House Republicans Introduce Bill to Enhance Crypto Regulation and Strengthen SEC’s Role
Republican Chairs of House Committees Propose Comprehensive Crypto Oversight Bill, Addressing Industry Demands
In a significant move towards increased regulation of the cryptocurrency sector, Republican leaders of the House Financial Services Commission and Agriculture Committee have unveiled a proposal that addresses several concerns raised by the digital assets industry. The draft bill, released on Friday, offers crypto exchanges a clear path to register with the U.S. Securities and Exchange Commission (SEC) and facilitates trading of digital securities, commodities, and stablecoins within a single platform. However, the proposed legislation lacks Democratic support at present and preserves the SEC's authority to determine which assets qualify as securities.
Regarding the classification of assets as commodities or securities, the "discussion draft" outlines that regulated crypto firms can argue for commodity status, provided they provide detailed explanations of their functionality and demonstrate true decentralization with no single entity controlling over 20% of assets. Nevertheless, the SEC retains the power to contest these claims by presenting a thorough analysis supporting its jurisdictional authority over the asset.
The proposed legislation also introduces the concept of an SEC-registered crypto exchange, referred to as an alternative trading system (ATS), which would enable trading of stablecoins and commodities. Consequently, crypto platforms would potentially handle all transactions for investors within a single venue, subject to their registration with the U.S. Commodity Futures Trading Commission (CFTC).
For the CFTC, the draft bill establishes a new category of registered business called a digital commodity exchange, dedicated to trading certified crypto commodities. These exchanges would be required to comply with the CFTC's customary safeguards, such as full asset segregation, to prevent market manipulation. Furthermore, the CFTC would be granted additional authority over direct trading of crypto commodities, aligning with similar proposals considered by Congress in the previous year.
Currently, both the SEC and CFTC have been actively enforcing regulations against crypto companies, including major trading platforms. While SEC Chair Gary Gensler asserts that existing securities laws are sufficient, this legislation would compel him to update regulations to accommodate crypto-specific oversight.
However, as a product of negotiations between Republican representatives Patrick McHenry (R-N.C.), chair of the financial panel, and Glenn "GT" Thompson (R-Pa.), chair of the agriculture committee, the bill lacks input from their Democratic counterparts. It serves as a "discussion draft" to initiate conversations, with the hope that Democrats will present their own version to facilitate bipartisan cooperation.
The proposed legislation includes several key features, such as a certification process with the CFTC for token projects seeking commodity treatment, a safe harbor provision for existing crypto assets during the regulatory development phase, and permission for broker-dealers to custody crypto assets. Additionally, the Republican chairs call for studies on decentralized finance (DeFi) and non-fungible tokens (NFTs), implying that regulation of these aspects of the crypto economy may be addressed later.
Importantly, the bill does not currently allocate any appropriations, meaning that the SEC and CFTC will not receive additional funding for the anticipated surge in workload or the potential need for expanded staff. The decision to defer budget discussions to the regular congressional budget process was made by those involved in crafting the bill.
While staff from the committees have engaged with their counterparts in the Senate, it remains uncertain what Senator Sherrod Brown (D-Ohio), the chair of the Senate Banking Committee, intends to do regarding crypto. Even if the House reaches a compromise and passes the bill, it would still require approval in the Senate, where Senator Brown has remained tight-lipped about his legislative plans concerning cryptocurrency.
