After Congress narrowly avoided a debt ceiling calamity, two House committees are turning their attention back to crypto legislation.
On Friday, House Financial Services and Agriculture, chaired by Patrick McHenry (R-N.C.) and Glenn Thompson (R-Pa.), respectively, released a discussion draft for a digital asset market structure bill that would add clarity to agency oversight and coordination for overseeing the industry.
Both committees have led efforts to pass crypto legislation, with House Financial Services focusing on stablecoin regulation and Agriculture releasing its own market structure bill last session.
While McHenry had previously focused his attention on stablecoins, progress has stalled after tension with Maxine Waters (D-Calif.), the ranking Democrat on the committee, who expressed surprise at a hearing in April after McHenry reintroduced their draft bill from the previous session. The Financial Services’ subcommittee on digital assets hosted another stablecoin hearing in mid-May, once again highlighting the gap between the two parties on the issue.
Market structure regulation has proven another popular route for members of both the House and Senate, with lawmakers eager to clear up the thorny debate of whether cryptocurrencies are commodities, and under the purview of the Commodity Futures Trading Commission, or securities, and under the purview of the Securities and Exchange Commission.
Bills have circulated around different committees, but the new draft discussion released on Friday represents a renewed effort to advance the debate—and one with the unique distinction of coming from a joint effort between two committees. They previously held a joint session on crypto regulation May 10.
Despite the team-up, the bill was still drafted by Republican members of both committees, according to a senior House policy staffer familiar with the process, and does not yet have support from Democrats. Even if the bill is approved by the House, another obstacle will be the Senate, and especially the Senate Banking Committee, chaired by crypto skeptic Sherrod Brown (D-Ohio).
The discussion draft does not include clear definitions of which cryptocurrencies would be classified as securities or commodities, but it would establish a framework for allowing the SEC and CFTC to make determinations. A main criterion for establishing a digital asset commodity would entail a certification process with the SEC to prove that a project is sufficiently decentralized.
As the SEC and crypto industry feud over whether firms can actually register with the agency, the bill would also enable the registration of digital asset trading platforms as a type of exchange called alternative trading systems (ATS), which are more loosely regulated than national securities exchanges. It’s a route that a crypto company called Prometheum took in May, where it gained approval from the Financial Industry Regulatory Authority, an oversight arm created by the SEC. As an ATS, Prometheum plans to connect buyers and sellers of crypto assets, although it's still unclear which assets will be included.
According to the discussion draft, the SEC would be prohibited from denying a trading platform an exemption to operate as an ATS on the basis that the platform trades digital assets and would also allow an ATS to offer digital commodities and payment stablecoins on their platforms. The legislation would also require the SEC to allow broker-dealers to custody digital assets if they meet certain requirements—another point of contention between the Gary Gensler-led agency and the crypto industry.
"The SEC and the chair have taken the position that there are clear rules and that it's just for firms to come in," said a senior House policy staffer familiar with the drafting of the legislation on a call with reporters. "I think we've seen over time that firms have tried to come in, and the rules do need updating."
With stablecoin and market structure regulation now on the table, the Republican members of the committees will have to convince their Democratic counterparts to proceed with the legislative process. The policy staffer said there is no planned timeline for formally introducing the bill, with a focus instead on soliciting feedback.
"Building off the bipartisan hearings held over the past few months, we appreciate today’s efforts by the House Agriculture Committee and House Financial Services Committee to propose a new functional framework for today’s digital asset market," said Kristin Smith, the CEO of the Blockchain Association, and crypto trade group, in a statement. "We look forward to reviewing the bill and providing feedback as Washington’s policymakers determine the best way for the United States to embrace digital asset innovation and protect consumers."
The House Agriculture Committee has a hearing on digital asset regulation scheduled for June 6.
