In This Newsletter
Crypto Conversations and Insights
Stablecoin Legislation in the US
Crypto Legislation and the CFTC
Global Crypto Regulation
Crypto Conversations and Insights
FinTech Director Nicole Valentine spoke on the podcast Crypto Convos with Hamilton Place Strategies' Bryan DeAngelis and Jonathan Graffeo. They discussed the recent crypto market meltdown, its impact on legislative and regulatory efforts, and the resilience of decentralized finance (DeFi) despite current market conditions. Valentine noted that the recent downturn did not spell the end of crypto. She cited a "perfect economic storm" indicative of overall market volatility across industries, not just an isolated crisis in the crypto industry. Her remarks contextualized the crisis in terms of the 2009 financial crisis and the dot-com bubble.
Valentine continued, discussing the practical applications for financial inclusion that blockchain still offers, like cross-border payments. The conversation also touched on opportunities for enhanced consumer protections as regulatory interest in the crypto space has grown. Valentine emphasized that thoughtful crypto legislation need not be partisan. She anticipated political will for thoughtful legislation on crypto to carry over to the next Congress, no matter the midterm results. Valentine highlighted the FinTech Program's new efforts to track global crypto regulation.
Stablecoin Legislation in the US
This year has seen several significant pushes to build a legislative framework for cryptocurrency and digital assets. This April, Senator Patrick Toomey (R-PA) introduced the Stablecoin TRUST Act. The act sought to create a regulatory regime, establish reserve requirements, and mandate regular asset disclosures for payment stablecoin issuers. The bill has since stalled.
However, interest in stablecoin regulation resurged after TetherUSD briefly lost its peg and after the collapse of TerraUSD. In June, the House Financial Services Committee Chair Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC) nearly reached a deal on a new stablecoin bill seeking to expand consumer protections. The bill has stalled, and negotiations are expected to resume in September.
Chairwoman Waters and French Hill (R-LA) of the House Financial Services Committee are also considering a bill to require the Fed to conduct a study of a digital dollar. As The Wall Street Journal reports, it is unclear if consumers would have direct access through the Federal Reserve to digital dollar accounts or if consumers would manage these accounts through intermediate financial institutions. A digital dollar could offer a fast, low-cost payment method for consumers. It may also provide the government with a valuable tool to securely send future economic stimulus, unemployment, and welfare distributions.
Crypto Legislation and the CFTC
Nicole Valentine attended the DACOM conference sponsored by Solidus Labs at the NYSE. During a fireside chat, Chris Giancarlo, former Commodity Futures Trading Commission (CFTC) commissioner, and Caroline Pham, current commissioner, spoke about the challenges facing regulators when using their existing methodologies in the digital asset space. They discussed the need for change that considers the new architecture of money and finance. They emphasized that the process must go to Congress for a legal framework, then to the agencies for a regulatory framework.
Senators Kirsten Gillibrand (D-NY), of the Senate Agriculture Committee, and Cynthia Lummis (R-WY), of the Senate Banking Committee, introduced the Responsible Financial Innovation Act to regulate crypto exchanges. The bill would give the CFTC exclusive jurisdiction over all non-security digital assets. Crypto exchanges and brokerages would need to register with the CFTC, and the CFTC would impose a user fee on the exchanges to finance the increased regulatory costs. Stakeholders in the crypto industry broadly support the law.
Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) and Ranking Member John Boozman (R-AR) introduced the Digital Commodities Consumer Protection Act to close regulatory gaps around blockchain in early August. The bill requires all non-security digital commodity platforms, including trading facilities, brokers, dealers, and custodians, to register with the CFTC. The legislation would establish reporting and reserve requirements for registered platforms. And like the Lummis-Gillibrand bill, the proposal would authorize the CFTC to charge fees to platforms to cover regulatory costs.
Legislators and stakeholders are slowly building consensus on how crypto's future regulatory environment will look. Some action on crypto regulation might materialize as congress returns from its August recess. Outside the US, jurisdictions have begun laying their own regulatory foundations for crypto.
Global Crypto Regulation
The European Union is a global leader in digital assets legislation after initiating comprehensive stablecoin regulation. In response to the collapse of TerraUSD and the wavering of other stablecoins, the EU adopted its long-anticipated Markets in Crypto Assets proposal this June. The framework establishes reserve requirements for stablecoin companies, legal liability in case of loss of crypto assets, and environmental reporting requirements for blockchain market actors.
Swiss financial regulators and tax authorities have been leading the way in crypto policy, adopting guidelines for initial coin offerings (ICOs) in 2018, stablecoin and payments regulation in 2019, and anti-money laundering measures in 2021. The Swiss Financial Market's Supervisory Authority featured these accomplishments and plans for future regulation in its 2021 Annual Report.
In an interview with the Financial Times, Sopnendu Mohanty, chief fintech officer of the Monetary Authority of Singapore, characterized his country's approach to crypto as "brutal and unrelentingly hard." Acquiring a license to do business as a crypto firm requires substantial capital and transparency with regulators. While some crypto industry participants consider this an unfriendly style, Mohanty says this approach prevents bad actors from dominating the market. Singapore plans to launch a Central Bank Digital Currency (CBDC) in the next three years. Its current regulatory stringency could be laying the groundwork for the digital currency's smooth rollout.
Cointelegraph reports that Australia, on the other side of the spectrum, has become one of the friendliest regulatory environments for crypto. It was an early adopter of self-regulation and against fraudulent advertising in the industry. The recently elected Labor government is currently considering a framework for regulating DeFi.
As each jurisdiction charts its own path towards a productive, reliable, and equitable regulatory environment for crypto, another conversation is building around global standards. The foundation for these global standards on crypto regulation may emerge this October when the G20 hears the Financial Stability Board's report on the industry.