Senate panel questions crypto's financial inclusion powers, calls for more regulatory clarity

The Senate Banking Committee continued its probe of blockchain technology on Tuesday in a hearing on crypto regulation that quickly focused on Facebook's impending Libra cryptocurrency.

Panelists and Senators alike expressed skepticism about crypto’s ability to broaden access to global financial services while expressing further doubt about Libra’s purported goal of banking the unbanked.

Experts Jeremy Allaire, CEO of crypto exchange-operator Circle, University of California Irvine law professor Mehrsa Baradaran and Congressional Research Service international trade and finance specialist Rebecca Nelson testified before the committee on regulatory framework for both the crypto space and blockchain technology.

Can crypto help the unbanked?

To start, Baradaran cast doubt herself, saying the problem of financial inclusion belonged to policy, not technology. She said the Federal Reserve and other institutions already have the power to bank the unbanked, and the technology exists, so it’s policy that needs to bridge the gap.

“We have all of these banking deserts, especially in rural places, and all we need to do is some access for that point of contact, cash-digital,” she said. “None of these cryptocurrencies can do that until there is wide-scale adoption.”

Baradaran said wide-scale adoption in which crypto is accepted at every point of access is possible, but she argued there are easier ways to create those points of access for the unbanked. 

Off-shore activity?

Questions pertaining to cryptocurrency companies operating in foreign countries were raised, much the same as the Libra hearing. 

During that hearing, Facebook blockchain head David Marcus responded to questions about why the entity behind Libra set up shop in Switzerland as opposed to the U.S. It's a point that hit close to home for Allaire, whose firm moved some of its operations over to Bermuda. 

The regulatory definition of a security in the U.S. is narrow, failing to encapsulate the characteristics of digital assets, according to Allaire. He said they are too often deemed securities under the Howey Test, even though some assets also have a utility component.

“There is a fundamental mismatch between the regulatory guidance and the nature of these assets,” He said at the hearing.

Meanwhile, nations that have better-defined official policy around cryptocurrency are benefiting from that clarity. Nelson said crypto “hubs” are cropping up more and more, as places like Switzerland and Bermuda solidify their regulatory frameworks in an effort to attract firms to their shores.

Back to Facebook

Still, regulatory questions raised inevitably found their way back to Libra. Chairman Sen. Mike Crapo (R-ID) asked how a global coin like Libra could satisfy data privacy and other regulatory concerns of competing jurisdictions, including the U.S.

On the law enforcement front, Allaire pointed to the the Financial Action Task Force (FATF) guidelines as a good starting point of getting the world on the same page. The global regulatory body issued guidelines for virtual asset providers earlier this year. Those guidelines were accepted by multiple sovereign nations and coalitions, including the G20, meaning most jurisdictions will comply with FATF guidelines. 

U.S. Sen. Catherine Cortez Masto (D-NV) said she believes blockchain’s potential to shift multiple sectors won’t fade, and requires lawmakers to examine the possibilities for the technology with an eye toward the future.

“If we as a country do not lead in this technology, China or some other country is going to do so,” she said.