U.S. lawmakers seek to classify stable currencies like Libra as securities

Some US lawmakers are seeking to classify stablecoins as securities. As Facebook's stablecoin Libra considers adopting a stablecoin pegged to fiat currencies rather than a single token backed by a basket of national currencies, this proposed crypto project may face another regulatory hurdle.

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Meanwhile, lawmakers who support the bill say stablecoins should be classified as securities to protect American consumers. If passed, stablecoin projects like Libra may be subject to strict US securities regulations.

Critics of the move point out that such measures will only further weaken the country's position in the emerging digital landscape. Some commentators have long accused regulators of cooling innovation in the U.S. cryptocurrency and blockchain space.

Libra insists that its proposed stablecoin project is a commodity. The Libra Association is still developing such a payment system, and recently released an update to its testnet status, detailing the number of transactions made to date.

U.S. lawmakers want to classify "supervised stablecoins" as securities

As previously reported, two Texas lawmakers, Lance Gooden and Sylvia Garcia, have introduced legislation seeking to classify stablecoins as securities. The bill initiated by these two lawmakers is known as the "2019 Supervised Stablecoin is a Securities Act", which could put a greater regulatory burden on stablecoin projects such as Libra. Rep. Garcia said in a statement quoted in The Hill:

"Supervised stablecoins, such as Libra being proposed, are clearly securities under current law. This legislation merely clarifies the law to remove any ambiguity."

The co-sponsor of the bill, Rep. Gooden, also echoed the view that Congress should take the lead in shaping the legal future of cryptocurrencies and the entire digital realm. "Congress has a responsibility to clarify the regulatory framework that applies to stablecoins, especially if they are made available to consumers by mainstream institutions," Gooden said.

It seems protecting consumers is at the core of legislators' efforts to place stablecoins at the security token paradigm. However, this move adds to the regulatory burden of stablecoins, as US securities laws include a range of reporting and compliance requirements.

Cointelegraph sought advice from the Libra Association on the proposed bill. Dante Disparte, the association's director of policy and communications, stated in an email response:

"We insist that there is no competition for responsible financial service innovation and regulatory oversight. The Libra payment system is designed from the ground up and can be used as a payment infrastructure that can benefit billions of people on the edge of the network today. Libra Coin It's just a proxy for low-friction and high-trust instant payment systems. "

Given that Libra has not yet started, it is unclear what type of token the project will use. In October 2019, the association hinted that it might abandon its original plan to create a single token backed by a basket of national currencies to support a stablecoin pegged to fiat currencies.

The bill before Congress represents another development in the new trend of Western government authorities trying to impose strict regulatory hurdles on the path of stablecoin projects. Several regulators in the United States and international organizations such as the G-20 have expressed concerns about stablecoins.

Another potential regulatory obstacle to Libra

If passed, the bill could become another regulatory obstacle on the way to the development of the U.S. Libra project. In an email to Cointelegraph, Max Ambrose, a crypto and blockchain legal expert, highlighted how much the proposed bill could burden Libra:

"This will require Libra to comply with the substantive regulatory requirements that the SEC wants to avoid completely. These regulatory requirements increase legal costs and will involve Libra on a number of investment-related issues, requiring them to be within specific limits that the SEC and legislators can manage Function. "

As Ambrose said, Libra's increased compliance burden will be such that "the bill may completely prevent Libra from doing business in the United States", but that possibility will depend on whether the association chooses to follow local regulations. He added:

"The Libra argument that it is not securities further proves that if they are bound by US securities laws and regulations, they will face a dilemma."

Joe DiPasquale, CEO of cryptocurrency and blockchain hedge fund company BitBull Capital, echoed a similar view, stating that stablecoins in the U.S. as classified as securities could harm Libra in the country. Operations. In a letter to Cointelegraph, DiPasquale declared that classifying Libra as a security would limit the project's flexibility in operating in the United States.

For Libra in the U.S., being designated as a security token may not be the only hassle: In early November, Kenneth Blanco, director of the U.S. Financial Crimes Enforcement Network, announced that companies trading in stablecoins must register as currency Service business.

Since the project's white paper was released, Libra has been criticized by various regulators in the United States and abroad. Although initial objections to the project seem to stem from Facebook's participation in the Libra Association, recent events seem to point to governments who want a firm opposition to the project as a whole.

Is stablecoin a security?

As the bill has been submitted to Congress, part of the ongoing dialogue is swirling around whether stablecoins are securities. In the United States, the Howey test is a standard for classifying investment vehicles as securities.

So far, the SEC has chosen to use the Howey test to deal with the legal status of cryptocurrencies, rather than creating another standard that specifically targets cryptocurrencies. According to Ambrose, Congress reserves the right to establish a legal framework to decide whether crypto tokens should be considered securities. In an email to Cointelegraph, Ambrose said:

"The legal basis for classifying cryptocurrencies as securities depends on legislators (for example, Congress) and regulators (for example, the Securities and Exchange Commission, also known as the SEC), so if the bill is passed, Congress will effectively classify cryptocurrencies Establish a legal basis. Under the current law, it does not matter whether Libra is a security or not, as it will be classified as a security under the new law. "

In summary, the Howey test classifies investment vehicles as securities if the following conditions are met:

  1. Involving currency investments.
  2. The investment was made to a conventional business.
  3. Expect to profit from investment.
  4. Profits are expected due to the efforts of the promoters or third parties.

The bill's sponsors believe that the supervised stablecoin constitutes an investment contract and therefore belongs to securities under the Paradigm of the Securities Act of 1933. In November 2019, the International Securities Commission Organization (IOSCO) announced that certain stablecoins may be securities.

According to IOSCO, certain stablecoin implementations have functions typical of certain securities. Therefore, the international securities regulator insists that the regulator classifies certain stablecoins as securities.

However, the Libra Association insists that while regulators and legislators must consider consumer protection laws, the steps they take should not inhibit the growth of the digital asset industry. The association stated:

"We recognize that stablecoins are an emerging technology, and policymakers must carefully consider how to adjust their financial system policies. However, we believe that it is important to regulate activities rather than technology so that responsible innovation can flourish."

It could be better …

Some U.S. cryptocurrency and blockchain stakeholders have expressed regret over the current regulatory status of the country's digital asset industry. In early 2019, Jeremy Allaire, the chief executive of Circle, a crypto payment company backed by Goldman Sachs, announced that unclear U.S. crypto regulations have forced companies to move their projects to other countries.

Indeed, in a recent appearance in Congress, Facebook CEO Mark Zuckerberg issued a warning warning against strict digital regulations in the United States. According to the Facebook CEO, such measures are prompting the United States to transfer control of the emerging digital economy to China.