What you need to learn about the two new crypto laws of Congress
As the cryptocurrency universe enters 2020, U.S. lawmakers are drafting bills to clarify stable coins and provide regulations for tech firms like Facebook that may want to create their own cryptocurrencies. Let’s check to What you need to learn about the two new crypto laws of Congress.
The draft law “Keep Big Tech Out Of Finance Act” was proposed by the House Financial Services Committee’s Democratic majority on July 15, 2019. While this bill specifically targets Libra, a new Facebook-led digital currency, the law is aimed at preventing large technology companies from functioning as financial institutions.
A copy of the draft legislation describes a large technology firm as offering an online platform service with annual revenue of at least $25 billion.
Having that in mind, the bill proposes that specifically:
“A large platform utility may not establish, maintain, or operate a digital asset that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function, as defined by the Board of Governors of the Federal Reserve System.”
Facebook is still planning to start Libra, regulators are worried
Facebook (which immediately counts as a large technology company) is still planning to launch Libra and is building the network of stable coin today. Facebook is also planning to introduce a range of new features in a press release released on Nov. 15 in the coming months.
Although the release date for Libra has not yet been set by Facebook, regulators around the world are expressing concern.
Chairwoman Maxine Waters shared her negative feelings about Libra as a follow-up to the Keep Big Tech Out of Finance bill, telling Facebook to put it on hold during her opening statement on July 17, saying:
“In light of these and other concerns, my colleagues and I wrote to Facebook earlier this month to call on it to cease implementation of its plans until regulators and Congress can examine the issues associated with a large technology company developing a digital currency, and take action. The Independent Community Bankers of America and others support this commonsense step.”
Although Facebook remained relatively silent after congressional Libra hearings, the Keep Big Tech Out of Finance legislation would allow the financial regulators of the federal government to impose penalties of breaches of up to $1 million per day.
Great technology companies will most likely think twice before introducing their own currencies and/or conducting bank functions, based on the draft legislation and penalty that follows if requirements are not followed.
Should stablecoins be classified as securities?
On Oct. 18, 2019, United States. Congress released a draft bill called’ Stablecoins Are Securities Act,’ which is intended to govern stablecoins, a cryptocurrency that acts as a non-volatile, stable store of capital under the common Securities Act of 1933.
That bill states:
“Because issuers of managed stablecoins nevertheless maintain that managed stablecoins are not securities, it is appropriate for Congress to provide clarity by amending statutory definitions of the term security to include managed stablecoins.”
The proposed legislation appears to be a direct response to Facebook’s Libra cryptocurrency, which the company identified as a stablecoin attached to a fiat currency basket in its white paper.
Assuming that the “Stablecoins Are Securities Act” bill passes, all stock and bond rules will also extend to stablecoins such as Libra. In an article published on January 1, Marketplace policy reporter Nancy Marshall-Genzer explained this, saying:
“This bill says that Stablecoins, which are [digital] coins, like Libra, pegged to a basket of something that is considered stable, so these coins are not supposed to fluctuate. So securities being stocks and bonds, this bill says, “Hey, Libra, all the laws that apply to stocks and bonds are going to apply to you.”
Is Facebook afraid of these bills?
All signs say that Facebook does not back up this year’s release of Libra.
Although the biggest change appears to be the removal of dividends payable to early Libra investors, there is also talk that the changes could address Libra’s concerns as security.
Libra’s whitepaper initially mentioned dividends, specifically stating: “Interest on its reserve assets would go towards system maintenance, keep transaction fees low, assist with growth, and pay dividends to early investors.”
Yet all talk of “paying dividends” had been completely removed, as Brummer pointed out in an article about these reforms. While behind these edits there are a few theories, a primary guess at the motive is that Facebook wants to avoid classifying this new financial product as a financial security.
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