U.S. Bank CEOs Get Grilled by Congress on Blockchain Technology
For the first time since the financial crisis in 2008, CEOs from America’s largest banks testified before the House Financial Services Committee of the United States Congress. In particular, Representative Warren Davidson (R-OH) inquired as to the banks’ current thoughts on the integration of blockchain and finance.
Largest U.S. Bank CEOs Testify Before Congress
Rep. Davidson is no stranger to the blockchain community.
He has repeatedly advocated for a “light touch” regulatory approach to digital assets, in order to “foster innovation” and spur the U.S. economy.
On April 9th, he formally submitted the Token Taxonomy Act of 2019, which proposes an amendment of the Securities Act of 1933. The amendment entails a new definition of a ‘digital token’, which would exempt the digital asset from federal securities laws.
One day later, on Capitol Hill in Washington DC, Rep. Davidson— along with other House Financial Services Committee members— met with the CEOs of Goldman Sachs, JP Morgan, BNY Mellon, and others.
Goldman Sachs, JP Morgan, and BNY Mellon CEOs on Blockchain Technology
Rep. Davidson asked Goldman Sachs CEO David Soloman why his firm initially planned to open a cryptocurrency trading desk, only to cancel plans soon after.
Soloman responded that Goldman Sachs never had such plans, but could actualize such a project in the future, if certain regulatory hurdles are removed:
“…like others, we’re watching and exploring and doing work in terms of trying to understand the cryptocurrency market as it develops. We have some clients that have certain functionality that we’ve engaged with them on clearing physical futures, but other than that, we never had plans to open a cryptocurrency trading desk. We might at some point in time, but there’s no question when you’re dealing with cryptocurrency, it’s a new area, there are a lot of issues, it is unclear from a regulatory perspective, and it’s not clear whether or not, you know in the long run, as a currency, you know those technologies are going to work and be viable.”
Rep. Davidson then turned his attention to JP Morgan CEO Jamie Dimon. “In 2017, you called cryptocurrencies ‘not a real thing’”, said Davidson. Yet in early 2019, JP Morgan unveiled the JPM Coin. “Why the shift?” asked the Representative.
“The blockchain is real, its technology, a lot of people use and attest to it today and we think it will work over time. But the part that is not real is that cryptocurrency is not supported by anything. There’s no value behind it other than what the next person will pay for it. And they have serious issues about that. The JP Morgan Coin is a token which is supported by a deposit at JP Morgan. So it can be shipped around the world real-time, it can go with a lot of data on it, you can split it into pieces, and the second someone wants cash, we can move the cash.”
When asked how the blockchain can be used to facilitate better payment systems, Dimon answered,
“…it could be faster, it comes with data, and everyone would have the same data at the same time. So instead of us having to call each other’s banks up and saying ‘what happened to that shipment from Singapore’, we just go to the same screen and see it right away.”
Dimon also suggested that the only way such a system could provide adequate security for his firm and its clients would be through a private, permissioned blockchain.
Charles Scharf, Bank of New York Mellon CEO, was asked to elaborate on how a lack of regulatory clarity is a barrier to providing custodial services for digital assets.
“I think just as [our] website says, there is a lack of clarity, and I think that’s something that stands in the way…. One of the biggest issues that we have relates to anti-money laundering and KYC.”
The Regulatory Clarity in Security Tokens Explained
As was echoed throughout the meeting, a lack of regulatory clarity continues to hinder the development and use of blockchain technology in the US.
A different perspective has been echoed by the US Securities and Exchange Commission (SEC), however.
SEC Chairman Jay Clayton has repeatedly stated how virtually every Initial Coin Offering (ICO) he has seen, constitutes a securities offering. As a consequence, digital asset offerings must abide by the commission’s existing securities laws.
Such guidance ultimately resulted in the emergence of the security token industry. Security Token Offerings (STOs) incorporate the SEC’s existing securities laws to enable the benefits of blockchain technology while remaining regulatory compliant.
For more the overall functionality of security tokens and STOs, be sure to review our comprehensive security token guide.
What do you think of the sentiment of ‘unclear regulatory guidance’ by America’s largest banks? Will the Token Taxonomy Act of 2019 allow for a new ‘Digital Token’ in US legislation, or will existing laws prevail? Let us know what you think in the comments section below.
Image courtesy of MarketPlace.