Rules, privacy issues loom for fintech industry in 2020

Advocates foresee sparse congressional activity for 2020

Facebook changed the fintech industry's focus this year when the social media giant announced plans to launch its own cryptocurrency called Libra. (Photo by Chesnot/Getty Images)
Facebook changed the fintech industry's focus this year when the social media giant announced plans to launch its own cryptocurrency called Libra. (Photo by Chesnot/Getty Images)
Posted December 17, 2019 at 6:30am

The nascent financial technology industry started the year faintly optimistic that the 116th Congress would pass bills in its favor. But as 2019 comes to an end without legislation, the industry isn’t even expecting action in 2020. And for that, they’re feeling relieved, not disappointed.

Facebook Inc.’s midyear announcement that it planned to launch a cryptocurrency, Libra, upended the industry’s focus, tilting the legislative strategy from pressing hard for beneficial bills to staying clear of measures aimed at checking the social media giant’s ambitions to transform commerce.

Now, with the possible exception of a data privacy bill and a smattering of smaller measures, congressional observers in the fintech world expect 2020 will maintain the statutory status quo.

“Towards the end of the year, we started to see a couple different proposals circulated in the House that would go after Libra,” said Kristin Smith of the Blockchain Association, an industry trade group.

But those proposals, like a bill from Rep. Sylvia R. Garcia, D-Texas, that would have regulated managed stablecoins like Libra as securities, were narrowly tailored, Smith said, calling it a positive sign.

“The fact that this is looking at a subset of crypto known as managed stable coins is pretty remarkable,” she said, noting the bill could have targeted all cryptocurrencies. “It’s a very nuanced approach and answering a very targeted question.”

That’s a far cry from the spring, when the Blockchain Association hoped a bill that would have prevented digital tokens from being labeled as securities would make it to a House Financial Services Committee markup at the least.

Smith said she expects to see more measures aimed at discouraging Silicon Valley from moving onto Wall Street’s turf than those doing the opposite. She said the House Financial Services Committee could still mark up Garcia’s bill next year along with similar proposals with names like the “Keep Big Tech Out of Financial Services Act.”

The fintech world “dodged a bullet” with that bill, said Jonah Crane, a former Treasury Department staffer and aide to Senate Minority Leader Charles E. Schumer, who now advises fintech firms. “I don’t see high odds that those kind of bills will go anywhere, but they are the kind of bills that, if they start to get momentum, could be hard to stop because of the general antipathy towards Big Tech these days.”

But even if Garcia’s bill and others like it made it to the House floor, there’s little expectation they’d go anywhere in the Senate.

That’s not because they are inherently partisan — Republicans are about as skeptical as Democrats on a lot of fintech issues. It’s because Senate Majority Leader Mitch McConnell has shown little interest in spending floor time on anything other than judicial nominations.

“Betting on congressional inaction has sort of been a relatively safe bet for a while,” said Crane. “But there are a handful of small things that seem like they could happen.”

Crane pointed to lighter legislative lifts, like authorizing studies or establishing regulator task forces.Such noncontroversial measures, which allow members to say they’ve done something without having to go through the hassle of actually changing regulations or spending money, could find their way on to must-pass legislation like an appropriations bill.

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One such measure, which would direct the Commodity Futures Trading Commission to study the potential for manipulation in digital commodities, could find its way into the CFTC’s reauthorization bill, Crane said. An amendment that would direct the CFTC to develop guidelines for trading digital commodities was already added at the Agriculture Committee’s markup.

The fear that tech firms like Facebook and Google will get into banking is largely motivated by the sector’s spotty record with data privacy. Congress has grown more concerned that Silicon Valley is going too far by tracking users’ every step online and then using that data to manipulate users’ web habits, purchasing decisions and even political stances — giving the companies unfettered access to saving and spending data.

Data privacy measures

There have been at least 20 bills introduced this year on data privacy and cybersecurity, but one from Senate Commerce, Science, and Transportation ranking member Sen. Maria Cantwell has commanded the most attention since its introduction earlier this month.

Committee Chairman Roger Wicker released a draft of his own data privacy bill the same week Cantwell introduced hers, and not much separates the two.

“There’s actually an incredible amount of overlap,” Crane said of the two bills. “They both agree on a pretty robust view of consumer data rights — rights of transparency, rights of access, rights of data portability.

They differ on allowing private rights of action, which Republicans generally loathe, and federal preemption, which Cantwell’s bill lacks.

Congress’ interest in the issue stems from high profile data breaches, like one in 2013 of Yahoo’s 3 billion user accounts and one in 2017 of Equifax that affected almost 150 million people.

“These things tend to gain a little bit of steam when there’s a breach,” said Ian Katz, an analyst at Alpha Capital Partners. “The chances of legislation would pick up significantly if there were another significant breach.”

Another factor potentially driving legislative action is the implementation of California’s data privacy law in 2020, coming in the wake of the European Union’s enactment in 2018 of the General Data Protection Regulation.

“You’re starting to really, truly see, at least in the states, a real patchwork emerging,” said Jason Rosenstock, a lobbyist at Thorn Run Partners.

Jodie Kelley, CEO of the Electronic Transactions Association, said she expects and hopes to see movement in 2020 on a uniform national standard for privacy to replace a series of state standards. She called Cantwell’s bill “directionally correct,” but said it needs more work.

“It would really have to incorporate the ability of our companies to continue to use data to fight fraud,” she said. “They use data to fight fraud every day. There is a lot of innovation in that space.”

Crane and Rosenstock disagreed about the impact the implementation of California’s law would have on Congress’ desire to pass a federal standard on data privacy

When California’s law goes into effect in January, “the world will not end,” Crane said. “That may sap some of the momentum from some of the federal efforts around privacy; it won’t be viewed as such an emergency anymore.”

Rosenstock disagreed. “I think that it will only serve to continue to draw attention to the issue,” he said.

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But don’t expect many laws to pass in the short 2020 legislative year. An impeachment trial will likely eat up much of the Senate’s January, and lawmaking in both chambers will grind to a halt when reelection campaigns pick up in the summer.

Correction Dec. 17 11:30 a.m. | An earlier version of this story said that Garcia’s bill had not yet been introduced.