U.S. House passes Hill measure confronting digital asset regulatory gaps

by Alex Thomas
Arkansas Democrat-Gazette
May 22, 2024

WASHINGTON -- The U.S. House of Representatives passed legislation Wednesday establishing specific regulatory criteria affecting digital assets, including how federal agencies should approach oversight of these fungible items.

The Financial Innovation and Technology for the 21st Century Act is a sweeping effort between the House Financial Services and Agriculture committees to address the current authority of the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission. Wednesday's vote marked the first time either congressional chamber supported a comprehensive proposal.

The measure received bipartisan support, with 71 Democrats joining all but three Republican members in backing the legislation with a final tally of 279-136 favoring passage.

Arkansas' four House members -- Rick Crawford, R-Jonesboro, French Hill, R-Little Rock, Steve Womack, R-Rogers, and Bruce Westerman, R-Hot Springs -- voted for the bill.

Hill helped introduce the legislation last July. The congressman serves as vice chair of the House Financial Services Committee and leads its Subcommittee on Digital Assets, Financial Technology and Inclusion.

Crawford is part of the House Agriculture Committee.

Speaking to the Arkansas Democrat-Gazette after Wednesday's vote, Hill said the final vote total shows a bipartisan understanding of the regulatory gaps affecting digital assets such as cryptocurrencies.

"Innovation and keeping America No. 1 in technological advance should be a bipartisan objective," he said. "And I believe this vote demonstrates that it is."

The bill clarifies the roles of the Commodity Futures Trading Commission and the Securities and Exchange Commission in overseeing transactions involving digital assets. The Commodity Futures Trading Commission would regulate a digital asset as a commodity if its blockchain -- the ledger allowing users to store and share data -- is functional and no person has unilateral authority over its operation. The Securities and Exchange Commission would have authority over digital assets offered as part of an investment contract.

Exchanges, brokers and dealers would need to register with these agencies. The commissions would jointly issue rules explaining terms and exempting dually registered persons from duplicative and conflicting provisions.

Lawmakers with the House Agriculture and Financial Services committees started the undertaking of drafting legislation after the December 2022 collapse of cryptocurrency exchange FTX. Legislators have additionally cited efforts by the European Union and other nations in establishing regulatory frameworks as another contributing factor in trying to form a new framework.

House Financial Services Committee Chairman Patrick McHenry, R-N.C., told reporters he had hoped the House would have passed the measure last fall, providing the Senate with more time to consider the House proposal or reach a bicameral deal.

"That wasn't to be," he acknowledged.

Work in the House was brought to a standstill in October for three weeks after hard-right Republicans successfully ousted Kevin McCarthy as speaker. The House Republican Conference struggled to pick a new person to wield the gavel, eventually selecting Louisiana Rep. Mike Johnson for the job.

McHenry served as acting speaker during the three-week delay.

"We're now in May of an election year, but an interesting thing has turned," he said. "We have more of our colleagues who understand digital assets than they did in July of last year."

The Commodity Futures Trading Commission and the Securities and Exchange Commission have some authority in addressing digital assets under rules, which predate the creation of these investments. McHenry said he has heard from companies interested in developing and operating overseas because these areas have modern policies in place.

"We have never been behind Europe in innovation. At least, not in the last 150 years," he said. "When Europe has an advanced regime, U.K., Singapore, Japan, Hong Kong, we then see that we have to compete for innovation and for the investment to occur, and for the people behind that innovation and investment."

Hill said Congress has a role in ensuring the United States fosters an innovative environment for investors and consumers of digital assets.

"This bill will facilitate innovation and investing in that space," he said.

While 71 Democrats supported the legislation, a majority of House Democratic Caucus members -- 133 lawmakers -- voted against the bill. California Rep. Maxine Waters, the House Financial Services Committee's ranking member, contended the measure creates loopholes by giving agencies the power to regulate without providing authority to address fraud and poor investor practices.

"Ultimately, the massive loopholes in this bill would degrade investor trust, cause broad market uncertainty, and allow fraud to proliferate, resulting in devastating losses for not just crypto consumers, but also for non-crypto investors who are trying to save for retirement, college, or other life goals," she told the House Rules Committee on Tuesday.

Rep. Dusty Johnson, R-S.D., told the House Rules Committee the proposal is necessary as "the status quo is not working." Johnson is a member of the House Agriculture Committee and leads its Commodity Markets, Digital Assets, and Rural Development Subcommittee.

"That regulatory gap puts at risk consumers, it is pushing trading volume overseas, and it is stifling innovation," he said.

There has been work in the Senate regarding digital assets. Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., have legislation similar to the House measure. Senior House committee staff involved in drafting the Financial Innovation and Technology for the 21st Century Act said there have been talks on their proposal with members of the Senate Banking and Agriculture, Nutrition and Forestry committees, both of which have jurisdiction over commodities.

Sen. John Boozman, R-Ark., is the top Republican member of the Senate Agriculture Committee.

McHenry, who will leave the House in January, said the House bill presents the contours of sufficient policy. He noted there are challenges in passing legislation with six months until the general election, but this limited window may provide motivation to lawmakers trying to win the trust of voters interested in digital asset marketplaces.

"We hope reasonable minds can be supportive of this initiative and get it done this year," he said.

Hill is optimistic about Congress' chances of passing legislation, pointing to the 279 House members who backed the measure Wednesday as a sign of Congress' strong interest in addressing current digital asset rules.

"That should send a message to the Senate that Republicans and Democrats are ready to make law here," he said.

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