Labor Federation Critiques Crypto Legislation
The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) expressed significant concerns on Monday regarding the Responsible Financial Innovation Act, asserting that it only offers a “facade of regulation” while diminishing protections for workers and consumers. This declaration comes as Senate Republicans are advocating for a vote on the legislation in November. Union representatives are particularly alarmed by provisions that would allow FDIC-insured banks to engage directly in cryptocurrency trading and facilitate tokenized securities to evade oversight from the Securities and Exchange Commission (SEC).
AFL-CIO Raises Alarm Over Worker Protections
The AFL-CIO, the largest federation of labor unions in the U.S., has voiced its opposition to what could be the Senate’s most significant cryptocurrency legislation to date, warning that it lacks essential worker protections and would allow the crypto industry to expand its operations without adequate regulatory oversight. In a letter addressed to Senate Banking Committee leaders, Jody Calemine, the AFL-CIO’s Director of Government Affairs, criticized the Responsible Financial Innovation Act for merely creating an illusion of regulation while actually undermining consumer safeguards.
Potential Risks to Financial Stability Identified
The 182-page draft of the Senate bill, unveiled last month, would enable FDIC-insured banks to hold and trade cryptocurrencies directly. It also aims to establish blockchain-based “shadow stocks” that operate independently from conventional securities markets, a move that the union has cautioned against. Calemine emphasized that this situation not only heightens the risk of bank failures and losses but also jeopardizes the stability of the FDIC’s taxpayer-funded Deposit Insurance Fund, drawing parallels to the unregulated derivatives trading that led to the 2008 financial crisis.
Concerns Over Retirement Plans and Asset Stability
The labor federation also highlighted provisions allowing retirement plans, such as 401(k)s and pensions, to invest in cryptocurrencies. They argue that rather than shielding workers from the inherent instability associated with crypto asset valuations, the Responsible Financial Innovation Act would instead amplify their exposure to these risks. The letter pointed out that the bill significantly weakens both federal and state enforcement mechanisms designed to protect pension funds from fraudulent activities.
Legislation Seen as Eroding SEC Authority
Calemine characterized the proposed legislation as a means for issuers to circumvent SEC regulations via tokenization, warning that it would lead to a proliferation of assets that investors may mistakenly believe to be secure. As the Senate approaches a possible vote in November on the Responsible Financial Innovation Act, introduced by Senator Cynthia Lummis (R-Wyo.) and Democratic Senator Kirsten Gillibrand of New York, Lummis has expressed a desire to see the bill reach the president’s desk by year-end. Achieving this will necessitate the support of at least seven Democratic senators joining the Republican bloc to meet the 60-vote requirement for passage, although a framework backed by 12 Senate Democrats on September 9 indicated potential bipartisan support despite the AFL-CIO’s objections.
Crypto Sector Responds to Union’s Criticism
Kadan Stadelmann, Chief Technology Officer of Komodo Platform, responded to the AFL-CIO’s criticisms, suggesting that the union is resisting a transformative shift in the financial landscape. He anticipates that the AFL-CIO will soon realize the costs of clinging to traditional investment models as Bitcoin increasingly diverts funds from these avenues, particularly those yielding low returns for retirement accounts. Stadelmann believes that within 20 years, 401(k)s and pensions will be compelled to include Bitcoin in their portfolios, as he asserts its volatility is diminishing and will continue to do so in the future. He also described the AFL-CIO as an “anachronistic institution” in the current era of Bitcoin.
Nitesh Mishra, co-founder of ChaiDEX, echoed some of Stadelmann’s sentiments, asserting that the Act fails to adequately modernize oversight and instead establishes a loosely regulated parallel market that compromises consumer protections and the authority of the SEC. When asked about necessary precautions if banks are allowed to manage crypto under FDIC insurance to prevent a recurrence of the 2008 crisis, Mishra emphasized the need for a robust liquidity on-off ramp, increased transparency within the system, and enhanced protections from regulatory bodies.
