AFL-CIO Opposes Senate Crypto Bill, Citing Pension Risks and Financial Instability

Executive Summary

The AFL-CIO has voiced strong opposition to the Senate's Responsible Financial Innovation Act (RFIA) crypto bill, asserting it endangers worker pension funds and overall financial stability, potentially impacting institutional crypto adoption and regulatory progress.

The Event in Detail

The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) has formally opposed the Senate's draft Responsible Financial Innovation Act (RFIA). In a letter to the Senate Banking Committee, Jody Calemine, AFL-CIO director, stated the bill poses significant risks to both worker retirement funds and the overall financial stability of the U.S. economy. The federation argues the RFIA would allow the crypto industry to operate with insufficient oversight and meaningful safeguards, enabling it to integrate more deeply into the financial system.

Specifically, the AFL-CIO contends the bill offers merely a "facade of regulation" that would increase workers' exposure to volatile crypto assets by permitting retirement plans, including 401(k)s and pensions, to hold them. Concerns also extend to the taxpayer-backed Deposit Insurance Fund, which the AFL-CIO believes would face greater risk if commercial banks are allowed to custody crypto assets. Additionally, the union highlighted that the legislation, by codifying the tokenization of securities and assets, could create a pathway for private companies to establish a "shadow public stock" market outside the purview of the Securities and Exchange Commission (SEC).

Senators Cynthia Lummis and Kirsten Gillibrand originally introduced the RFIA in 2022, with a revised version presented earlier this year. The Senate Banking Committee is developing this bill as an alternative regulatory approach to crypto, distinct from the CLARITY Act previously passed by the House.

Market Implications

The AFL-CIO's opposition introduces potential headwinds for crypto legislative efforts in the United States. In the short term, this could lead to delays or significant alterations of the proposed Senate crypto bill, contributing to a more fractured or stalled regulatory environment. Such legislative uncertainty may dampen institutional interest in regulated crypto products.

Longer term, this development underscores the ongoing challenge of balancing financial innovation with investor and worker protection. It will influence how crypto assets are integrated into traditional financial systems, particularly concerning retirement funds and banking operations. The comparison drawn by the AFL-CIO to the high-risk lending practices that contributed to the 2008 financial crisis suggests a deep concern about systemic risks associated with inadequately regulated crypto integration.

Separately, the World Federation of Exchanges (WFE) has also urged global regulators, including the SEC, to tighten oversight on "tokenized stocks." The WFE expressed alarm over blockchain-based products mimicking equities without providing traditional shareholder rights or market safeguards. SEC Commissioner Hester Peirce has affirmed that "Tokenized securities are still securities," indicating that blockchain technology does not alter the fundamental nature of the underlying asset. The tokenized equities sector of Real World Assets (RWAs) has experienced substantial growth, increasing by nearly 300% or over $8.6 million since the beginning of 2024, highlighting the expanding scope of these regulatory debates.

Expert Commentary

AFL-CIO director Jody Calemine stated the RFIA would enable the crypto industry to operate "without sufficient oversight or meaningful safeguards," exposing workers to volatility. He warned that allowing banks to engage in crypto-based hedge fund trading activity, as he interprets the bill, could be "even riskier than some of the dangerous financial activities conducted before the 2008 financial crisis." Calemine emphasized that while the AFL-CIO supports efforts to update regulatory regimes for crypto, the current bill "provides the facade of regulation" rather than true protection.

Broader Context

The Senate Banking Committee's 182-page discussion draft of the RFIA outlines a proposed digital asset market structure, building upon earlier drafts and frameworks. The draft includes new definitions, such as an "Ancillary Asset" and "Gratuitous Distributions" of crypto assets, aiming to clarify regulatory boundaries. For instance, ancillary assets are not considered securities when traded on secondary markets, though they remain subject to anti-fraud and anti-manipulation rules. The bill proposes that the SEC promulgate rules, collectively termed "Regulation Crypto," with provisions for exemptions based on transaction value.

This legislative process also involves the Senate Agriculture Committee, expected to release its discussion draft covering CFTC-related areas. Bipartisan support for crypto market structure legislation has been signaled, with 12 Senate Democrats releasing a framework focused on closing regulatory gaps, clarifying legal status, and preventing illicit finance. However, the AFL-CIO's concerns underscore the significant policy differences that must be reconciled to achieve comprehensive and widely accepted crypto regulation in the United States. The implementation of these regulations, particularly those requiring rulemaking, could take a substantial amount of time, with provisions taking effect 360 days after enactment or 60 days after final rule publication.