Regulators: Federal government cannot preempt states in blockchain regulations

Rage Commentary : A member of the Federal Deposit Insurance Corporation and three state regulators discussed blockchain technology at the Future of Internet Finance Policy Group Meeting in the United States. Joseph Borg of the Alabama Securities Commission pointed out that the blockchain technology regulation of each state is very different; D Michael Quinn of the Ohio Securities Department believes that regulators know too little about blockchain technology and cannot unify regulations; Jim Burns, chairman of the Securities Bureau of the Idaho Department of Finance, believes that blockchain technology in non-financial industries should also be included in the regulation; the three also said that the federal government cannot preempt the states to enact laws that override state rights, but the states should work hard to strengthen the coordination of relevant regulations.

Translation: Annie_Xu

A member of the Federal Deposit Insurance Corporation (FDIC) and three state regulators discussed blockchain technology at a panel on the future of U.S. internet finance policy.

The panel, part of the Blockchain & Distributed Ledger Technology Conference in New York, helped us understand how a complex set of information exchanges, from state government interactions with citizens to potential top federal government regulation, are affecting discussions of the technology.

FDIC Assistant Attorney Adriana Rojas said:

While they hope to lead these exchanges, interactions with state governments and the private sector are still in the early stages.

“We have to be proactive, we need to be at these meetings; I think that’s how regulators stay ahead of the curve, we can’t regulate something we don’t know exists.”

The panel not only provided the FDIC’s perspective on blockchain technology, but also featured three federal government representatives sharing their insights with the audience, a rare opportunity.

Alabama

The wide disparity in attitudes toward bitcoin and blockchain companies was best illustrated by a speech by Joseph Borg, director of the Alabama Securities Commission, an independent agency that works with government regulators.

Joseph Borg

He said Alabama is taking applications from industry companies that range from defining business models to amateurish and even legally dubious proposals. While some entrepreneurs using digital currency tokens have raised several questions, only bitcoin companies have submitted actual applications.

“From our perspective, the industry is fragmented; a lot of people want to participate in the sandbox, but a lot of them are not suited to participate.”

Borg, who has served on the Alabama Securities Commission for 21 years, believes the commission's involvement is critical to understanding this growing industry.

In addition to participating in FDIC-sponsored training courses on blockchain technology, the committee has also reached agreements with FinCEN (Financial Crimes Enforcement System), the U.S. Treasury Department and the Consumer Financial Protection Bureau (CFPB).

Ohio

The panel also demonstrated the sometimes surprising ways blockchain technology is attracting the attention of state regulators.

D Michael Quinn of the Ohio Securities Department said he received an inquiry from a candle shop owner who was mining.

The entrepreneur approached the agency to sell mining hardware and a share of the mining proceeds.

Quinn said that no blockchain or ledger company has yet to offer applications to the agency, and that he has been most exposed to individuals who want people to invest in digital currencies but do not actually own them.

Sadly, there wasn’t any group representing the blockchain industry on the panel. Marco Santori of Pillsbury Winthrop Shaw Pittman LLP, who chaired the panel, said groups like Coin Center could be a voice for the industry.

D Michael Quinn

The bottom line, however, is that Ohio has yet to finalize its regulatory direction, but that could change with just some education on the technology, Quinn said.

As for whether he would follow New York’s lead in establishing state regulation, he suggested:

“I can’t say for sure that Ohio State isn’t moving in that direction.”

Idaho

Jim Burns, chairman of the Idaho Department of Treasury’s Securities Division, said the state’s interest in blockchain technology is still in its early stages.

For example, he said the educators and supporters he met with were not primarily looking to use the technology in the financial sector, but rather to find ways to streamline business processes.

“We do receive very few inquiries about enterprise solutions, but many people believe that this area will not be regulated.”

He further noted that he does not believe that non-financial applications of blockchain technology will be regulated.

However, he himself opposes this view, arguing that licensing can help incumbents and startups avoid competition by increasing barriers to entry.

The federal government is considering whether to intervene first

Satori said everyone on the panel agreed that there was no prospect of the federal government preempting or writing laws that would override state rights.

Yet Borg noted that the argument for simplifying the application process is a good one, and that states are unlikely to accept federal controls that would affect their revenues or their ability to serve their citizens.

"The bottom line is that the state governments have to deal with their citizens themselves because when something happens, they are not going directly to the federal government."

Rojas said he was not speaking on behalf of the FDIC, arguing that agencies want to maintain good relations with state governments and invited panelists and others to tell federal regulators what to do with them.

As part of the FDIC’s research, Rojas said the agency has been in communication with the Conference of State Bank Supervisors, and the FDIC is also looking at a white paper published in March by the Office of the Comptroller of the Currency (OCC), which called for a coordinated regulatory approach to blockchain technology.

“We are closely following this white paper and we hope to work with the OCC on it.”