What happens to policy proposals, anyways?
ed. June 2024: I wrote this pseudonymously when I worked at the CFPB, hence some of the disclaimers that may seem weird now (which were required by my agreement with my agency’s ethics office). Everything here still reflects my views though!
Several prominent crypto firms recently released proposals for how the US government should regulate cryptocurrencies and other related products. [1] While the proposals created buzz on Twitter and traditional media, I think it’s unclear to most people — to put it generously — what the actual effect of such policy proposals will be. In this post, I hope to answer this question and demystify the US federal policymaking process from the perspective of an insider.
I do or did work for a US federal financial regulator. I do or did work in Congress. These are my independent thoughts and do not necessarily represent the views of my employer.
What happens to proposals in Congress
At a high level, Members of Congress and their staff have two main ways to influence policy: (1) passing legislation and (2) applying pressure to Executive Branch agencies. It’s best for one’s policy if it becomes law, but that’s generally a very hard, multi-year process.
The first step that a prudent advocate makes is to get the proposal in front of allies on the Hill. If the party has connections in DC, it will reach out directly, but more common is that the party hires a lobbyist to circulate the materials and offer a meeting if the congressional office has any questions. This contact is almost always at the staff level. To add credibility or publicity to an announcement, parties often announce their proposal with some sort of concurrent event: publication of an op-ed (like Coinbase did), a briefing on the Hill, industry press (this can be a tweet storm in crypto), a request for a meeting, or something else. A good congressional staffer will be on the lookout for this information already, but staff are busy so it never hurts to bring the information to their attention as an FYI.
The goal now is to turn the proposal into policy. It’s not going to happen overnight. If the idea is good, or the proposing party is important, then the Member of Congress might introduce the proposal as a bill. Well-resourced advocates will provide draft legislative text to make this step even easier. Don’t get too excited: thousands of bills get introduced every two years, but few become law. The point is to introduce the bill and constantly build support for it. If the proposing party works with the Member to consistently build support for the bill in and out of Congress, it could be included in a legislative vehicle down the road. [2]
Alternatively, the proposing party can ask the Member of Congress to push for the policy by pressuring the executive branch. This is most likely to be successful when the Member of Congress is in the same political party as the President, but it’s possible to pressure the executive branch without political alignment. Members of Congress can variously: communicate with agency political appointees; use their bully pulpit to highlight a perceived problem and potential policy fix in public (letters, press coverage, floor speeches); ask questions about the issue in congressional hearings; or threaten to obstruct agency wishes in Congress, just to name a few options. While stakeholders should advocate for policy with the Executive Branch themselves (see below), friendly Members of Congress can amplify their message and escalate pressure on issues.
What happens to proposals in the Executive Branch
In the US constitutional system, the singular President is elected democratically, but his power is delegated to thousands of political appointees to implement the vast array of federal laws. Stakeholders can reach these political appointees in much the same way as they work with Members of Congress: by explaining their views and asking for action.
But those without political allies have another avenue for advancement in the executive branch: the career civil service. Because the work of agencies is so technical, complex, and slow-moving, most of an agency’s workforce is made up of apolitical civil servants. These bureaucrats are responsible for the nuts & bolts of detailed policy work: drafting regulations, monitoring industry, providing interpretations of existing rules, and other tasks.
While civil servants ultimately implement the policy direction set by political appointees, they still play an important role, especially in agenda setting. Because political appointees have to make decisions across many policy areas, they rely on career staff to brief the issues and lay out the universe of policy responses (usually with a recommendation). Therefore, experienced outside groups also build relationships with the civil servants that work on their issues. Just like with political contacts, they forward op-eds, schedule check-ins, and flag news developments. They reunite at niche industry events and invite them to speak at conferences and on panels. Then, when an agency begins to consider a policy, the stakeholder is (hopefully) a trusted source of information and feedback.
There’s another quirk of the executive branch that helps ally-less outside groups here — the Administrative Procedure Act (APA). The APA is a technocrats’ wet dream: it requires agencies to submit policy proposals for public comment and then respond to comments received. If a rulemaking process is found to be “arbitrary and capricious,” i.e. not reasonably connected to evidence in the record, a rule can be thrown out by the courts. [3] Therefore, agencies engaged in rulemaking have to listen to stakeholders and incorporate their views; civil servants are the staff tasked with this.
To ensure their rulemakings comply with the APA, agencies will issue a variety of formal requests for comment in the Federal Register. These primarily consist of Requests for Information (RFIs) and Notices of Proposed Rulemaking (NPRMs). These public solicitations are important because responses form the public record that affects policy long into the future. When an agency finally does implement a rule, it must refer to items in the public record that influenced its decision. Just because an idea is out in the wild does not mean that it will be incorporated in the rulemaking process; effective advocates ensure that they respond to agency calls for comments. [4]
Tips for engaging
Now that you know how the legislative and executive branches make policy, here are some suggestions for how to productively advance your views. This is not advice on a specific situation.
Engage early and engage often
- Working with policymakers is just like any other form of networking: only showing up when you need something is not the best look. You’ll be much more effective in advancing your position if you get to know staff before you need their help. So look ahead, engage early, and check in regularly with your contacts. [5] A great way to “check in” (instead of just asking someone “hey can we check in so I can tell you what I want again xD”) is to provide some sort of research or observation from your industry. Identify an important trend or conduct some market research and present that to your contacts. That kind of non-public, industry-insider information is always welcome.
Be honest
- When an industry stakeholder lobbies for his or her interest, it’s pretty obvious to policy staff what that interest is. Don’t try to hide it… that looks way worse. Just be up front about your bias then explain to staff why they should still be persuaded by your position. Additionally, don’t lie about anything. Ever. If you can’t or shouldn’t reveal a particular piece of information about your business, your competitors, the market, whatever, that’s perfectly acceptable. Just say so. But don’t lie.
Remember that staff are busy
- Most staff have more to do than they can handle. This is a limit to be aware of, but it’s also an opportunity! The limit: make targeted, specific asks (for meetings, for policy consideration, etc.) and explain your position concisely and directly. The opportunity: if you can be a valuable resource to staff (see: tips 1 and 2), you can become their go-to resource on a particular policy issue. That’s very valuable.
Seek professional help
- US federal policymaking is almost endlessly complex, and with that complexity comes a lot of inside baseball. In my opinion, unless you’ve worked in government, it’s really, really hard to truly understand how policy is made. Maybe that’s not how it should work, but it’s how it does work. If your firm needs help navigating the DC policymaking process, there’s no shame in getting help. You wouldn’t set up your own Tier IV data center; you just use AWS. There are plenty of excellent advocates in DC that can help your firm or interest group. Reach out. [6]
Getting policy implemented is hard. In some ways, this is good. Policy can have big effects, so it’s important to give issues appropriate consideration. Hopefully you now have a better idea of how policy proposals move through Congress and the executive branch and how you can most effectively advocate for your preferred policy.
The effect of the specific policy proposals cited in endnote 1 is TBD. It depends on what behind-the-scenes coordination, lobbying, and persuasion is ongoing (if any). As you can see, getting your ideas into the public is just the first step of a long process. More on how to think about this process to come. Follow this Medium or follow me on Twitter for more.
I do or did work for a US federal financial regulator. I do or did work in Congress. These are my independent thoughts and do not necessarily represent the views of my employer.
Endnotes:
[1] Coinbase — Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership
Jump Capital — Stablecoins: The Impending Rise of a Multi-Trillion Dollar Market
A16Z — An Agenda for the Future of the Internet
A16Z — Our Proposals to the Senate Banking Committee
FTX — Context on stablecoin regulation
FTX — Policy goals for crypto market regulation
FTX — Areas for Crypto Regulation
[2] A “legislative vehicle” is a euphemism for one of a few must-pass bills each year, often funding or the NDAA, that is ripe for being stuffed with unrelated Member priorities in exchange for a “Yes” vote.
[3] The crypto industry benefited from the procedural protections of the APA in December 2020 when then-Treasury Secretary Mnuchin’s FinCEN proposed a rule to require certain information reporting related to unhosted wallets and other crypto transfers. Following a robust public response (much of which pointed at the unreasonable 15-day comment period), the rule was not implemented. If it had been implemented, it would likely have been challenged on APA grounds given the subject matter and abbreviated process.
[4] Over the summer, the FDIC (banking regulator) and NCUA (credit union regulator) both released RFIs on digital assets. The questions were detailed, nuanced, and complicated — exactly the sort of questions that informed industry participants would be best-equipped to answer. Disappointingly, response from cryptonative firms and organizations was limited to just a few groups (see comments here and here). This was a missed opportunity to open productive engagement with these two important agencies, in my opinion.
[5] I think that checking in every 2–6 months is a good cadence depending on how high-profile your issue is.
[6] Remember that establishing a presence in DC doesn’t necessarily mean doing something on your own! In fact, the best course of action for most firms will probably be joining an ongoing effort. There are already trade groups and nonprofit advocates fighting for crypto in DC. Duplicating ongoing advocacy can inadvertently harm progress, so look into these groups and consider contributing or joining.
