In the News

Hill serves leading role as U.S. House committee advances crypto regulatory framework

by Alex Thomas
Arkansas Democrat-Gazette
July 28, 2023

WASHINGTON -- A U.S. House of Representatives committee made what leaders described as a first step in regulating digital assets like cryptocurrencies by advancing legislation establishing rules for market participants and clarifying the roles of federal agencies.

The House Financial Services Committee on Wednesday held a markup of the Financial Innovation and Technology for the 21st Century Act, nearly two months after lawmakers unveiled a discussion draft concerning regulatory oversight. A handful of Democrats joined a united Republican coalition in supporting the measure.

Federal lawmakers have expressed interest in passing regulations addressing digital assets amid rising interest in these fungible items and an absence of modern rules for these environments. The U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission have limited authority under structures that predate the creation of digital assets.

Members of Congress re-energized their efforts into establishing a modern structure following the collapse of FTX last December. During Wednesday's hearing, legislators cited other nations and the European Union as leading forces in installing regulations affecting platforms and transactions.

"We intend to change that today," Committee Chair Patrick McHenry, R-N.C., said. "This committee is taking that first step to fix that problem."

The legislation would grant the Commodity Futures Trading Commission jurisdiction over transactions involving digital commodities as well as digital commodity exchanges and brokers. The Securities Exchange Commission would have oversight of digital assets offered as part of an investment contract. Entities such as trading systems and intermediaries who facilitate transactions would register with federal agencies.

The House Financial Services and Agriculture committees are leading the effort to establish a framework. Committee leaders announced a legislative framework on June 2 with hopes of establishing a new regulatory structure specifically focused on digital assets.

Rep. French Hill, R-Little Rock, is among the leaders pushing the legislation. Hill serves as the House Financial Services Committee's vice chair and chair of its Subcommittee on Digital Assets, Financial Technology and Inclusion.

"Let me assure my colleagues this bill is filling the gaps in the existing system," the lawmaker from Little Rock said Wednesday. "The existing system does not work. It does not facilitate what we need in a fit-for-purpose system."

Hill, a former banker, mentioned the measure "modifies and mirrors" existing rules with improved language addressing gaps in current regulatory powers.

"Make no mistake, today's markup is a major first step," Hill added.

In the weeks after releasing the policy framework, Republican lawmakers sought input regarding possible improvements from market leaders, federal officials and committee members from both parties in hopes of garnering bipartisan support. Yet their efforts were not enough to persuade California Rep. Maxine Waters, the House Financial Services Committee's top Democrat, and most Democratic colleagues.

"This bill unnecessarily seeks to erect an entirely new regulatory structure to govern the digital assets markets rather than leveraging our existing securities laws, which have served us well for decades and through countless innovations in our capital markets," Waters said, adding the legislation would "muddy the waters even more."

Georgia Rep. David Scott, the top Democrat on the House Agriculture Committee, contended the new regulations would create new loopholes in digital asset markets.

Massachusetts Democrat Stephen Lynch directed criticism concerning the legislation to Hill, describing the proposal as "not his best work." Hill joked Lynch's statement bore a resemblance to remarks from a former college economics professor who once told him "the same damn thing."

"We've looked at this bill extensively, and this bill is a bill that makes the system better," Hill said. "Investors are protected. We don't have a race to the bottom; we have a race to the top."

The measure attracted a handful of Democrats. Reps. Jim Himes of Connecticut, Wiley Nickel of North Carolina and Ritchie Torres of New York expressed interest in ending the current status quo by establishing new regulatory guidance. Colorado Rep. Brittany Pettersen asked Republican leaders for a commitment to consider amendments related to scams and illicit behaviors.

"Much like the dawn of the internet, this new technology feels like uncharted territory with immense possibilities. We're responsible for ushering this new era that harnesses innovation and ensures consumer protections," Nickel said.

"I firmly believe in the SEC's mission to protect investors, but for this to be effective, Congress needs to pass legislation with a clear regulatory framework. The last thing we need is another situation like FTX."

The House Agriculture Committee will consider the legislation today. Arkansas Rep. Rick Crawford, R-Jonesboro, serves on the committee.