Posted by Brian Monroe - firstname.lastname@example.org 06/18/2021
Special ACFCS Exclusive Contributor Report: Biden and Crypto and Bears, De-Fi! – A journey to the past to glimpse the future, when disruption, regulation, politics and compliance converge
- In this special exclusive ACFCS contributor report, Kerry McInerney, an adjunct professor of law and director of graduate programs at Samford University’s Cumberland School of Law, takes a look at the geopolitical, historical and financial forces at play that shaped many of the biggest changes in finance and regulation in recent decades.
- Decentralized finance and crypto proponents want to do to monetary policy and investing what Airbnb and Uber/Lyft did to the hotel and transportation industries. But what does history teach us about how governments respond to such market disruptors? They can run, but they can’t hide; the regulator and the taxman—and the investigator—will find them eventually. The first such dominoes have already begun to fall.
- While history suggests that virtual currency will eventually be regulated in the United States, if not outright adopted, legislation and regulations addressing this strange, new world will take time. Until then, compliance professionals remain critical to ensuring that regulated financial industries are not complicit in fraudulent or criminal financial activity.
By Kerry McInerney
Adjunct Professor of Law, Director of Graduate Programs, Samford University’s Cumberland School of Law
June 18, 2021
We’re not in Kansas anymore.
Markets, and regulators, crave consistency and predictability. Change or worse, the unknown, often produces unease and unrest. It should come as no surprise, then, that the shifting sands beneath the financial industry have produced a global case of the jitters.
Just consider the challenges facing financial regulators, investigators, and risk managers so far in 2021.
On January 20, Joe Biden was sworn in as the 46th President of the United States. He brought with him a differing perspective on financial governance than what animated the preceding years under the self-proclaimed disruptor, Donald Trump.
Additional disruption to centralized and regulated banking—de-centralized finance (“de-fi”) and unregulated cryptocurrency—are reaching unprecedented acceptance and volume.
Oh, and this is all on top of a global economy teetering on the brink of economic recession as our health (personal and financial) continues to recover from the effects of the COVID-19 pandemic.
Markets have noticed.
During the week of May 17, partially in response to rising inflation and statements by the Federal Reserve regarding possible monetary policy changes, the S&P 500 moved briefly below its 50-day moving average – one measure analysts use as a line of demarcation between short-term and long-term bull and bear markets.
Amidst all this change, the only certainty is that more change will come.
Virtual value and decentralized finance: Regulate, ruminate or terminate?
De-fi and crypto proponents want to do to monetary policy and investing what Airbnb and Uber/Lyft did to the hotel and transportation industries. But what does history teach us about how governments respond to such market disruptors?
They can run, but they can’t hide; the regulator and the taxman—and the investigator—will find them eventually.
The first such dominoes have already begun to fall.
Most recently, the People’s Bank of China on May 19 posted a joint statement by the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China banning financial institutions and payment companies from providing services related to cryptocurrencies.
This follows similar moves in 2017 and 2019 by the Chinese to control virtual currencies.
Here at home, regulators have not sought to ban de-fi and crypto, but instead consider regulations and consumer protections. Indeed, the SEC, CFTC, and FBI have looked closely at virtual currency for years, including ways to prevent and prosecute fraud.
Most recently, the Treasury issued a rule requiring transfers of $10,000 or more be reported to the IRS and the Federal Reserve is exploring the concept of a central bank-backed digital currency.
While history suggests that virtual currency will eventually be regulated in the United States, if not outright adopted, legislation and regulations addressing this strange, new world will take time.
Until then, compliance professionals remain critical to ensuring that regulated financial industries are not complicit in fraudulent or criminal financial activity.
It’s no wonder, then, that job satisfaction among compliance professionals is at an all-time high—in its 2021 list of “Best Jobs,” U.S. News & World Report ranks compliance officer as the 7th best business job and in the top 50 of the best 100 jobs overall.
With all this change spinning around the financial industry, job security can almost certainly be included among these statistics!
Congressional alignment, plus economic upheaveal, equals historic regulations
But regulators and markets aren’t the only ones who crave the status quo.
One of the most difficult aspects of a compliance professional’s life is keeping track of new and changing laws and regulations, not to mention how those changes impact the company’s or client’s business.
For compliance and risk management professionals seeking to set themselves apart from their peers, specialized knowledge and skills are crucial. This is especially true in today’s politically divided America.
Ideally, federal legislation would be speedy and proactive, passed in a bipartisan compromise furthering the timely interests of people and policy over party and power.
Reality seldom matches the ideal.
All too often, federal laws are sluggishly passed either in response to significant events or as part of reactionary, pendular swings in political ideologies.
Consider, for example, the first major acts regulating the sale and exchange of securities, the Securities Act of 1933 and the Securities Exchange Act of 1935.
Both were signed into law in response to the causes of the Great Depression.
Similarly, the events of 9/11 produced the USA Patriot Act in 2001. In response to another economic crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010.
Other times, legislation is enacted less in response to events as much as because a shift in voter sentiment vests control of the congress and presidency in a single party.
Examples of laws enacted by a unified government include the Fair Labor Standards Act of 1938 and the Civil Rights Act of 1964. More recently, a unified government enacted the Affordable Care Act (“Obamacare”) in 2010.
Of course, many factors contribute to the passage of any federal legislation—the Patriot Act passed when Republicans controlled government, and the Civil Rights Act was enacted in response to the Civil Rights Movement.
But January 2021 marks only the 23rd time since 1933 that both houses of congress and the presidency have been controlled by the same political party and only be the 6th time in the past 40 years.
If history is our guide, then we should expect the current unified government to pass new legislation, rollback or amend existing laws, and generate a host of implementing regulations with which our citizens and industries must comply.
Surely, de-fi and crypto will be in the eye of this cyclone of change. From the perspective of the practitioner, 2021 will be a very busy year career in compliance.
About the author
Kerry McInerney is an adjunct professor of law and the director of graduate programs at Samford University’s Cumberland School of Law, where he oversees the Master of Laws (LL.M.) for lawyers and Master of Studies in Law (M.S.L.) for nonlawyers.
These completely online degrees can be completed in as little as 24 months and include a specialized concentration in Financial Services Regulatory Compliance.
Courses include Mortgage & Securities Regulatory Compliance, Crime & Compliance: BSA/AML, Compliance Program Management, and Banking Law & Regulation.
Prior to joining Cumberland School of Law, McInerney represented the financial services industry in litigation and regulatory compliance for more than two decades.
An authoritative voice in the financial services industry, McInerney has published more than 30 articles and appeared as a speaker or panelist at more than 25 industry events and continuing legal education seminars.
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