The House Financial Services Committee (HFSC) held a hearing on Tuesday, September 24, 2019 titled “Oversight of the Securities And Exchange Commission: Wall Street’s Cop On The Beat”. For the SEC, this was a chance for all five Commissioners to publicly meet together and sit as witnesses before the Committee in the House of Representatives. For Democrats, this was an opportunity to discuss Facebook’s Libra and how the SEC might also be “Big Tech’s Cop On The Beat” with respect to Libra and cryptocurrencies.
Chairwoman Maxine Waters (D-CA) has been unrelenting in her concern of Facebook’s new Libra project and today’s hearing was no exception. The following timeline indicate her rigor and focus on Big Tech’s move into cryptocurrency:
- July 2 – Committee Democrats send a letter was sent to Facebook asking them to halt production of Libra
- July 17 – Full Committee holds a hearing with David Marcus, head of Facebook’s Libra
- August 25 – Committee Democrats travels to Switzerland to understand how the Libra Association would be regulated as a Swiss non-profit
- September 24 – Holds a hearing with the SEC, asking for details on the level of regulation and scrutiny applied to Facebook’s Libra
In the hearing on Tuesday focusing on the SEC as Wall Street’s cop on the beat, the Chairwoman wasted no time turning her attention to how the SEC also needed to be Big Tech’s cop on the beat as well.
“I’m very concerned about Facebook’s plan to create a digital currency Libra and digital wallet Calibra. It appears that Facebook is working to create a global financial system that is intended to rival the U.S. dollar…I hope to hear what steps the SEC has taken is doing to ensure that Libra is appropriately and rigorously regulated.”
– Chairwoman Maxine Waters (D-CA), of the House Financial Services Committee
During the question period, Chairwoman Waters asked whether Chairman Jay Clayton of the SEC had a specific committee, commission or advisory group to focus on Libra. Clayton responded that the SEC does have a group focused on digital assets examining both the potential they have to add efficiency as well as the risks they create. He noted, “To the extent that crypto assets would be used to evade … regulations, I have a real problem with it.”
Representative Al Green (D-TX) followed up on the Chairwoman’s concerns on Libra and provided an overview of how the Libra Reserve will be funded by the Libra Association. Members pay $10 million to join the Libra Association and receive a Libra Investment token, which entitles them to receive dividends. The fact that the Libra Coin is funded from the Libra Investment token potentially means both tokens would be classified as securities by the SEC. Chairman Jay Clayton welcomed Representative Green’s offer to write a letter to the SEC with what he feels the proper disposition of Libra should be.
The comments from Representative Green were very similar to the Committee Memorandum provided prior to the hearing by the House Financial Services Committee, where it states, “On the matter of whether both Libra tokens are securities, the Committee Memorandum states,”However, the offer of Libra could be integrated into the offering of the Libra Investment Token, thereby deeming both securities. The Footnote referenced the SEC’s complaint against Kik on June 4, 2019 in regards to how the SEC could rule both Libra tokens as securities.”
“What about the entire blockchain phenomenon? What do you know about that? What work has been done on that? Is there an opportunity to perhaps brief the legislators on the work you are doing on Libra and the work you are doing or all of blockchain.”
– Chairwoman Maxine Waters (D-CA)
Republicans Ask For Regulatory Clarity On Digital Assets To Avoid Innovation Flight From America
For the House Financial Services Committee, this was a chance for many Republicans, particularly Congressman Warren Davidson (R-OH), Congressman Ted Budd (R-NC), and Congressman Anthony Gonzalez (R-OH), to ask for regulatory clarity for digital assets so that innovation and entrepreneurship in this new industry will thrive in the U.S. and not be driven to Singapore and the United Kingdom that have provided regulatory clarity for this new asset class.
Congressman Davidson stated that Bill Hinman, Director of the Division of Corporate Finance at the SEC, described an approach to digital assets through facts and circumstances rather than a bright line test, was not sufficient to providing the regulatory clarity needed in the United States for the digital currency space.
“This company by company approach prevents regulatory clarity and it suffers from the charm and inefficiencies of third world power structures.”
– Representative Warren Davidson (R-OH)
Representative Davidson argued that this regulator clarity exists in Singapore, United Kingdom, and Switzerland while hundreds of countries in the U.S. await no-action letters. The Congressman went on to applaud Commissioner Hester Peirce in her comment that enforcement is a poor way to announce policy and asked Commissioner Peirce if a law passed by Congress would be a better way to announce policy. Commissioner Peirce responded it is “always better to have a clear way as to what is or is not permissible”.
Under questioning from Congressman Gonzalez (R-OH), Commissioner Peirce did note the recent SEC framework provided on digital currencies was “guidance did muddy the waters.”
Commissioner Peirce Suggests A “Safe Harbor For Utility Tokens”
Commissioner Peirce noted that, in terms of what the SEC needed to do for the digital assets space, that there is work to do to make sure people can develop in compliance with our rules. Chairman Clayton commented “to the extent this technology facilitates more access in a protected way”, he would not completely shut the door on token technology; however, in his opinion, the ICOs in 2017 were a very poor example of this.