Regulation
US House of Representatives set to vote on first standalone crypto market structure bill
The U.S. House of Representatives is set to vote for the first time in favor of a crypto market structure bill, in a symbolic effort to radically reshape the country’s digital asset regulatory landscape .
The Financial Innovation and Technology for the 21st Century Act, sponsored by members of the House Financial Services and Agriculture committees, will begin being voted on Wednesday afternoon, where it is expected to be passed with a bipartisan majority.
The bill, dubbed FIT21, would grant the U.S. Commodity Futures Trading Commission (CFTC) greater authority over the spot market on digital assets considered commodities, while creating new jurisdictional lines for the Securities and Exchange Commission (SEC). Crypto companies and digital asset issuers would have a framework for determining whether and how their assets are securities under the terms defined by the bill, allowing them to know who their primary regulator might be.
Rep. Patrick McHenry (R-N.C.), who chairs the Financial Services Committee, told reporters Tuesday that he hoped for “a substantial vote” in favor of the legislation to demonstrate that there is real momentum for ‘legislation on digital assets, a week later. after the Senate voted in favor of a House resolution that overturned the SEC’s accounting guidelines.
The bill is expected to pass, with a handful of Democrats joining the majority of Republicans in voting in favor of the bill. The bill’s path through the Senate is less clear, and the White House said Wednesday it opposes the bill, although President Joe Biden did not threaten a veto.
The bill has been the subject of much discussion in recent days.
Rep. Jim Himes (D-Connecticut), one of the at least new Democratic lawmakers who said they would support the bill said it “looks[ed] I look forward to working with my colleagues on the Financial Services Committee on our continued oversight of this issue.
“FIT21 is an important step forward in regulating the cryptocurrency industry and a significant improvement on the status quo,” he said in a statement.
Representative Ro Khanna (Democrat of California) announcement he would vote in favor of the bill shortly before Wednesday’s vote, saying “we need blockchain innovation here in America.”
Rep. French Hill (R-Ark.) told reporters Tuesday that the bill creates a “5-step test for whether something is a decentralized blockchain or not” and includes a roadmap the regulator can use .
In his comments to the House Rules Committee, he said lawmakers who crafted the bill worked with regulators — including the SEC — for more than a year, incorporating their comments into the legislation.
“We have included provisions to mitigate conflicts of interest. We impose capital and other necessary requirements on intermediaries. And we impose higher standards for custody,” he said .
There is also an interim process, whereby businesses must file a “notice of intent to register” with agencies, he explained.
Opposition to the bill, however, begins within the House of Representatives’ Financial Services Committee.
Rep. Maxine Waters (D-Calif.), ranking member of the committee, called the bill “not fit for purpose legislation” and told the House Rules Committee on Tuesday that it “is perhaps the worst and most harmful deregulatory proposal I have ever seen.” I have seen for a long time”, comparing it to Commodity Futures Modernization Act. According to Waters, the CFMA deregulated certain derivatives, which then “exploded our economy when AIG collapsed“.
FIT21 does not give the CFTC greater authority to target fraud or other crimes, although it has directed the agency to supervise digital products, she said. The bill also removes disclosure requirements after 180 days, meaning the regulator cannot force the companies it is supposed to regulate to provide audited financial statements after that deadline.
“What is even more problematic is the bill’s definition of citing ‘investment contract assets,’” she said. “Securities that meet this definition would be transferred into a regulatory vacuum, with no primary regulator and virtually no laws or regulations to speak of. It is important to note that the definition of investment contract asset is not limited to cryptography, and it would be quite simple for both crypto and traditional securities to be formatted to meet this definition.
A group of unions, consumer protection organizations, academics and others sent a public letter to House Speaker Michael Johnson (R-La.) and Minority Leader Hakeem Jeffries (D-N.Y.) asking them to vote against the bill and listing concerns similar to Gensler’s.
The letter addressed the industry more broadly, saying crypto “still struggles to demonstrate viable use cases outside of speculative investments” and referencing the various ongoing bankruptcies and civil and criminal litigation.
“The industry has superficially recovered this year, in part due to the Securities Exchange Commission’s controversial approval of spot BTC ETPs,” the letter said. “Yet the scams, hacks, theft, instability, reckless promotional activity, and regulatory evasion that were present during the last crypto bull market remain endemic in the industry today.”
The letter was signed by organizations including the AFL-CIO, Americans for Financial Reform, Revolving Door Project, the National Consumer Law Center and more than 30 others as well as 10 individuals.
Echoing Gensler, the groups said they feared the bill would weaken existing securities laws to the point where even non-crypto companies could “escape more rigorous oversight” by linking to a decentralized network (or at least pretending that they were linked to a decentralized network). network). Although the bill gives greater authority to the CFTC, the letter says that authority “is vague” to the point that it could harm other agencies like the Consumer Financial Protection Bureau.
“Overall, we believe this bill, as written, introduces a political ‘cure’ that would be far worse than the disease and would create significant harm within and well beyond the industry of cryptography,” the letter states.
Supporters of the bill argue that legislation is needed to support companies’ efforts to “build a better financial services system and a better Internet.”
“Since the creation of the Bitcoin network in 2009, the blockchain and digital assets industry has existed without targeted market regulation,” a letter filed by the Blockchain Association, an advocacy group, said. “The lack of clear rules leads to market confusion for businesses and leaves users and consumers unprotected.”
The letter, signed by groups including stablecoin issuer Circle, Ethereum incubator ConsenSys, venture capital firm Digital Currency Group, exchanges such as Kraken and 50 other industry companies, goes on to claim that the “lack clarity” risked putting the United States behind. in “the global race for technology”.
SEC Chairman Gary Gensler released A declaration Wednesday, opposing the legislation. In it, he raises the specter of various crypto collapses and frauds, suggesting that the bill could allow even traditional pumps and dumpers or penny stock pushers to evade oversight by posing as using decentralized networks .
“We should make the political choice to protect the investing public rather than facilitate the business models of non-compliant companies,” he said.