This Week in ESG and Impact Investing

A new draft Senate Banking Committee bill could significantly reshape how digital assets are regulated, potentially exempting most secondary market transactions from securities laws while enabling innovation, and combating illicit financial activity. Legislative Framework Rather than invent a new asset class, as the CLARITY Act does, the Senate Banking Committee has opted to amend the Securities Act of 1933 to include digital commodities under definition of ancillary assets and define ancillary asset originators as the initial distributors of ancillary assets. An ancillary asset is often sold within an investment contract; however, the asset itself is not a security. Therefore, non-security based transactions, meaning most secondary transactions, are exempt from securities laws. The SEC is mandated to create a process, similar to the CLARITY Act’s maturity certification, for ancillary asset originators to apply for disclosure requirement exemptions. To standardize the application of s...

On July 9, the Senate Committee on Banking, Housing, and Urban Affairs hosted a panel on cryptocurrency market structure. In a discussion of providing clarity, the shared sentiment that uncertainty is putting America at a disadvantage on the global stage was glaring. Almost every senator affirmed that the previous ambiguity that has historically characterized crypto regulation was driving away innovation to countries such as Singapore and the UAE. From this central tenet, three major topics emerged: the role of Congress in regulating crypto, the prevalence of illicit activity, and the conflicts of interest. Congress’s Role  There was no denial from the committee that the current securities laws and the Howey Test did not properly fit cryptocurrency. Thus, the majority of the questions stemmed from the desire to establish clearer regulations to promote innovation while protecting consumers and investors from fraud. Panelist Timothy Massad offered a well-received suggestion that Cong...

The semi-annual Senate Banking Committee hearing was held on July 9 with the Chairman of the Federal Reserve, Jerome Powell, as witness. While the hearing may not have been particularly eventful, it served as a lesson on the link between American monetary policy and politics. It also provided insight on what's in store for the US economy.  The United States Senate Committee on Banking, Housing, and Urban Affairs is chaired by Senator Sherrod Brown (D - OH) with Tim Scott (R - SC) serving as the ranking member. Both began the hearing by thoroughly dressing down Chairman Powell for the state of the economy over the last few years. Their opening statements served as a strong display of political grandstanding with little sincerity behind their words. Chairman Brown blamed the increase in price levels and inflation on corporate greed and constantly referred to 'the good citizens of Ohio' that he represented, while Tim Scott spent his time attacking Bidenomics and fear mongering...

We noted, with interest, testimony before the Senate Banking Committee on Tuesday, February 6th concerning cryptocurrencies. The heads of the Commodity Futures Trading Commission and the Securities and Exchange Commission, J. Christopher Giancarlo and Jay Clayton, respectively, testified about cryptocurrencies. Their comments focused on fraud in the initial coin offering marketplace. An initial coin offering uses crowdfunding to issue cryptocurrency, which is then used as capital for a startup. Blockchain is a new technology used to structure cryptocurrencies like bitcoin. It is believed to have a structure in which falsification is extremely difficult relative to conventional centralized-management systems and is expected to be applied to a wide variety of fields. Of course, this hearing was not about protecting the public: It was about turf. The SEC does not have direct authority over cryptocurrencies or ICOs. Congress will probably explicitly give the agency direct authority t...

Soon, it may be easier to be a Wall Street Bank. We knew that one of President Trump’s central campaign promises was to dismantle the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ( LA Times )— passed after the 2007-2009 financial crisis to prevent similar crises from occurring—but that didn’t necessarily mean anything major was going to happen. Campaign promises go unfulfilled all the time ( *cough* the Wall *cough* ). Now, the Trump administration seems to be moving to follow through on dismantling Dodd-Frank. With that in mind, we take a look at developments in this area over the past few weeks to see what changes are likely in the near future. On June 8, there was a surge of excitement (either out of fear or joy, depending on your perspective) when the House passed the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act, which would repeal many of Dodd-Frank’s banking reforms ( CNBC ). Then, everyone calmed down a bit a...

Federal Reserve Chair Janet Yellen testified on Capitol Hill on Wednesday and Thursday. She appeared before the House Financial Services Committee and the Senate Banking Committee. We attended both hearings. Here are the key points: 1. An undercurrent of protest from both the left and the right (Google #whoserecovery) is beginning to have an impact on monetary policy. See the photo above of protesters at both hearings. We have issues with both the left and right wing versions. The right is simply crazy. The left is financed by labor unions. I can guarantee that none of the black folks in the photo of protestors at the hearings below are well paid. Their labor union managers, most of whom are white, are. (Can you say rock and a hard place?) 2. At the start of the Senate Banking Committee hearing, Senate Banking Committee Chairman Richard Shelby unveiled a letter from 30 economists who support implementation of the Taylor Rule, a mechanical approac...

I have been following the Bear rescue and the Financial Market reform plan. I attended today's SBC hearing. A few things to note: a. Treasury sounded a little defensive when asked by Senator Jack Reed about the lack of foresight, claiming that no one could have foreseen this crisis. Actually, we did, in August, 2007: "Major market institutions are now, as the troubled Bear Stearns reveals, feeling the negative effect of allowing these practices to flourish. Bear Stearns may be in real danger - it's stock decreased in value by 27% over the last month. We do not expect, but would not be surprised if the firm failed, another casualty of arrogance and greed." See: http://twisri.blogspot.com/2007/08/morgage-gses-predatory-lending-and.html and http://www.sec.gov/comments/s7-16-07/s71607-495.pdf b. In addition, even the claim that perfect foresight was needed is wrong. With the development of toxic (derivative and subprime lending) financial products, the relationship betwe...