Blockchain Technology Policy Becomes Focus of Senate Banking Committee Hearing

August 5, 2019

Chamber Submits Testimony –  ‘Examining The Regulatory Frameworks of Digital Currencies and Blockchain’

Just before Congress adjourned for August recess, the U.S. Senate Committee on Banking, Housing, and Community Affairs held a hearing titled Examining Regulatory Frameworks for Digital Currencies and Blockchain. This hearing came after the Chamber’s Congressional Blockchain Education Day, where nearly 120 of our member companies joined together and demonstrated to Congress that this community is much bigger than one company or one application. We are in a critical moment, prompted by Facebook’s announcement of the new Libra platform, where we are at risk of policy being made without full understanding of this vibrant ecosystem. We were pleased to submit our testimony to the Senate Banking Committee that provided us the opportunity to re-focus the policy discussion to take into account the full potential and unique characteristics of blockchain technology.

In our testimony, we detail the principles and specific areas of regulatory friction related to financial services that must be addressed when establishing government priorities for blockchain technology.

The key messages from our testimony are summarized as follows:

• • • The need for decisive government support. We need comprehensive U.S. government support for the growth of this technology. In the twentieth century, the U.S. government realized the tremendous potential of the Internet and took a central role in nourishing, developing, and promoting its creation and widespread adoption. Ultimately, the U.S. government must publicly recognize the importance of blockchain and establish a framework for enabling and promoting its development.

• • • Complex regulatory framework for trading platforms and exchanges. The CFTC, FinCEN, SEC, state regulators, and other regulatory bodies all have jurisdiction to oversee various aspects of virtual currency markets. Even regulators agree that it is time to reevaluate this unnecessarily complex framework.

• • • Clear guidance for digital tokens is needed. The Howey Test for determining whether an investment contract is a security dates back almost 75 years and was not created with the digital age in mind. While SEC commissioners and staff have made attempts through speeches, testimony, enforcement actions, and other means to signal to market participants the characteristics of a token that might render it a security, these statements are not binding on the Commission and has led to businesses halting the development of platforms in the United States.

• • • Clarifications concerning custody of digital securities tokens. Securities laws dating back over 75 years did not anticipate the current uses of technology for digital assets. For example, the application of possession or control standards for digital securities needs to take into account the technological reality of how these digital assets are managed.

• • • Blockchain technology brings significant advances to anti-money laundering compliance. Blockchain technology’s ability to track and trace transactions is a technological advancement and has already provided a boon to law enforcement and its efforts to detect and prosecute criminals. Further, additional guidance is needed to aid financial institutions in their treatment of blockchain-based assets under existing law.

• • • New state laws recognizing smart contracts as legal contracts are unnecessary. Existing law, without further revision, supports the formation and enforceability of smart contracts.

• • • Critical need for accounting standards for digital assets. Currently, there are no accounting principles generally accepted in the U.S. that specifically address accounting treatment for digital assets, including virtual currencies. The absence of accounting standards is a critical issue for companies seeking to invest and innovate in blockchain technology.

• • • Existing tax guidance requires additional consideration and clarification. Comprehensive guidance addressing the nuanced treatment of virtual currencies under U.S. tax law must be provided before any enforcement actions are initiated.

As we conclude in our testimony, it is clear more work needs to be done. Without addressing these pressing issues, the United States will not maintain its technological and economic leadership and fall behind other countries who are recognizing this extraordinary opportunity and the benefits blockchain technology brings to government, business, and consumers.

Read the Chamber’s testimony here.