U.S. House Set to Vote for First Standalone Crypto Market Structure Bill

The US House of Representatives is set to vote in favor of a crypto market structure bill for the first time, 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 House Agriculture Committees, will begin seeing votes Wednesday afternoon, when it is expected to pass with a bipartisan majority.

The bill, called FIT21, would give the U.S. Commodity Futures Trading Commission (CFTC) more spot market authority over digital assets considered commodities while also creating new jurisdictions for the Securities and Exchange Commission (SEC). Crypto companies and digital asset issuers will have a framework for determining whether and how their assets are securities under the terms defined in the bill, which will inform them who their primary regulators may be.

Rep. Patrick McHenry (R.N.C.), who chairs the Financial Services Committee, told reporters Tuesday he hopes to get a “significant vote” in favor of the legislation within a week to show real momentum on digital asset legislation. After the Senate voted in favor of a House resolution overturning SEC accounting guidance.

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 in the Senate is less clear, and the White House had expressed opposition to the legislation earlier Wednesday, but President Joe Biden had not threatened to veto it.

For and against

The bill has been widely discussed in recent days.

Rep. Jim Himes (D-Conn.), one of at least nine Democratic lawmakers who have said they would support the bill, said, “look[ed] “I look forward to working with my colleagues on the Financial Services Committee on continued oversight of this matter.”

“FIT21 is a significant step forward in regulating the cryptocurrency industry and a meaningful improvement on the status quo,” he said in a statement.

Rep. Ro Khanna (D-Calif.) announced he would vote in favor of the bill shortly before Wednesday’s vote, saying, “We need blockchain innovation in America.”

Rep. French Hill (R-Ark.) told reporters on Tuesday that the bill creates a “5-step test for whether something is a decentralized blockchain” and includes a roadmap for the regulator to use.

Lawmakers who developed the bill had been in contact with regulators, including the SEC, for more than a year and incorporated their feedback into the legislation, he said in comments to the House Rules Committee.

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“We have added provisions to reduce conflicts of interest. We impose capital and other required requirements on intermediaries. And we impose higher standards on custody,” he said.

He said there is also an interim period in which companies must submit a “notice of intent to register” to the agencies.

Read more: House Democratic Leadership Says Crypto Bill Votes Won’t Be Broken

However, objections to the bill begin in the House of Representatives Financial Services Committee itself.

Rep. Maxine Waters (D-Calif.), the committee’s ranking member, called the bill “unfit legislation” and told the House Rules Committee on Tuesday that it was “perhaps the worst, most harmful deregulation proposal I’ve ever made.” “I’ve seen it for a long time,” he said, likening it to the Commodity Futures Modernization Act. The CFMA later removed regulations on some derivatives that “were going to blow up our economy when AIG collapsed,” according to Waters.

He said FIT21 did not give the CFTC greater authority to target fraud or other crimes, although it directed the agency to regulate digital commodities. The bill also eliminates disclosure requirements after 180 days; This means the regulator cannot force the companies it is supposed to regulate to submit audited financial statements after this deadline.

“Even more problematic is the bill’s definition of listing ‘investment contract assets’,” he said. “Securities that meet this definition will be consigned to a regulatory vacuum with no primary regulator and virtually no laws and regulations to speak of. More importantly, the definition of investment contract asset is not limited to crypto and will be fairly straightforward for both crypto and traditional securities.” will be formatted to meet this definition.”

Interest groups weigh in

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-Y) asking them to vote against the bill and prepare a list for Gensler’s There are similar concerns.

The letter took aim at the industry more broadly, saying cryptocurrency “still struggles to demonstrate viable use cases outside of speculative investment” and citing various ongoing bankruptcies and civil and criminal litigation.

“The industry has superficially recovered this year, in part due to the controversial approval of spot BTC ETPs by the Securities Exchange Commission,” the letter said. “Yet, fraud, hacking, theft, instability, reckless promotional activity, and regulatory evasion that were present during the recent crypto bull market remain prevalent in the industry today.”

The letter was signed by organizations including the AFL-CIO, Americans for Financial Reform, the Revolving Door Project, the National Consumer Law Center, and more than 30 organizations and 10 individuals.

Echoing Gensler, the groups said they are concerned that the bill would weaken existing securities laws to the point that even non-crypto companies could “escape tighter scrutiny” by tying themselves to a decentralized network (or at least claiming to be connected to a decentralized network). network). While the bill gives the CFTC more authority, the letter said that authority is “vague” to the point that it could undermine other agencies such as the Consumer Financial Protection Bureau.

“On balance, we believe that this bill, as written, offers a policy ‘cure’ that would be far worse than the disease and would create serious harm within and well beyond the crypto industry,” the letter said.

Proponents of the bill argue the legislation is needed to support companies’ efforts to “build a better financial services system and a better internet.”

“Since the inception of the Bitcoin network in 2009, the blockchain and digital asset industry has existed without targeted market regulation,” said a letter prepared by the Blockchain Association, a lobby group. “The absence of clear rules creates confusion in the market for companies and leaves users and consumers unprotected.”

Read more: Crypto Industry Rallying Behind House Bill as It Moves Toward a Final Vote

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 companies in the sector, argues that the “lack of clarity” risks leaving the US behind. in the “global technology race”.

SEC Chairman Gary Gensler issued a statement opposing the law on Wednesday. In it, he raised the specter of crypto’s various crashes and scams, suggesting that the bill could allow even traditional pump-and-dump trucks or penny stock pushers to evade oversight by branding themselves as using decentralized networks.

“We should make policy choices to protect the investing public rather than facilitating the business models of incompatible companies,” he said.