The U.S. House Financial Services Committee passed six pieces of legislation on July 26, three of which were aimed at “providing robust consumer protections and legislative clarity for the digital asset ecosystem,” in the wake of the collapses and scandals of 2022 and beyond—notably bankrupt exchange FTX, which several committee members mentioned.
The key pieces of legislation were the Financial Innovation and Technology (FIT) for the 21st Century Act, the Blockchain Regulatory Certainty Act, and the Financial Technology Protection Act of 2023.
The FIT for the 21st Century Act passed in a 35-15 vote and is perhaps the most significant of the three digital asset bills for the industry. It represents a joint effort to give digital assets regulatory certainty and eliminate some of the grey areas in oversight that, according to some, have caused frustration for regulators and industry alike.
“There is no commingling,” said Committee Chairman Patrick McHenry (R-NC) in a proponent of the bill. “The worst practices of FTX are banned in this bill. It is better at worst case than what we have currently, which is no consumer protection in the hopes the courts will understand the complexities of securities and commodities law and the technology. We have to wrestle with it. It is Congress’s obligation to wrestle with it.”
The bill adds definitions for digital assets and blockchain technology to existing securities and commodities laws and defines when digital assets are a security or a commodity. Notably, the bill would give the Commodity Futures Trading Commission (CFTC) power over digital commodities and clarify the Securities and Exchange Commission’s (SEC) jurisdiction. The bill also outlines a process for firms to certify with the SEC that their projects are adequately decentralized, allowing them to register digital assets as digital commodities with the CFTC.
Effectively, the FIT for the 21st Century Act widens the jurisdictional authority of the CFTC over the digital asset space and narrows that of the SEC, which has been under fire for its—supposedly—heavy-handed approach to enforcement.
The bill’s passage represents a win for those in the industry crying out for regulatory certainty and cursing the regulation by enforcement approach of the SEC, and a loss for those that maintain that the regulator is doing a good job of applying existing securities laws to the digital asset space in its post-FTX crackdown on ‘crypto’ cowboys.
One such voice of opposition to the bill was Rep. Maxine Waters (D-CA), the ranking Democrat on the committee, who labeled the bill a “wish list” for the digital asset industry and argued that “we don’t need to invent new regulatory structures simply because crypto companies refuse to follow the rules of the road.”
However, a handful of Democrats did support the bill, including Reps. Jim Himes (D-CT) and Ritchie Torres (D-NY), and it will now go to the next stage of the approval process before being voted on by the House—where it is likely to pass thanks to a Republican majority and bipartisan support.
In terms of the other digital asset-related bills that the committee also advanced, the Blockchain Regulatory Certainty Act, offered by Rep. Tom Emmer (R-MN), is aimed at ensuring that blockchain developers and providers of blockchain services that do not take control of consumer funds are not deemed financial institutions or money service businesses under the law—meaning they would avoid falling within the scope of financial sector regulators, including the CFTC and SEC.
“This bill is an absolute step in the right direction,” said Emmer. “The United States’ leadership in the global economy is propelled by our ability to leverage innovations that make markets and communication more efficient… America remains a technological leader, not because we force innovations to adopt our values under regulatory duress, but because we allow technology that holds these values at their core to flourish.”
The “Financial Technology Protection Act of 2023,” offered by Rep. Zach Nunn (R-Iowa), establishes the Independent Financial Technology Working Group to Combat Terrorism and Illicit Financing under the Department of Treasury. In addition, it encourages public-private sector partnership in tackling issues surrounding illicit finance in the digital asset ecosystem.
Lawmakers are also considering a bill that would have the Federal Reserve write requirements for issuing stablecoins while preserving the authority of state regulators.
The bill was delayed a day to accommodate last-minute revisions, which addressed the concerns of some Democrats, including Waters, that stablecoin issuers could evade stricter oversight by opting to be regulated under a state regime.
Watch: SEC Commissioner Hester Peirce on BSV Association’s Blockchain Policy Matters
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