The unusual joint meeting of the two most crypto-relevant committees in the U.S. House of Representatives was called to work out the best legislative approach to digital assets, but one of the top Democrats questioned whether Congress should be writing a bill at all.
The hearing of both the House Financial Services Committee and House Agriculture Committee was called Wednesday as an urgent response to the lack of government oversight of a financial sector that’s passing through a period of turmoil. The group included the Republican chairs and ranking Democrats of the committees and the subcommittees doing the work, among them Rep. Stephen Lynch (D-Mass.), the senior Democrat on the digital assets subcommittee, who threw cold water on the idea of legislation.
“I’m worried that erecting a new law could be viewed as a light touch,” Lynch said in his opening remarks, and it could encourage other sectors to move their own financial products into the digital-assets space. “Creating a separate regulatory regime through legislation is not the answer.”
In his own brief opener, House Financial Services Committee Chair Patrick McHenry (R-N.C.) said, "the purpose here is to make law.” His Democratic counterpart, Rep. Maxine Waters (D-Calif.), seemed to agree, talking of the need to “quickly return to developing legislation together.”
Lynch’s rhetoric, however, linked closely with that of Securities and Exchange Commission (SEC) Chair Gary Gensler, who routinely says current securities law provides ample authority to his agency to hold the crypto industry to that existing regulation.
Lynch, who argued “the majority of the industry has failed,” said that the SEC has a responsibility to protect investors and uses a longstanding legal framework that crypto businesses are ignoring.
“The problem is not regulatory ambiguity,” he said. “It is mass non-compliance.”
But Rep. French Hill (R-Ark.), the chairman of the finance panel's digital assets subcommittee, suggested the Commodity Futures Trading Commission (CFTC) case against Binance is an example of the CFTC and SEC being on uncertain ground when it comes to policing crypto.
House Republicans posted a draft resolution on the committee website that outlines their current position on crypto oversight. It contends that SEC is going at it badly, and the regulators need to wait for direction from Congress, which should offer up tailored rules for digital assets that establishes the same kinds of investor protections that investors get elsewhere.
"This committee will act," McHenry declared at the end of the hearing. He'd said recently at Consensus 2023 that a crypto market-structure bill would emerge within two months.
Though the Republicans didn't offer concrete elements of their future legislation on Wednesday, Hill asked an industry witness during the hearing whether a method of crypto disclosures proposed by SEC Commissioner Hester Peirce in 2021 would be "a workable one."
Marco Santori, chief legal officer of Kraken, said the approach is "light years ahead of what we have today in terms of protecting consumers and allowing us as a global business to continue to plan to invest here in the United States."
UPDATE (May 10, 2023, 20:16 UTC): Updates with comments on potential crypto market-structure legislation.
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