Tag: financial services regulation

Bitcoin Regulation: “Assume the Existence of Public Interest Benefits!”

You’ve probably heard some version of the joke about the chemist, the physicist, and the economist stranded on a desert island. With a can of food but nothing to open it, the first two set to work on ingenious technical methods of accessing nutrition. The economist declares his solution: “Assume the existence of a can opener!”…

There are parallels to this in some U.S. state regulators’ approaches to Bitcoin. Beginning with the New York Department of Financial Services six months ago, regulators have put proposals forward without articulating how their ideas would protect Bitcoin users. “Assume the existence of public interest benefits!” they seem to be saying.

When it issued its “BitLicense” proposal last August, the New York DFS claimed “[e]xtensive research and analysis” that it said “made clear the need for a new and comprehensive set of regulations that address the novel aspects and risks of virtual currency.” Yet, six months later, despite promises to do so under New York’s Freedom of Information Law, the NYDFS has not released that analysis, even while it has published a new “BitLicense” draft.

Yesterday, I filed comments with the Conference of State Bank Supervisors (CSBS) regarding their draft regulatory framework for digital currencies such as Bitcoin. CSBS is to be congratulated for taking a more methodical approach than New York. They’ve issued an outline and have called for discussion before coming up with regulatory language. But the CSBS proposal lacks an articulation of how it addresses unique challenges in the digital currency space. It simply contains a large batch of regulations similar to what is already found in the financial services world.

Sunlight Before Signing: ‘Expected’ Is not ‘Pending’

Early this month, I reported on President Obama’s recent moves to implement Sunlight Before Signing and improvements in his Sunlight Before Signing average. The news is good, though we’ll pause here to highlight a small quibble with White House practice.

The essence of the president’s promise to post bills online for five days was to give the public a chance to review the legislation coming to him from Congress for a decent interval before he signs it. If Whitehouse.gov consistently posts all bills Congress passes, as promised, the public will develop a consistent practice of taking a last look before it becomes law.

One day, the national crowdsourcing effort may turn up an error or a late-coming provision that causes the president to send a bill back to Congress for retouching. Its influence overall will be to discourage members of Congress from slipping last-minute, parochial amendments into bills that they know will become law just hours later.

A White House practice of posting bills before they come down Pennsylvania Avenue would frustrate development of the habit of public review. If bills are posted prematurely, ordinary Americans who do not follow the day-to-day of the legislative process will see their time wasted when they review the early version of a bill only to find that it is later amended by Congress.  People will shy away from participating in public review of bills coming to the president.

This is currently the risk with H.R. 4173, the Restoring American Financial Stability Act of 2010, Congress’ plan to revamp financial services regulation in the United States. It was posted on Whitehouse.gov June 30th, the day that the House-Senate compromise on the bill passed the House, and it is the only bill on the “Pending Legislation” page at this writing. But the Senate did not agree to the conference report at that time, and the bill may see changes before it passes, or it may fail to pass altogether.

We credited the White House with a Sunlight Before Signing “win” when it posted the DTV Delay Act for five days after final passage, even though it wasn’t five days after presentment—the formal step in which Congress passes a bill to the president. This is because a bill will be unchanged after final passage. The public can review it confident that it is in its final form.

This is not the case with the financial services regulation revamp. The bill should not be getting sunlight on the White House’s web site while it still sits in Congress. A bill that the White House expects to receive is not “pending” in a sense consistent with President Obama’s Sunlight Before Signing pledge to voters and the public.