The American Federation of Teachers, the powerful labor union that represents 1.8 million members, is urging the Senate Banking Committee to reconsider its crypto market structure bill, the Responsible Financial Innovation Act, calling the proposed legislation "as irresponsible as it is reckless" in a letter exclusively obtained by CNBC.
In the letter that AFT president Randi Weingarten sent to Senate Banking Committee Chairman Tim Scott (R-SC) and Ranking Member Elizabeth Warren (D-Mass.), she wrote the union opposes the bill based on the "profound risks to the pensions of working families and the overall stability of the economy."
"The legislation on crypto we have seen weighed by the committee over the last few months gives us deep concern," Weingarten added.
The AFT is concerned that in passing crypto legislation, the government will open the floodgates to widespread fraud and unethical practices across retirement plans including AFT pensions.
"This legislation pretends that crypto assets are stable and mainstream, and they are not. Rather than just being silent on crypto, this bill strips the few safeguards that exist for crypto and erodes many protections for traditional securities. If passed, it will undercut the safety of many assets and cause problems across retirement investments," Weingarten wrote.
A specific issue the AFT cited with the proposed legislation it allowing non-crypto companies to put their stock on the blockchain and evade existing securities regulatory framework. Wall Street has become interested in the idea of "tokenization" of all financial assets, with Larry Fink, CEO of BlackRock, the largest asset manager in the world, a leader evangelist for the concept.
"This loophole and the erosion of traditional securities law will have disastrous consequences: Pensions and 401(k) plans will end up having unsafe assets even if they were invested in traditional securities," Weingarten wrote.
She argued that the legislation being considered by the committee also does little to curb fraud, illegal activity and corruption that continues to be prevalent in crypto markets. Weingarten called the legislation "irresponsible" and "reckless."
"We believe that if enacted, this bill has the potential to lay the groundwork for the next financial crisis," she wrote.
The AFL-CIO, the nation's largest labor union, stated its opposition to the Senate Banking Committee over a draft of the crypto bill in October.
CNBC also confirmed that on Thursday, the CEOs of Bank of America, Citi and Wells Fargo, will be meeting with lawmakers to discuss the crypto market structure proposals.
The currently proposed legislation, which builds on a bill that passed the House of Representatives over the summer, is co-sponsored by key crypto backer Senator Cynthia Lummis (R-Wyoming) and Senator Bernie Moreno (R-Ohio), alongside Chairman Scott. It aims to create structure for regulating digital assets, but also raises questions about tokenized securities that are not specifically cryptocurrencies.
Tokenization has been a key concern as the bill has gained momentum on Capitol Hill, and a hurdle to getting the support from Democrats that will be needed for passage. Previous CNBC reporting indicates that the Senate backers will need to attract votes from at least seven Democrats for the legislation to pass. At last week's CNBC CFO Council Summit in Washington, D.C., Senator Mark Warner (D-Va.) told attendees, "I'm in crypto hell at this moment trying to get the market structure bill done."
Warner is among a group of Democratic senators who met on Monday to review the Senate Banking draft and consider counter-offers, according to Politico.
Many Democrats, including Warren, have also been concerned about the balance of crypto regulatory oversight between the CFTC and the Securities and Exchange Commission. States, meanwhile, worry that their laws may be preempted by a new federal law, and the states left powerless to protect residents from fraud, a concern outlined by Massachusetts' Secretary of State William Galvin in a letter to Senate Banking, writing that the "sweeping provisions that will exclude significant portions of the financial industry from state oversight. This is a recipe for disaster for millions of savers."
Progress on the Senate's version of a crypto market structure bill was stalled for weeks due to the longest government shutdown in U.S. history. Speaking on Tuesday morning at The Blockchain Association Policy Summit in Washington, D.C., Senator Lummis provided some insight into when the Senate's version of a crypto market structure bill could be expected. She said her goal is to share a draft by the end of the week, then let the crypto industry as well as Republicans and Democrats vet it and proceed to markup next week.