U.S. Congress Hearing With the SEC: The Journey So Far
About a week ago on Thursday the 19th of September, the Committee on Financial Services scheduled Tuesday 24th, as the day for a Congress crypto hearing. Tagged “Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat”, the hearing was arranged to discuss several crypto-related issues including the SEC’s regulation of the sector, Exchange-Traded Funds (ETFs), Facebook’s Libra, and also a possible categorization of digital assets as official securities.
The hearing officially began and a few other specific topics were suggested, including more general oversight governance functions of regulatory bodies, the SEC’s Howey Test for choosing which assets are securities, the 144A rule that grants some exceptions, and the way forward regarding proper regulatory measures targeted at the Libra.
The hearing started at exactly 10:06 (EST) with the Chairperson of the Committee, Maxine Waters, giving a peripheral view of the SEC’s pursuit. Waters, who has not been timid about her reservations on Facebook’s Libra and requested for Facebook to suspend development of the Libra, still suggested in her opening remarks that Facebook might be floating the Libra with the intention to “rival the U.S. Dollar”.
Directed at the SEC, Patrick McHenry who is a Ranking Member of the committee, however, commented that the commission should seek to encourage an open playing field by reducing regulatory impediments in the sector. This opinion was corroborated shortly after, by Commissioner Hester M. Pierce, who expressed her worry about how the SEC’s activity could be “overriding investor preferences”. According to Pierce, the SEC must be careful to remain in their function as regulators and not try to push investors or traders in any direction whatsoever.
Pierce also spoke on “regulatory humility”, suggesting that even though the SEC is a regulatory authority, it should still be able to ask itself about whether or not its activities are heading in the right direction, especially as it relates to both retail and corporate investors and even with other authorities such as the Commodity Futures Trading Commission (CFTC).
About 30 minutes after the session began, SEC Chairman Joseph “Jay” Clayton then took over and touched on cybersecurity as a problem, specifically saying “let there be no doubt, the substantial risk remains.” Chair Waters seemed to corroborate Clayton’s fears by mentioning certain remarks made by the U.S. President Donald Trump against cryptocurrencies especially Libra and Bitcoin, as well as other comments from authorities in Germany and France, who are both somewhat averse to digital assets that have the potential to threaten state sovereignty.
In his response, Clayton mentions that even though cryptocurrencies have a commendable pool of advantages especially with regards to efficiency, the SEC has created a stable financial regulatory atmosphere for other assets, which could easily be circumvented by cryptocurrencies.
Ranking Member McHenry then pointed out that at this point, the Libra is “just an idea” and that the proper cause of action would be to create a stable financial regulatory atmosphere for cryptocurrencies, just like the authorities have done for other non-cryptocurrency financial assets.
Rep. Brad Sherman then took this opportunity to suggest that the U.S. Dollar should still be the most preferred as it cannot easily be circumvented by “drug dealers and terrorists” like cryptocurrencies can be. Sherman, who is very vocal about his distaste for cryptocurrencies, introduced a bill which sought to place an outright ban on Bitcoin and other digital assets.
A little more recently, during the Libra hearings, Sherman said that by floating the Libra, “Mark Zuckerberg is sending a friend request to oligarchs, drug dealers, human traffickers, and terrorists.”
In response to questions from Rep. Al Green, Clayton suggests that a lot more time is needed to create proper regulation for the Libra, especially as regards its designation as a security. According to Clayton:
“I think statements like ‘if it doesn’t produce a return, it’s not a security’ – I think that’s a bit of an oversimplification…A lot of lawyers will spend a lot of time figuring out just where that line is.”
After more than two hours, at 12:15 (EST), Rep. Warren Davidson, pushed for proper coherence and clarity with regulations and mentioned his Token Taxonomy Act, a proposal he co-wrote with Rep. Darren Soto, which suggests possible directions on how to handle any uncertainty with crypto regulation. Davidson then ends his remarks by suggesting blockchain technology as a solution to any fears about data security.
Comments were then made about worries that the absence of proper regulatory framework in the U.S. do not create a conducive atmosphere for growth and innovation in the sector. These comments were raised by Rep. Anthony Gonzalez, who then simply asked that the authorities “go faster.”
The hearing, so far, didn’t seem to be too focused on fighting off cryptocurrency even though serious comments were raised. The entire process just might end with a new day for the entire cryptocurrency and blockchain technology industry.
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