep. Barr first applauded Full Committee Chairman Patrick McHenry (R-NC) for his tenure as Chairman. He then discussed how the U.S. has 4.4 percent of the world’s population and how over 50 percent of capital is raised within the U.S. He noted that the U.S. had been home to 83 percent of the world’s venture capital activity 20 years ago and indicated that this figure had fallen to 47 percent in 2022. He described this trend as “not good for the American dream.” He remarked that the U.S. must foster a competitive environment for venture capital firms. He mentioned how he had proposed the Developing and Empowering our Aspiring Leaders (DEAL) Act of 2023, which would reduce SEC registration costs and complexity for venture capital firms. He commented that this legislation would support venture capital firms in expanding to new markets. He remarked that this legislation would help his commonwealth of Kentucky, which lacks the same robust venture capital ecosystems as more coastal areas. He asked Mr. Ward to discuss how companies in non-coastal areas can access venture capital funding.
  • Mr. Ward remarked that entrepreneurs tend to move to areas with robust access to capital and that employees tend to follow entrepreneurs. He stated that the U.S. could reduce the regulatory burdens associated with creating emerging manager funds and thanked Rep. Barr for his efforts to support emerging managers. He also remarked that the U.S. could improve how it produces entrepreneurs and commented that emerging managers and investors help to identify and cultivate entrepreneurs. He expressed support for efforts to develop regional venture capital markets beyond coastal communities to foster future generations of entrepreneurs.
• Rep. Barr then remarked that the U.S. must remain the global leader in new technology within the financial sector. He also stated that the U.S. must be the global leader in AI technology for both national security and economic competitiveness reasons. He asked Mr. Kohli to discuss the challenges that companies are facing that prevent them from achieving the full potential of these technologies.
  • Mr. Kohli remarked that while companies currently do not experience significant challenges adopting AI technologies, he warned that aggressive regulation of open-source AI technologies could create adoption challenges. He noted how startup companies tend to rely on open-source software and expressed concerns that regulation could restrict the availability of open-source AI software.
• Rep. Barr expressed agreement with Mr. Kohli’s warning. He also predicted that Chinese regulation of AI systems could limit China’s ability to develop and deploy AI technologies.

Rep. Bill Foster (D-IL):

• Rep. Foster first applauded Full Committee Chairman Patrick McHenry (R-NC) for his focus on emerging technologies as Chairman. He then discussed how he had co-founded a theater stage light manufacturing company that operates within the central U.S. He mentioned how this company had recently become fully employee-owned. He then remarked that the U.S. had recently made significant progress on data privacy issues within the financial system. He highlighted how the CFPB had recently finalized its open banking rule and had proposed a rule to restrict the sale of personal data via financial data brokers. He remarked that identity verification and data privacy work in tandem and asserted that both issues must be addressed together. He noted how most privacy regimes allow for customers to request that companies disclose the data being held on them. He stated that these requests necessitate that customers verify their identities to obtain the data being held on them. He asserted that digital forms of identification are necessary for these verifications. He mentioned how all European Union (EU) citizens will have an EU identity application within the next year that would enable these citizens to prove their identities. He noted how this EU identity application will support identity verification within online environments. He also mentioned how India supports no fee cellular phone-enabled value transactions and indicated that these transactions involve user bank account authentications. He commented that this capability has resulted in the creation of many FinTech startup companies in India and added that India is exporting this technology to other countries. He reiterated that secure digital identities are necessary for these secure transactions. He also discussed the problem of deep fake impersonations and noted how bad actors are using deep fake technology to perpetrate scams. He warned that deep fake technology-enabled scams could become more prevalent in the future. He asked Mr. Butler to discuss the role that digital identity could play in reducing costs for FinTech companies and in supporting know your customer (KYC) requirements.
  • Mr. Butler remarked that digital identity is an area that deserves policymaker attention and innovation. He stated that the U.S.’s democratic values must be embedded in the tools and infrastructure that are used to secure financial systems. He specifically called for the U.S. to consider ways to decentralize identity verification measures. He stated that governmental entities and CRAs have long controlled consumer identities and commented that the U.S. cannot sufficiently regulate CRAs. He further remarked that insecurities in the identity verification system have imposed significant hardships. He asserted that Social Security numbers have been overused as both identifiers and verifiers.
• Rep. Foster noted how Social Security numbers are cheap and available on the dark web.
  • Mr. Butler remarked that the U.S. must enable functional secret sharing and empower individuals to control how much of their identities are revealed in transactions. He raised concerns that there have not been new privacy protections accompanying the digitization of driver’s licenses.
• Rep. Foster interjected to remark that the 119th Congress should make digital identity issues a priority.

Rep. Warren Davidson (R-OH):

• Rep. Davidson first applauded Full Committee Chairman Patrick McHenry (R-NC) for his leadership of the Committee. He then asked Ms. Dixon and Mr. McCauley to identify greatest opportunity and greatest risk for cryptocurrencies in the upcoming 119th Congress.
  • Ms. Dixon remarked that greatest opportunity for cryptocurrencies is the fact that the technology is experiencing visible growth. She stated that traditional financial infrastructure wants to pursue tokenization and digital asset opportunities and lamented that the U.S.’s current regulatory environment hampers these efforts. She expressed hope that Congress can pass stablecoin legislation and digital assets market structure legislation to foster innovation within cryptocurrency space. She also remarked that the U.S. must focus on ensuring the outcomes that it desires within the digital assets space.
  • Mr. McCauley remarked that Congress must ensure that the U.S. becomes the global leader within the digital assets space. He stated that the U.S. has established itself as the global leader in capital markets, technology, and the internet and asserted that the U.S. must extend this leadership to digital assets.
• Rep. Davidson described SEC Chairman Gary Gensler as the greatest threat to the U.S.’s global leadership within the digital assets space and expressed happiness with the fact that SEC Chairman Gensler would soon be leaving his position. He remarked that the U.S. has long served as the global leader in innovation and contended that the U.S. cannot allow other countries to become global leaders in financial innovation. He also asserted that the U.S.’s policies have often undermined the U.S.’s global leadership in financial innovation. He further applauded podcaster Joe Rogan for bringing attention to the fact that many cryptocurrency firms have abruptly lost access to banking services. He expressed interest in addressing this issue. He then thanked EPIC for their support of the Fourth Amendment Is Not For Sale Act. He asserted that the federal government has “shamelessly” violated the Fourth Amendment through buying data (rather than obtaining the data via warrant or subpoena). He asked Mr. Butler to comment on the future of privacy in the U.S. He raised concerns over efforts to establish digital identity regimes and warned that these regimes could enable a “surveillance state.” He asked Mr. Butler to discuss the prospects of using zero-knowledge proofs and other tools to ensure that Americans maintain their privacy rights.
  • Mr. Butler remarked that the U.S. must ensure the existence of systems that enable individuals to control their own data and that protect Americans from external controls and constant surveillance. He stated that many innovations (including zero knowledge proofs) will enable people to exist authentically and verifiably without being constantly surveilled.
• Rep. Davidson indicated that his question period time had expired.

Rep. Rashida Tlaib (D-MI):

• Rep. Tlaib first thanked Full Committee Chairman Patrick McHenry (R-NC) for having allowed her to pursue her investigations into discriminatory practices within the automobile insurance space. She then discussed how digital financial tools (such as mobile banking and payment applications) have created many convenient services and have enabled companies to collect and sell user data. She asked Mr. Butler to confirm that companies will collect customer data for their own use and can sell the collected data to data brokers.
  • Mr. Butler remarked that there often do not exist rules limiting the data that companies can collect and limiting how these companies can use and sell consumer data.
• Rep. Tlaib noted how data brokers will use consumer data to construct detailed profiles of individuals and commented that this data can impact a person’s ability to obtain employment and housing. She mentioned how a lawsuit against RentGrow had alleged that the company does not vet the third-party information it uses to generate tenant screening reports and that the company does not monitor its services for errors and biases. She asked Mr. Butler to indicate whether he is aware of these allegations against RentGrow.
  • Mr. Butler answered affirmatively. He remarked that the U.S. possesses some of the policy infrastructure needed to address errors and biases within the credit reporting system. He indicated that this policy infrastructure includes the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). He stated that the U.S. must build upon this existing policy infrastructure.
• Rep. Tlaib stated that discriminatory practices by data brokers have harmed domestic violence survivors. She asked Mr. Butler to confirm that the FCRA addresses some of these challenges.
  • Mr. Butler remarked that the FCRA addresses discriminatory practices within the credit reporting space. He stated that Congress had been prescient during the 1970s in recognizing the trajectory of how computing, automation, and profiling could impact individuals and in developing the framework for a fair credit reporting system.
• Rep. Tlaib asked Mr. Butler to indicate whether most Americans want third parties to collect their personal data.
  • Mr. Butler remarked that Americans across all political parties want their personal data to be protected and want to control the use of their own data in the digital marketplace.
• Rep. Tlaib asked Mr. Butler to indicate whether he knew of any additional examples where data brokers had made inappropriate use of consumer data.
  • Mr. Butler stated that there have been “troubling stories” of online information leaks harming national security, military, and law enforcement officials. He warned that these leaks can result in threats of physical violence against the officials. He highlighted how these leaks can involve data indicating an individual’s precise location. He concluded that the inappropriate use of consumer data poses physical world risks (as well as risks of bias and discrimination).
• Rep. Tlaib interjected to highlight how 18 states have passed their own consumer data privacy laws. She also noted how the EU has sought to protect consumer data privacy through its passage of the General Data Protection Regulation (GDPR). She asked Mr. Butler to identify lessons that the Committee can learn from these efforts.
  • Mr. Butler remarked that technology and business models are rapidly evolving and asserted that policymakers at all levels must ensure that their policies keep pace with these innovations. He stated that these policies must protect individuals and not embed bad practices in law.
• Rep. Tlaib asked Mr. Butler to indicate whether he is aware of any lawsuits involving consumer privacy violations from data brokers (beyond the RentGrow lawsuit).
  • Mr. Butler stated that he could not think of any such lawsuits and expressed his willingness to follow up with Rep. Tlaib regarding her question.

Rep. William Timmons (R-SC):

• Rep. Timmons first applauded Full Committee Chairman Patrick McHenry (R-NC) for his tenure as Chairman. He then discussed how the U.S. has served as a global leader in financial sector innovation throughout its history. He noted how entrepreneurs and innovators have leveraged emerging technologies to enhance consumer experiences while developing entirely new industries. He remarked that lawmakers must foster innovation and opportunity. He raised concerns however that the Biden administration has “severely deviated” from the aforementioned principles and stated that the Biden administration has failed to provide innovators with regulatory clarity. He further accused the Biden administration of forcing businesses to pursue “woke” policies. He expressed hope that the incoming Trump administration would overturn the Biden administration’s policies at the SEC and the U.S. Commodity Futures Trading Commission (CFTC). He stated that these SEC and the CFTC policies hinder innovation and render the U.S. globally uncompetitive. He warned that the failure to overturn these policies will jeopardize the U.S.’s continued leadership in financial innovation. He remarked that Americans desire policies that provide clear guidance to the business community, reduce compliance costs, and promote the U.S.’s global competitiveness. He asked the witnesses to identify actions that the unified government can immediately undertake to achieve the aforementioned goals.
  • Ms. Dixon remarked that the U.S. should enact both federal stablecoin legislation and federal digital assets market structure legislation.
  • Mr. Kohli also remarked that the U.S. should enact federal stablecoin legislation.
  • Mr. McCauley expressed hope that regulatory agencies will engage in careful and thoughtful rulemaking. He mentioned how the OCC under the first Trump administration had issued three letters that had enabled banks to participate in the digital assets space. He called on the second Trump administration to reinstate these letters.
  • Mr. Ward called for the liberalization of Employee Retirement Income Security Act of 1974 (ERISA) rules to allow for tax-advantaged and tax-deferred accounts to hold private stock and private alternative assets.
  • Mr. Butler remarked that the U.S. should promote fair competition within the marketplace and asserted that this fair competition can strengthen consumer protections. He commented that this objective is embodied in the CFPB’s recent open banking final rule, which enables people to switch between different financial services providers while having their privacy protected.
• Rep. Timmons remarked that the incoming Trump administration has a “generational change opportunity” to pursue policies that advance innovation. He requested that stakeholders provide policy recommendations to the Committee and the Trump transition team.

Rep. Wiley Nickel (D-NC):

• Rep. Nickel first thanked Full Committee Chairman Patrick McHenry (R-NC) for his work on the bipartisan FIT21 Act. He then discussed how financial innovation would support cheaper financial services for working families, greater financial inclusion, and more efficient and convenient financial products. He remarked that the U.S. must support the development of innovative technologies while continuing to uphold strong consumer protections. He specifically called on Congress to create a regulatory structure for digital assets (including stablecoins). He mentioned how more than 30 U.S. technology and cryptocurrency company founders have claimed that they had been denied access to banking services. He asserted that no one should lose access to banking services for pursuing innovation. He asked Mr. McCauley to indicate whether he was aware of any instances where U.S. technology and cryptocurrency companies had lost access to banking services. He also asked Mr. McCauley to indicate whether debanking could hinder innovation.
  • Mr. McCauley testified that Anchorage Digital had lost access to its banking services and had unsuccessfully attempted to obtain bank accounts at 30 different banks. He stated that Anchorage Digital eventually was able to find a bank willing to provide it with banking services. He noted that Anchorage Digital’s bank serves much of the digital assets industry, which poses concentration risks. He also remarked that many of Anchorage Digital’s clients and other cryptocurrency industry participants have grown to distrust the U.S. financial and regulatory systems. He indicated that this distrust has led many cryptocurrency businesses to move abroad, which has caused the U.S. to lose innovators and entrepreneurs.
• Rep. Nickel expressed hope that Congress will continue to work in a bipartisan manner to ensure that digital asset businesses maintain access to banking services. He then discussed how lucrative private investment opportunities are limited to accredited investors. He noted how only millionaires are eligible to participate in these private investment opportunities. He mentioned how he had proposed bipartisan legislation that would enable people (regardless of net worth) to pass an examination demonstrating financial sophistication to become an accredited investor. He indicated that the U.S. House of Representatives had advanced this legislation. He stated that North Carolina’s Research Triangle Park serves as an “essential economic driver” for his Congressional District and noted how the region’s companies rely upon accredited investors for capital. He asked Mr. Ward to discuss how his legislation creating an examination pathway for becoming an accredited investor would benefit North Carolina’s Research Triangle Park.
  • Mr. Ward described North Carolina’s Research Triangle Park as “well-renowned.” He expressed support for policies that would expand opportunities for investors to invest in early-stage companies in diverse regions. He mentioned how Carta had worked with Rep. Nickel’s staff to develop a fitness-based test for accredited investors and expressed interest in continuing these efforts.

Rep. Erin Houchin (R-IN):

• Rep. Houchin first applauded Full Committee Chairman Patrick McHenry (R-NC) for his tenure as Chairman. She then discussed how venture capital plays a “critical role” in the U.S. startup company ecosystem and expressed support for making capital markets more inclusive for entrepreneurs and investors of all backgrounds. She asked Mr. Ward to indicate whether the U.S. should examine the “points of friction” throughout the startup investment pipeline.
  • Mr. Ward answered affirmatively. He stated that identifying where entrepreneurs experience challenges accessing capital and addressing these challenges would be key actions for supporting the startup investment pipeline.
• Rep. Houchin asked Mr. Ward to identify the most important considerations for evaluating access to financing for startup companies.
  • Mr. Ward remarked that the U.S. should work to create investor communities in regions outside of California and New York. He commented that entrepreneurs tend to follow investors and that employees tend to follow entrepreneurs. He stated that more investor communities would therefore result in more entrepreneurship.
• Rep. Houchin expressed her desire for there to be more investments in her state of Indiana. She then remarked that innovation is central to new technologies within the financial sector. She called it “crucial” for regulators to be able to supervise new products for testing and protect consumers without stifling innovation. She stated that offices of innovations and agencies that provide exemptive relief for emerging products and services help to achieve these goals. She asked the witnesses to address how financial regulators can operate in the most efficient manner with firms that are using emerging technologies.
  • Ms. Dixon remarked that financial regulators should first identify undesirable outcomes and then develop regulations that would avoid these outcomes. She stated that regulatory sandboxes and pilot programs have been successful in terms of supporting emerging technologies in a non-burdensome manner.
  • Mr. Kohli also expressed support for regulatory sandboxes and noted how AngelList had participated in a Canadian regulatory sandbox. He stated that regulatory sandboxes enable companies to operate at a smaller scale and develop relationships with regulators. He also stated that regulatory sandboxes enable regulators to better understand emerging technologies before they adopt more robust regulatory systems.
  • Mr. McCauley remarked that he had engaged in numerous productive conversations with various offices of innovation at federal regulatory bodies. He called it important to empower offices of innovation to make use of exemptive relief authorities in order to promote innovation.
  • Mr. Ward commented that he had nothing to add to the previous responses.
  • Mr. Butler remarked that having clarity in regulations and guidelines is key for supporting new market entrants.

Rep. Brittany Pettersen (D-CO):

• Rep. Pettersen first applauded Full Committee Chairman Patrick McHenry (R-NC) for his tenure as Chairman. She then noted how Mr. Ward had indicated that he had needed to move locations to secure funding for Carta. She asked Mr. Ward to recommend ways to support startup company founders and emerging managers to invest in places outside of Silicon Valley (such as her state of Colorado).
  • Mr. Ward stated that the Boulder and Denver areas of Colorado have newer and thriving venture capital communities and mentioned how Carta has many customers in those areas. He called it important for there to exist regional investors because entrepreneurs tend to follow investors. He commented that Silicon Valley and New York have already followed this model and that Colorado could follow this model.
• Rep. Pettersen then remarked that the U.S.’s global leadership in AI technology will require significant energy usage. She mentioned how Colorado contains many innovative energy companies. She asked Mr. Ward to provide recommendations for how the U.S. could encourage investments in innovative energy companies. She asserted that energy innovation will be key for enabling the U.S. to compete with China and for addressing climate change.
  • Mr. Ward mentioned how one of Carta’s first customers was a Denver-based energy company. He remarked that Colorado has long been a leader in energy innovation and noted how many Colorado-based venture capital firms are focused on the energy sector. He stated that Colorado’s cultivation of an energy-focused investment community will result in the state attracting more energy companies and entrepreneurs.
• Rep. Pettersen lastly asked the witnesses to identify policy considerations for Congress related to AI technology.
  • Mr. Ward expressed Carta’s support for AI technology and called it an “incredible new tool.” He stated that all new technologies tend to initially look like magic, which can create concerns regarding the technologies. He recommended that policymakers take a balanced and liberal approach to AI technology regulation.

Rep. Young Kim (R-CA):

• Rep. Kim first applauded Full Committee Chairman Patrick McHenry (R-NC) for his leadership of the Committee. She then expressed interest regarding how financial innovations can improve economic opportunities for Americans. She specifically expressed interest in how technology could help investors from all backgrounds to participate in the private capital markets. She noted how Bloomberg had found that the number of publicly listed companies had fallen by nearly half over the previous three decades. She also noted how Ernst & Young had found that private capital markets had grown from $9.7 trillion in assets under management (AUM) in 2012 to an estimated $24.4 trillion in AUM by the end of 2023. She asked Mr. Ward to elaborate on how aligning stakeholders on best practices and standards and modernizing financial infrastructure could help private capital markets. She also asked Mr. Ward to address how technology could support these efforts.
  • Mr. Ward remarked that Carta had been founded to apply modern public capital markets infrastructure to the private capital markets. He stated that this modernization of financial infrastructure would foster entrepreneurship and enable investors to diversify their investment portfolios. He commented that policymakers should support private capital markets.
• Rep. Kim then asked Mr. McCauley to discuss how the tokenization of real world assets would transform the way that Americans interact with financial products and services. She also asked Mr. McCauley to describe specific use cases and potential use cases that are being developed involving tokenized real world assets.
  • Mr. McCauley discussed how Blackrock had tokenized its money market fund and noted how this tokenization allows for 24/7 instant settlement. He commented that this instant settlement significantly reduces counterparty risk. He stated that Blackrock’s tokenization of its money market fund provides a test case for other traditional assets to be registered on blockchains. He also discussed the U.S.’s recent move to T+1 settlement and stated that there remain additional opportunities for reducing risks within the overall financial system.
• Rep. Kim then remarked that crowdfunding can enable startup company founders that lack access to traditional funding sources to raise capital. She asked Mr. Kohli to explain why a startup company would choose to raise capital through a crowdfunding platform.
  • Mr. Kohli remarked that there are two main reasons that startup companies choose to raise capital via crowdfunding. He first noted how crowdfunding enables startup companies to obtain financing from customers and to provide their customers with a vested interest in the company’s success. He then discussed how venture capital firms seek to invest in startup companies that can achieve outsized investment returns. He noted however that many businesses are not pursuing outsized investment returns. He stated that crowdfunding can help these businesses that are not pursuing outsized investment returns to raise capital.
• Rep. Kim indicated that her question period time had expired.

Rep. Ayanna Pressley (D-MA):

• Rep. Pressley first commended Full Committee Chairman Patrick McHenry (R-NC) for his leadership of the Committee. She then stated that her Congressional District is a “thriving hub” for innovation, technology, life sciences startup companies, and minority-led ventures. She expressed interest in leveraging technology to create more opportunities for all entrepreneurs (and especially entrepreneurs from underrepresented backgrounds). She lamented that technological advances can sometimes exacerbate existing inequalities and asserted that the U.S. cannot allow for AI technology to exacerbate inequalities within the finance space. She stated that AngelList plays a “vital” role in promoting entrepreneurship and accelerating startup company growth. She asked Mr. Kohli to discuss how AngelList is leveraging AI technology to expand access to capital for entrepreneurs (and particularly historically underrepresented entrepreneurs).
  • Mr. Kohli remarked that AngelList seeks to reduce the transaction costs for venture capital funds. He stated that venture capital fund founders had previously needed to raise more money to establish their venture capital funds and to possess robust networks. He remarked that venture capital fund founders using the AngelList platform can establish smaller venture capital funds, which enables more people (including people from diverse backgrounds) to start venture capital funds. He stated that these smaller venture capital funds tend to invest in their local communities.
• Rep. Pressley asked Mr. Kohli to discuss the safeguards that AngelList maintains to protect retail investors from undue risk when using AI technology-powered investment tools on the AngelList platform.
  • Mr. Kohli noted that only accredited investors are allowed to use the AngelList platform. He testified that AngelList therefore does not have retail investor users.
• Rep. Pressley then discussed how many of her constituents are concerned that unscrupulous technology companies are making use of their financial data. She called it essential for the U.S. to establish a regulatory framework for novel technologies that fosters innovation while ensuring “robust” consumer protection. She raised concerns over data privacy protections within the AI technology space. She noted how many people are uncomfortable with their data being used to train AI models without their explicit consent. She asked Mr. Butler to elaborate on how AI systems may currently use the personal data of users.
  • Mr. Butler discussed how companies have frequently deployed new AI tools that automatically select all data from users to be fed into training models. He noted how these companies will require users to proactively opt-out of granting permission for their data to be used to train AI models. He stated that the U.S.’s lack of consumer data privacy regulations has enabled this trend to occur. He remarked that users should proactively decide whether their data can be used to train AI models.
• Rep. Pressley remarked that Congress must harness AI technology to create more opportunities in the financial system. She stated that Congress must harness this technology in a manner that protects consumers, promotes equity, and expands access to financial services to all people.

Rep. Bryan Steil (R-WI):

• Rep. Steil first applauded Full Committee Chairman Patrick McHenry (R-NC) for his leadership of the Committee. He then remarked that the tokenization of assets can result in cost reductions. He stated that while humans are generally well-suited to identify the potential risks associated with new technologies, he commented that humans tend to be less able to identify the potential benefits of new technologies. He asked Ms. Dixon to provide recommendations for how Congress can help prevent the use of digital assets in illicit finance.
  • Ms. Dixon noted how Franklin Templeton had stated that tokenization would significantly reduce their clearing and settlement costs for 50,000 transactions from $50,000 to just $120. She indicated that Franklin Templeton is tokenizing these transactions through the Stellar Development Foundation’s blockchain. She commented that these reduced costs benefit both end-users and companies.
• Rep. Steil asked Ms. Dixon to indicate whether the U.S.’s current rules and regulations for preventing illicit finance are sufficient for addressing the digital assets space.
  • Ms. Dixon remarked that the U.S.’s current rules and regulations for preventing illicit finance are sufficient for addressing the digital assets space. She stated that digital assets technology provides unprecedented transparency and noted how a digital asset can be tracked from origin. She remarked that federal policymakers should first review and leverage existing tools for addressing illicit finance before legislative changes are pursued.

Rep. Mike Flood (R-NE):

• Rep. Flood first applauded Full Committee Chairman Patrick McHenry (R-NC) for his work to pass various pieces of legislation related to data privacy, capital formation, stablecoins, and digital assets. He then raised concerns that regulators lack sufficient human capital to keep pace with innovation. He asked Mr. McCauley to provide recommendations for how Congress could ensure that regulators possess sufficient human capital to adequately regulate digital assets.
  • Mr. McCauley recommended that the U.S. permit federal regulators to own cryptocurrencies. He noted how current ethics rules bar federal regulators from owning cryptocurrencies. He stated that this current prohibition can hamper federal regulators in developing a fuller understanding of cryptocurrencies. He also recommended that federal regulators follow the federal regulatory agencies that have developed expertise regarding digital assets. He identified the OCC as a regulator that has developed expertise regarding digital assets.
• Rep. Flood then expressed support for efforts to develop U.S. dollar-backed stablecoins. He expressed hope that Congress will advance payment stablecoin legislation. He asked Ms. Dixon to discuss how such legislation would impact the future of stablecoins and provide new opportunities for U.S. consumers and small businesses.
  • Ms. Dixon lamented how Congress has not yet passed stablecoin legislation. She remarked that the enactment of federal stablecoin legislation would position the U.S. as a global leader within the stablecoin space because such legislation would provide the world’s first standards for stablecoins. She also noted how 99 percent of the world’s stablecoins are pegged to the U.S. dollar and commented that the proliferation of stablecoins would therefore benefit the U.S. She stated that these stablecoins enable both Americans and foreigners to quickly transfer value and emphasized that this value would be stable because of its backing by other assets. She remarked that these transfer capabilities would enable a more creative financial system and improve global access to funds.

Rep. Zach Nunn (R-IA):

• Rep. Nunn first applauded Full Committee Chairman Patrick McHenry (R-NC) for his leadership of the Committee. He specifically thanked Full Committee Chairman McHenry for helping him advance his bills: the Financial Technology Protection Act of 2023 and the Artificial Intelligence Practices, Logistics, Actions, and Necessities (AI PLAN) Act. He then remarked that the next Congress must work to provide innovators with regulatory clarity, increase choices for consumers, improve access to capital for small businesses, and position the U.S. as the top global location for innovation. He expressed optimism that Congress can achieve these objectives in a bipartisan manner. He then remarked that non-coastal U.S. businesses face greater challenges in raising cash and resources. He asked Mr. Ward to identify the most important actions that could be taken to increase access to capital for companies in non-coastal regions.
  • Mr. Ward remarked that entrepreneurs will move to where investors are located. He stated that attracting investors to new communities will foster entrepreneurship and create jobs in these communities. He commented that this process creates a virtuous cycle of growing entrepreneurship and growing investor bases. He stated that this process can take decades to realize and that many non-coastal regions are experiencing growing entrepreneurship communities.
• Rep. Nunn expressed optimism that AngelList could support innovators throughout the U.S. He then remarked that blockchain technology would serve as the “building block” for the next generation of technology. He stated that the U.S. must ensure that blockchain technology innovation occurs domestically and does not occur in hostile regions (such as China). He noted how Anchorage Digital had recently received a Major Payments Institution license from the Singapore Monetary Authority. He asked Mr. McCauley to compare Anchorage Digital’s experience working with Singaporean regulators to the company’s experience working with the OCC.
  • Mr. McCauley testified that Anchorage Digital had engaged in a “long and comprehensive” process with the Singapore Monetary Authority to receive a license. He commended the Singapore Monetary Authority for providing digital asset companies with a clear process, clear rules, and clear guidelines regarding tokens. He elaborated that the Singapore Monetary Authority provides clear delineations regarding what constitute utility tokens, payment tokens, and security tokens, as well as clear rules for how these different types of tokens may be used. He described the Singapore Monetary Authority’s clarity as “wonderful.”
• Rep. Nunn remarked that the U.S. could learn lessons from Singapore’s regulatory system for digital assets and apply these lessons to its own regulatory system.

Rep. Monica De La Cruz (R-TX):

• Rep. De La Cruz first applauded Full Committee Chairman Patrick McHenry (R-NC) for his leadership of the Committee. She thanked Full Committee Chairman McHenry for helping to promote her bipartisan legislation to ensure that disabled veterans have fair access to housing. She then remarked that regulatory requirements often disproportionately burden small businesses. She highlighted how 99 percent of U.S. businesses are small businesses and how small businesses employ half of the U.S.’s workforce. She asked Mr. Ward and Mr. Kohli to describe how benefit firms (such as Carta and AngelList) help end-users.
  • Mr. Ward remarked that the U.S. provides an easier process for starting new companies relative to other countries. He stated that policies that reduce the friction and cost of small businesses accessing capital will enable small businesses to thrive. He commented that his statement applies to all small businesses (and not only venture capital-backed startup companies). He described capital as the “lifeblood” of small businesses and asserted that lower capital and startup costs for companies will help foster more U.S. entrepreneurs.
  • Mr. Kohli expressed support for efforts to reduce the costs of starting businesses. He also recommended that the U.S. make it easier for investors from U.S. ally countries to invest into U.S. startup companies. He noted how international investors often invest in U.S. public capital markets and asserted that the U.S. should facilitate international investments in U.S. private capital markets.
• Rep. De La Cruz mentioned how she is a small business owner. She stated that access to capital from her community bank had enabled her to open her first business.

Full Committee Chairman Patrick McHenry (R-NC):

• Chairman McHenry applauded the hearing’s witnesses for the benefits that their companies and organizations provide to the U.S. and global economies. He also thanked Committee Members and his staff for their efforts throughout his tenure in Congress.