“I think there’s great momentum. It’s just not public,” said Donald Sherman, senior vice president and chief counsel for the Citizens for Responsibility and Ethics in Washington (CREW), a watchdog group.

“My understanding is that there’s a Senate compromise bill that is going to be released relatively soon. That is a compromise insofar as it combined elements from lots of people’s bills.”

Sherman said by “soon” he means “by this time next month.”

The CREW expert also pointed to some progress in the House of Representatives, following the House Administration Committee’s April 7 hearing on possible new limits on the buying and selling of individual stocks by lawmakers. Sherman said he received “pretty robust” additional questions from that panel earlier this week after testifying at that hearing — “which suggests to me that members are in the weeds on what comprehensive legislation might look like.”

“I would think that the Senate would aim to get something across the finish line before August recess, so that then the House can resolve and pass something in the fall,” Sherman added.

“This is an issue that members of Congress are either going to run on — or run from — in November. And so I think that timeline makes sense, in order to ensure that members can go back to their districts in the fall and demonstrate that they have gotten this across the finish line.”

Around 63% of all voters favor a ban on stock trading for lawmakers, with support at 69% among Democrats and 58% among Republicans, according to a recent Morning Consult/Politico poll. But the issue doesn’t rank as urgent, as Americans are focused on inflation, Russia’s invasion of Ukraine, immigration, climate change and election laws, according to a Quinnipiac University survey.

The raft of bipartisan bills aiming to stop congressional trading in individual stocks has been driven in part by reports about lawmakers who bought and sold stocks in the COVID-19 pandemic’s early days after they were privy to warnings — along with news that many lawmakers have been late with their disclosures. Other reports have raised additional questions, including a MarketWatch article in January that revealed how Congress resembled a Wall Street trading desk last year, with lawmakers and their family members making an estimated total of $355 million worth of stock trades as the market
SPX,
-0.55%

DJIA,
-1.00%
soared.

Senate Majority Leader Chuck Schumer, the New York Democrat, told reporters last week that he hopes to have stock-trading legislation to vote on “this year.”

“That’s a sign that there still is some momentum there, but there’s not a desire to commit to a particular timeline,” said Jennifer Schulp, an expert from the Cato Institute, a libertarian think tank.

“I view this as one that could pretty quickly shift,” she added, meaning the timing for a vote “could very easily turn into June or July, if it if it turns into a priority.”

Schulp, the director of financial regulation studies at the Cato’s Center for Monetary and Financial Alternatives, said she doesn’t support a ban on congressional trading of individual stocks, saying it wouldn’t restore trust in Congress or address other conflicts of interests.

She favors measures that would increase transparency, such as cutting the amount of time allowed between a trade and the required disclosure, or raising the penalties for not filing disclosures correctly. She also was a witness at the April 7 hearing.

While Congress is busy trying to tackle inflation, a baby-formula shortage and other matters, the push for a stock-trading ban is “not in contention with those other issues,” said Liz Hempowicz, director of public policy at the Project on Government Oversight (POGO), a watchdog that has lobbied for a ban that would cover lawmakers, their spouses and dependents.

“I think it’s all related, and the public needs to know that Congress can approach those kitchen-table issues with clear eyes and with the public interest at the front and center,” Hempowicz said. The alternative is Americans end up concerned about lawmakers handling a matter “with their own pocketbook in mind,” she said.

Public sentiment in favor of a ban helps make her “cautiously optimistic” on achieving it, added Hempowicz, who was among the witnesses on April 7 as well.

“Things are moving. It’s just behind the scenes,” she said.

Critics of a ban say it would discourage people from running for office, or it would be difficult to implement, especially with blind trusts being considered. Another argument is that U.S. lawmakers should understand what it’s like to invest in stocks given that they decide policy about the equity market.

Rep. Spanberger’s take, President Biden’s role

One House lawmaker who has co-sponsored one of the bills that would end congressional trading in individual stocks sounded somewhat discouraged in an interview this week, even as she seemed excited by Schumer’s comment about a Senate vote in 2022.

“Hopefully we’ll see them lead by example — faster than we might see action in the House, which is sad to me since we’re supposed to be the people’s House,” said Democratic Rep. Abigail Spanberger of Virginia, referring to the Senate.

“But if that’s the reality, then I look forward to them doing the right thing, and then ideally, hopefully, the House will follow suit.”

The Senate is dealing with “too many competing ideas,” but the problem in the House “is not coalescing around legislation,” she said. “The issue is House leadership doesn’t want to move this. That’s the problem in the House.”

House Speaker Nancy Pelosi, the California Democrat, defended stock trading by lawmakers and their spouses in December, but then in January reversed herself to some extent, asking the House Administration Committee to look into a possible ban on congressional trading and saying: “I just don’t buy into that. But if members want to do that, I’m OK with that.”

Pelosi ranked as the eighth-biggest trader last year among Congress’s more than 500 members, with $12 million in buys and no sells. That’s according to MarketWatch’s January report, which used a Capitol Trades analysis of disclosures filed by members of Congress for their trading activity or for their family members’ buys and sells.

When asked what she’s doing to win over Pelosi, Spanberger said: “Getting more co-sponsors.” Her bill, introduced with Republican Rep. Chip Roy of Texas, has attracted more than 60 co-sponsors — “quite a lot of co-sponsors for a bill that’s not imminently coming for a vote,” she said.

The Virginia Democrat decried seeing fellow lawmakers buy shares in pharmaceutical or cleaning-supply companies during the onset of the COVID pandemic, as well as buying stock in a defense company that’s “going to be producing massive amounts of specific weaponry for a war in Ukraine that we knew was coming.”

“The fact that there are members of Congress who think they’re ‘right’ to be able to buy stocks, which equates to profiting off that information, is to me just unconscionable,” Spanberger said.

“I’m continuing to build up a coalition of people who believe that this reform is necessary. But I can’t change everybody’s minds. And sadly there’s numbers behind why some people might not be inclined to support it.”

An additional hurdle could be the 50-50 Senate’s filibuster rule, in which 60 votes are required to end debate on most items, so the minority party is able to stymie the majority’s efforts. But some Republican senators have backed bills focused on congressional trading, including Tennessee’s Marsha Blackburn, Montana’s Steve Daines, South Carolina’s Lindsey Graham and Missouri’s Josh Hawley.

Another watchdog group that’s pushing for a ban is planning to get President Joe Biden involved, hoping that could spark action.

“We will send a letter requesting that he push this through and basically follow his campaign promise to push for laws where Congress is not influenced by their personal financial holdings,” said Kedric Payne, senior director of ethics and general counsel at the Campaign Legal Center (CLC).  That refers to a Biden campaign pledge to work with Congress to enact laws that would stop lawmakers from being influenced by those holdings.

That letter, with signatures from a range of groups, is likely to go out this week or next week, according to Payne.

The CLC expert ties passage of 2012’s STOCK Act to a strong nudge from then-President Barack Obama during a State of the Union address. That law requires disclosures of stock trades by lawmakers, and it aims to help prevent politicians from insider trading, but it’s viewed as insufficient by some watchdog groups.

“It was recognized” a decade ago that the president could deliver “a push from outside of the legislature, and that’s what needs to happen now,” Payne said.

“This problem of perceived conflicts of interest with stock trading is not going away, and it will get worse unless Congress acts right away,” he added.

Now read: These U.S. lawmakers rank as the biggest traders of hot stocks like Apple and Tesla

And see: Congress’s crypto traders: The U.S. lawmakers who buy and sell digital currencies

Hashed & Salted | A Privacy and Data Security Update

Blockchain-based technologies like cryptocurrencies, utility and non-fungible tokens, and decentralized networks are demanding more attention than ever. Over the last decade, cryptocurrency has evolved from facilitating underground dark web markets, to enabling unregulated capital raise programs during the Initial Coin Offering frenzy, and it is now emerging as a fundamental component of Web3 and its integrated digital economies. While serious questions about scalability, security and the regulatory landscape remain, many businesses may soon find undeniable value in these technologies.

The use of cryptocurrency presents a number of incentives and challenges for businesses. As more companies entertain adopting first- or third-party cryptocurrency solutions, it is important to ensure leadership and operational departments alike have a clear understanding of the considerations and risks associated with deploying an emerging technology. Below is an overview of some of the salient business risks present when developing and integrating cryptocurrency solutions.

Why Cryptocurrency?

Developers are realizing the opportunities that secure decentralization brings and are no doubt taking advantage of its functionality and ability to capture new markets and customers. Cryptocurrency users are generally more technologically savvy and encouraged by the promises of Web3, which include business transparency, personal privacy and digital rights. Sports betting and gaming companies are discovering new ways to increase user engagement through unique incentivization schemes. The travel industry is leveraging low-overhead loyalty programs that secondarily serve as customer-funded decentralized finance accounts.

As blockchain technologies advance, businesses may find that integrating cryptocurrency is useful for capturing the attention of younger audiences, accessing capital, streamlining payment systems and accounting departments, and becoming more active participants in the emerging digital economy. If the trends in development and engagement continue, many businesses should consider their medium- and long-term goals in light of the shift to digital payments and position themselves accordingly.

Understanding the Risks

For all the interesting use cases in development or yet to be imagined, blockchain-based programs and the teams that create them are still laying the groundwork. There are risks when usingany internet-connected technology, but particularly so with those in the early stages. Critical issues in security and infrastructure have yet to be fully addressed.

Business Risks. In November 2021, nonstate-issued digital assets reached a combined market capitalization of $3 trillion, up from approximately $14 billion in early November 2016. While cryptocurrency’s growth warrants attention, organizations should be cautious and cognizant of the market risks when accepting cryptocurrency. Volatility, liquidity, and manipulation and fraud continue to impact the value proposition of cryptocurrency for businesses. The cryptocurrency markets fluctuate wildly at times, entire platforms can evaporate overnight and newly issued digital currencies can be heavily influenced by fraudulent behavior.

Regulatory Risks. Regulatory frameworks are slowly falling into place. For example, over 30 cryptocurrency bills were introduced to Congress in 2021 alone. California’s governor recently issued Executive Order N-9-22 to create a regulatory approach for cryptocurrency companies and to determine how to use blockchain technology for state and public institutions. The White House also recently issued an executive order titled “Ensuring Responsible Development of Digital Assets” with the intent to protect consumers, investors, businesses and global financial stability. But policymakers have yet to align on how to develop comprehensive guidance in the cryptocurrency space. Unclear or ill-fitting financial regulation governing the establishment and management of token-based economies, the raising of capital through public cryptocurrency distributions, and digital currency transactions raise legitimate concerns about businesses’ ability to maintain compliance with an evolving patchwork of requirements.

A recent survey of 300 small-business owners found that 45% of those polled were not in favor of accepting cryptocurrency as payment, while another 33% were indifferent. Despite the potential upside to adopting digital currency, these figures are no surprise given the numerous instances of corporate misinterpretations and strategic missteps that have resulted in federal litigation and enforcement actions.

With potentially severe implications for noncompliance, businesses must carefully consider anti-money laundering (AML) and Know Your Customer (KYC) laws if transacting in digital currencies, particularly when accepting payments from foreign individuals or organizations. Businesses must also understand their obligations to avoid facilitating money laundering through domestic or foreign vendors that can represent the end of a complex and oftentimes obfuscated supply chain. The Office of Foreign Assets Control also requires businesses to verify that the source of any cryptocurrency the business accepts is not a sanctioned individual or entity.

Security Risks. Transmitting digital money and products on the internet within reach of bad actors anywhere in the world creates a number of challenges for businesses to consider. Chief among such challenges may be the Securities and Exchange Commission’s (SEC) steady increase in the number of actions against SEC registrants and public companies for failing to maintain adequate cybersecurity controls. If you are evaluating a cryptocurrency product for your business, considering the resulting security requirements should be near the top of your priority list.

Second layer protocols (SLPs) are rapidly advancing to become the default tool for facilitating cryptocurrency transactions. SLPs are third-party applications built on top of foundational blockchains, like Bitcoin and Ethereum, to address the high costs and low speeds involved in many cryptocurrency transactions. Some anticipate SLPs will compete with and eventually antiquate traditional payment infrastructures like ACH and SWIFT. Of course, these protocols are not without risk. Transacting parties must rely on the third-party program to accurately and securely aggregate and record transactions on the blockchain. While the shift to aggregating transactions promises to reduce transaction delays and costs, some argue that the use of SLPs creates more opportunity for error and fraud and ultimately undermines the trust inherent in blockchain technologies.

Outsourcing and Vendor Risks. Many businesses have chosen to outsource cryptocurrency services in light of the overhead and risks associated with internally managed platforms. As with any outsourcing of financial services, businesses must properly audit their vendors’ compliance and security posture. Do the vendors’ operations conform with applicable privacy and cybersecurity, tax and accounting, and other financial services rules and regulations? Is the vendor properly licensed and compliant in the jurisdictions in which they (and you) operate? What level of integration is required, and what technical support does the vendor provide?

How to Protect Your Business and Data

• A secure wallet framework is critical to creating and nurturing a successful cryptocurrency economy. The recommended approach is to adopt a hot/cold program in which an internet-accessible software “hot” wallet is used to store limited operational funds that must be readily available to the business. “Cold” wallets, on the other hand, are hardware-based and should always be used for storing the bulk of an organization’s funds.
• A $2 trillion cryptocurrency market attracts bad actors from around the world, and your business should be determined and practical about combating these risks by deploying adequate security controls, instituting employee cybersecurity training, and hiring or outsourcing experienced consultants to create, control and routinely audit programs, from creating, issuing and storing digital currency.
• It is important to understand and monitor your cryptocurrency data. Upstream association with transactions that facilitate money laundering, finance ransomware groups, and fund purchases of illegal goods and services may have investigators knocking at your door. Create systems to detect and address fraud. Keep a close eye on your transaction data, because others will too.
• Stay abreast of relevant cross-border issues and regulations and guidance in the financial services, privacy and cybersecurity, and intellectual property sectors.

Boston – Global law firm K&L Gates LLP welcomes Grant F. Butler as a partner in the payments, banking regulation, and consumer financial services practice. Based in the firm’s Boston office, Butler brings nearly 15 years of experience in the financial services industry with a particular focus in financial services regulation, transactions, corporate governance, and compliance.

Butler has firsthand experience in how banks and fintech companies work and has deep knowledge of both federal and state prudential and consumer financial regulation. He has advised foreign and domestic financial institutions and fintech companies on a variety of complex regulatory matters such as Volcker Rule issues, the Bank Holding Company Act, capital and liquidity requirements, charter choice, state lender licensing, and the formation and regulation of state chartered trust companies. His transactional experience includes financial institution M&A, asset transactions, and bank partnerships.

Butler most recently served as executive vice president, chief legal officer, and secretary of Cognition Financial Corporation (formerly The First Marblehead Corporation), where he was responsible for legal, compliance, and regulatory affairs and was head of the legal, risk, and compliance department, which included the legal, compliance, enterprise risk management, information security, and internal audit teams.

Prior to joining Cognition Financial in 2017, Butler was a vice president and senior counsel at State Street Bank and Trust Company, where he provided legal advice and support across State Street globally, particularly with respect to bank regulatory, compliance, and state law issues. Previously, he was an associate in the financial services group of a global law firm, advising financial institutions on a variety of transactional and regulatory matters with particular emphasis on bank regulatory matters and financial institution mergers and acquisitions. He also served as the outside general counsel and secretary of a non-profit organization, taught a course at Boston University School of Law’s Banking and Financial Law program, and participated in the drafting of financial law statutes in Massachusetts and New Hampshire.

“Grant’s fintech and bank regulatory experience complements and deepens the strength of our existing payments, banking regulation, and consumer financial services group,” said Michael Scanlon, co-leader of the firm’s global policy and regulatory practice area. “We are thrilled to welcome Grant to the firm.”

K&L Gates’ payments, banking regulation, and consumer financial services group works with clients in nearly all aspects of payments, e-commerce, fintech, and retail banking products and services. The team has significant knowledge of traditional banking and payment products such as money transmission, credit, debit and prepaid cards, payroll, ACH, merchant acquiring, checks, remittances, and payment processing.

Chris Nasson, managing partner of the K&L Gates Boston office, commented: “We are excited to have Grant join the Boston office. He is a first-in-class banking and fintech lawyer who brings nearly two decades of hands-on experience of how banks and financial services firms work, and deep knowledge in highly-specialized areas of the law impacting our clients, such as the various aspects of prudential bank regulation and issues relating to fintech companies. We look forward to partnering with Grant to apply his unique skills to serve clients in Boston and across our international platform.”

Butler is among more than 120 partners and of counsel K&L Gates has welcomed across its platform since the beginning of 2020, including, in Boston, a 10-person patent team led by partners Hannah Koyfman, Ph.D. and David Lu, Ph.D., in March.