Members of Congress who support the development of new financial technologies say their job might have gotten tougher after Facebook announced its plan to issue a cryptocurrency.
Lawmakers used hearings in both chambers this month to roundly censure Facebook’s proposed Libra, which the social media company says could provide financial services to people who can’t rely on banks.
“With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users,” California Democrat Maxine Waters, who chairs the House Financial Services Committee, said at a July 17 hearing. Republicans, too, got in their jabs, including President Donald Trump and Treasury Secretary Steven Mnuchin.
Fintech supporters, notably those in the Congressional Blockchain Caucus, are trying to prevent the reaction to the social media giant’s plans from becoming a distraction, arguing that the U.S. needs to maintain pace with other countries on technology.
“I’ve been a little heartbroken [with] some of my fellow members of Congress,” Arizona Republican Rep. David Schweikert, who supports Facebook’s Libra proposal, told CQ Roll Call. He said some members of Congress are “conflating” disdain for Facebook with other fintech innovation that could improve more than just financial transactions, but also health care and other crucial services.
Democrats in particular have been critical of Libra, making the mission difficult for Hill staffers such as Bill Rockwood, the financial and technology policy adviser for Florida Democratic Rep. Darren Soto. Rockwood said Republicans tend to be further along in supporting fintech because they recognize its capital formation and business potential.
“That’s been part of the struggle: to get more Democrats to the table,” Rockwood said. “That’s our goal. These are nonpartisan issues in many ways.”
Soto, who co-chairs the Blockchain Caucus, has been trying to lead on the issue through legislation, such as co-sponsoring, alongside Ohio Republican Warren Davidson, a bill that would declare that digital assets are generally not securities, more clearly define the role U.S. regulators play in oversight of cryptoassets, and allow companies to work more freely with them.
Soto wants legislation to determine the types of fintech products that would be regulated by which agency. As of now, as many as seven regulators could weigh in, depending on what the fintech product does. Under the Soto-Davidson plan, for example, the Federal Trade Commission would regulate digital tokens if the value of the asset could increase based on the usage of the network the token is issued on, thus avoiding treatment as a security that would otherwise be regulated by the Securities and Exchange Commission.
The legislation is the “biggest priority in Congress” for the Blockchain Association, which represents the cryptocurrency industry, according to its director of external affairs, Kristin Smith. She said Facebook is not a member of the organization.
The association said in a statement before the Libra hearings that even crypto industry players had a mixed reaction to Facebook’s plan. Some say Libra could introduce the benefits of cryptocurrencies to billions of people, while others are hoping blockchain networks will provide “much-needed competition” to big-tech platforms like Facebook, the association said.
Fintech-focused lawmakers say they recognize the pitfalls if technology goes unchecked, and are working to address financial safety as well. And some of their legislation with such a focus was incorporated into appropriation bills this year.
The fiscal 2020 Agriculture appropriations bill, for example, includes language to monitor virtual currencies, including bitcoin, for fraud and manipulation. It would require the Commodity Futures Trading Commission to report to Congress on how to better protect virtual currency investors and promote American competitiveness. The language came not from fintech critics, but its supporters in Congress.
Lawmakers also succeeded in directing $3 million more than the funding requested by the CFTC to support the agency’s LabCFTC effort, which brings regulators and innovators together to discuss projects before they run into regulatory walls.
But there’s still a hill to climb for these lawmakers because of the pressure on the issue, not the least of which is from Trump, who has rebuked the Facebook cryptocurrency concept and bitcoin. Trump tweeted that Facebook Libra’s “will have little standing or dependability,” telling the company to seek a charter if it wants to be a bank; Mnuchin said Libra was a national security issue for potential money laundering and terrorist financing.
Those attitudes may help to forge alliances within opposing parties.
Illinois Democrat Bill Foster, for example, gave high praise to his Republican counterpart on the House Artificial Intelligence Task Force, as they explore the impact of automation and machine learning.
“French Hill is a Republican and a very thoughtful guy,” Foster said of his Arkansas colleague in an interview with CQ Roll Call. “He understands everything that can go wrong at a bank, and when he looks at a fintech operation, he says, ‘Convince me you’re not going to make all the same mistakes that banks have been making for a thousand years.’”
Foster seemingly has to walk a delicate line. He stood beside Waters when the Democratic chairwoman called for Facebook to halt its cryptocurrency plans. Foster said at the time he thought Facebook’s timeline was too ambitious. But he told CQ Roll Call he supports the project in general.
“I did not co-sign her letter that called for Facebook to stop their plans,” he said. He said his hesitancy stems more from how the technology will be governed to protect against cyberattacks.
Schweikert, the Arizona Republican and fintech supporter, said the concept behind these technologies goes a lot farther than esoteric financial issues. It could even save lives, he argued. Nurses needed to fill in on an emergency basis at hospitals where they don’t normally work could instantly provide blockchain-authenticated credentials. For patients, wearable tech like watches could monitor oxygen levels and feed that to health care professionals in real time.
“The last 72 hours of your personal data is much more valuable than seven-year old medical records sitting at the hospital,” Schweikert said.