Sep 25, 2023

U.S. House lawmakers have been making strides in crypto regulation, but could the recent flurry of legislative progress become law?

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. Good morning. Welcome back to first mover. Our next guest who previously shepherded crypto legislation in Washington sees no path forward with the current Congress. Joining us now to discuss is former US, Senator Pat Toomey. Welcome former Senator Toomey. Good morning. Thanks for having me. Good morning. I hope you're having a wonderful Monday. Uh Let's talk about the state of crypto regulation in the US. How are you viewing it? What are you watching? Well, uh, let me say, I think it's quite unlikely that legislation gets all the way to the president's desk and signed into law in this congress. However, there's real important progress being made, right? The House Financial Services Committee has reported out a stable coin bill, a market structure bill. Uh They did it with a bipartisan vote. They had all the Republicans, a handful of Democrats. So there is some bipartisan support for this and we desperately need this, right. In my view, we desperately need to have legislation that clearly defines how this space is going to be regulated because in the absence of that legislation. What we see is an out of control sec trying to assert jurisdiction even where it shouldn't and where it doesn't belong, uh you know, uh regulating by enforcement, which is a terrible way for a regulator to do its business. It's having a chilling effect on development in the United States and driving development overseas and this is a terrible, terrible missed opportunity and ultimately, it will be a cost to us. So I'm, I'm very, very insistent. We need to have legislation that uh allows, as I say, it provides clear guard rails allows the space to thrive. Um Even if it doesn't get signed into law in this congress, I hope that legislation will pass on the house floor, which I think is actually reasonably likely and that would be an important step forward. We'll still have a ways to go. But uh that would be important progress. It's interesting you bring up these bills being introduced as an important step forward. I think many people watching from the outside agree with you. But um, once the bills are introduced, they feel like they go a little bit stagnant. It feels like there is almost an unproductive back and forth and, and there is an inability to push them forward. Can you just add a little bit of context um here for our audience as to what's going on and, and why there is actually progress when from the outside, it looks like there, there might not be. Well, uh Yes. So, so there is not a meeting of the minds um uh as to how to proceed and specifically, uh let's take the case of the stable coin um legislation. That's probably the simplest and most straightforward. It might be a somewhat of a, an oversimplification, but I think it's fair to say as a general matter, one of the main sticking points between Republicans in Congress and the administration is whether or not a, a stable coin issuer can have a regulatory path through state regulators as opposed to the federal government. Whether there can be sort of a, a, a two tier approach the way we do with banking, right. We have state issue, uh state chartered banks and federally chartered banks. The insurance industry is entirely state regulated, uh in the crypto space. The administration wants the fed to have very tight control over all stable coin issuers and a lot of Republicans and I put myself in this camp believe that uh it's fine to have a federally chartered path, but there also ought to be a state uh path that's available uh to issuers. And those state issuers would still be subject to the big regulatory overlay such as requiring 100% backing with cash and cash equivalents for any stable coin, uh requiring disclosure and auditing and redemption rules and capital requirements. All of those things would still be in place, but the ultimate enforcement would be at the state level. My point is there's not a meeting of the minds here. That is what I think is one of the leading things that prevents a deal being struck by Republicans in the House and the administration. Such a deal if it were to come about would mean legislation is gonna get signed into law. Because if it could, if it, if the administration supported it, the Democrats in the Senate would support it, it would pass the House and we'd have a deal. So having said all that, I think it's still, if you think about it from a legislative process point of view, um you know, sometimes you have to go through a few iterations before you get a majority on board the house demonstrating bipartisan support in the Committee of Jurisdiction. And I think likely to demonstrate bipartisan support on the house floor really puts a little pressure on the administration to come to the table to negotiate this. This is something that can be resolved, not really optimistic that it gets resolved in the next few months. And then next year, we're into a presidential and congressional election year where it's very hard to do legislation. But this is why I say it's an important step forward if the House can pass something. Well, a lack of legislation is of course affecting crypto firms in the US. And a few months ago, you joined a newly formed Global Advisory Council for crypto exchange coin base. Can you tell us a little bit about that? How are you advising the exchange on their international endeavors? Well, there's an awful lot. Right. Coin base is a big complex, um, and, and remarkably successful firm, they are responsible for onboarding more people, uh, into, uh, crypto probably than any other firm in the world. They are expanding their international, um, capability, expanding product line all the while having to fight a completely unreasonable sec that uh is just, you know, making these allegations that, that for instance, that all virtually all tokens are securities when that, that's an really a very, very hard proposition to defend. So, um I'm, I'm enjoying my role in, in working with the senior management of the firm and, and how best to proceed providing what advice I can from the insights that, that I've learned over the course of my 12 years in the Senate especially. And, and most recently as the ranking member of the Senate Banking Committee which has jurisdiction over all f all federal financial regulators, I got to ask you about the SEC. It seems the majority of firms are finding it difficult to navigate the S ECs rules. But then we have these one offs, we had promethium that said, you know, the rules are there, you just got to follow them. And then so a finance more recently that launched a retail compliant um offering and also said, you know, the rules are there, you just got to understand how to navigate them. What do you make of the few that are coming out and saying that um working with the SEC may not be as complicated as some are saying, well, I just have to disagree. I, I mean, I know there are maybe outliers have a different view, but I share the view of the vast majority in this space uh players uh active in, in all aspects of crypto who want to be in compliance with the law. But there's no clarity on how that can happen. For instance, this notion that all tokens are securities on the face of it. It's ridiculous, right? If you look at the legal tests for what constitutes a security, huge numbers, probably a big majority of tokens don't make that test. And when the SEC has been asked to spell out for us exactly how and why you believe these tokens actually are securities, they refuse to do. So that's completely unreasonable, completely unreasonable. If they're going to insist that they have jurisdiction and that all of these tokens are securities and therefore under the regulatory purview of the sec, they owe it to everyone to explain how and why and by the way to lay out clearly defined rules through a formal rulemaking process that would show people how they can be in compliance. The SEC has refused to do any of that. And uh and, and look, the recent legal cases have not been going well for the SEC because the courts have recognized that uh this is uh uh, you know, they're, they're overreaching uh relative to the authorities that they have the right way to clarify all this is to pass legislation for Congress to pass legislation, defining exactly what is the security, what isn't, who has jurisdiction over what then people can get in compliance and this industry can take off. Unfortunately, there's some people on Capitol Hill and other places that don't want this sector to take off. I think that's also a contributing complexity. You know, we're seeing regulator, regulatory clarity in places like Hong Kong, Singapore, the Middle East. Um sitting in your position now where you're advising firms, would you advise firms to take their business overseas until the US can kind of figure out what's going on here? Well, they're not mutually exclusive, right? What you can do is simultaneously uh do business that is focused on the jurisdictions where you can and where it makes economic sense for your business. Europe has a uh legislation has been passed. Now, they're gonna have a great deal of clarity that we lack in, you know, United States. But meanwhile, I would urge firms to continue to pressure Congress, pressure the SEC and, and make the case for why the US ought to be leading. I mean, we have been leading in this space, but we're in serious danger of losing that leadership position simply because we don't have a political and regulatory system in place to provide that clarity. I would also point out that, you know, having, for instance, stable coins properly regulated with legal clarity is a huge asset for the American economy. And in fact, an asset for America's national security, it would give the US dollar the technology that people want a technology that it doesn't have today, that being a, a technological leader, having a currency that is a technological leader further cements our position as the dominant currency in the world and the dominant reserve currency, which is a huge strategic advantage for the US. The more we neglect creating a well-defined regulatory regime, the more we undermine our ability to retain that position. So this is really important. We get this right when we talk about stable coin, CBD CS often enter the conversation. What are your thoughts on the potential for a CBD C in the US? Well, the first thing I would say is the Federal Reserve has no legal authority to issue a CBD C. And in my conversations with um Fed governors, uh there's been an acknowledgement that they should not proceed with some, something like a CBD C without explicit congressional authority. My biggest single concern about a Fed issued CBD C is whether or not that would inherently involve the Fed, having a surveillance capability on Americans use of their money. That would be completely unacceptable to me. I'm not a, I'm not a technical person. I, I'm not um a technician, I don't know whether it's even possible to develop a CBD C without that capability. And if the FED were to have that capability, then I and many others would be adamantly opposed to proceeding. And I also ask a question which is if we have stable coins, what do we need? A CBD C for the stable coins have the technological capability that presumably the FED would be trying to imbue into a CBD C. So uh put me down as a skeptic about the CBD C I have to ask you, uh There's the possibility that there's a government shutdown pending. What could this do if anything or how could this impact rather uh the crypto legislation progress? Um Not likely that there's a direct uh impact. Um You know, if there's a shutdown and I do, I acknowledge that odds look like there's somewhat better than even that there probably will be. Um it, it's really not gonna be as disruptive as most in the media portray it. Uh It will cause Congress to focus very much on getting a resolution of that. Does that focus come at the expense of potentially moving crypto related legislation on the house floor? Probably not. I think um the, the time frame for getting uh legislation on the house floor is probably a little later, maybe November or thereabouts. Um So I think it probably doesn't have a, a major impact All right. And lastly before we go, do you hold any crypto? Uh I do, I do indirectly. I do through the um the um uh great scale um trust, uh which, which should be able to convert to an ETF. Um That's another area where I think the SEC uh has lost and uh should acknowledge that. Uh We're, we're way overdue to have uh Bitcoin ETF S. All right. Thanks so much for joining me on the show this morning. Former Senator Toomey. Thank you. Thanks for having me. That was former US, Senator Pat Toomey. I should note that the Fed's top regulatory official has said that the central bank won't move forward on A CBD C without being directed by the White House and authorized with legislation from Congress.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.