‘Major question doctrine’ is on a collision course with crypto rules
Rear Adm. Grace Hopper was a remarkable person that too few of us have heard of. Born in 1906, she graduated from Vassar College with degrees in mathematics and physics in 1928; by 1934 she had earned her doctorate in mathematics from Yale. She enlisted in the Navy in World War II, but was rejected because of her advanced age (34) and because her advanced knowledge of mathematics was needed elsewhere for the war effort. Instead, she joined the Navy Reserves and began working on some of the first computers, eventually developing a computer coding language that evolved into COBOL. She stayed in the Navy more or less for the rest of her life, with the help of an act of Congress specifically intended to let her stay despite mandatory retirement rules.
But Hopper’s most lasting contribution to popular culture is her saying: “It is easier to ask for forgiveness than it is to get permission.” The financial regulatory complex, which is in the early stages of wrapping its head around how to regulate cryptocurrencies and the markets they inhabit, appears to be doing just that.
Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. recently took baby steps against such a framework with a bulletin asking banks to think twice before doing business with crypto firms. Fed Chair Jerome Powell has said that the stablecoin regulation is a task for the central bank; the international Basel Committee for Banking Supervision has weighed in its own guidelines to limit the risk of crypto exposures; and Acting Comptroller of the Currency Michael Hsu said this week that what crypto firms need is a consolidated homeland supervisor to detect and stop the kind of shenanigans that brought down the beleaguered crypto exchange FTX. All this activity seems to point in one direction: While congressional input would be welcome and helpful, no one is waiting for Congress to pull yourself together.
Apparently they shouldn’t either. While crypto itself is undoubtedly new — or at least new-ish — crypto markets have analogues everywhere traditional finance. The roles the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Fed and everyone else must play in enforcing long-standing rules and norms against embezzlement and fraud can be glossed over, but at bottom a fraud is a fraud – and fraud is illegal.
There’s just one problem: Last year, the Supreme Court ruled in West Virginia v. EPA that articulated something called “the doctrine of big questions,” and sooner or later it is going to collide with whatever regulatory scheme eventually emerges over the next few years.
The major issue doctrine goes something like this: A regulatory agency cannot resolve or address “major issues” without express authorization from Congress to do so. It is a twist on a similar theme, known as “non-delegation doctrine“, which holds that there are certain powers and authorities that Congress cannot turn to administrative authorities to sort out. What makes an issue “big”—and thus requires a congressional directive—is itself a big question , but characteristics the Court held out involve high costs of implementation, policy issues that Congress has failed to resolve, an intrusion into the domain of state authority, or some combination of those things. Any crypto regime, no matter how well-founded, is likely to meet that standard.
And no matter how well-founded the crypto regime is, it will undoubtedly cost someone – crypto exchanges, brokerages, banks or all of the above – a lot of money. And although financial regulation is somewhat less judicial than, for example, environmental regulation, there is reason to assume that some aspect of that regime will at some point be challenged in court, and there is also reason to assume that such a challenge may give the court an opportunity to decide whether that regulatory regime is a big question.
I don’t presume to know the Supreme Court’s collective stance on crypto, and in any case the details of any legal challenge depend on the details of which regulatory regime ends up being implemented. But without congressional action, any regime that regulators devise based on their existing authority will eventually have to be blessed or struck down by the Court.
To be sure, there are several exits that Congress, the administration, and the courts can take to stop that from happening. Congress, in turn, could pass legislation that expressly places crypto regulation in the hands of financial regulatory agencies. But the prospects for meaningful legislation of almost any kind from this Congress are decidedly dim, and while it is crypto bills floating around both chambersa bipartisan, bicameral consensus on how to proceed remains elusive.
The administration could not regulate crypto, citing a lack of such authority (although, as noted above, it does not seems to be the case).
Or the court could find a creative way to either say that crypto is not different enough from traditional finance to warrant additional authorization, or is not a big enough issue to require congressional authorization. But wherever the justices put that circle, the precedent such a ruling would create would either limit the applicability of the main issue doctrine or completely erode the distinction between crypto and traditional finance.
All of this is of course speculative and will take place several years from now, if at all. But it’s worth knowing that the Supreme Court seems to think that the administration needs permission from Congress to regulate crypto. For now, it seems the administration finds it easier to ask for forgiveness.
