Hearings on crypto regulatory gaps don’t close them

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Congress has rebranded cryptocurrency as digital assets, but still can’t chart a future.

As evidenced by two hearings held in tandem Thursday, April 27 by the Digital Assets, Fintech and Inclusion Sub-Committee and the Commodity Markets, Digital Assets and Rural Development Sub-Committee, the Congressional intent of a viable market structure supported by clear rules of the road is clear.

How to get there is up for debate.

Meanwhile, private sector financial services leaders including Visa and JP Morgan (JPM), among others, are taking steps to relaunch their own digital asset roadmaps.

The Visa roadmap, as reported by PYMNTS, includes stablecoin payouts while JPM seeks to tokenize traditional finance.

We have a unique opportunity as members of this subcommittee to be at the forefront of creating a functional framework for the digital asset ecosystem, said the chair of the digital assets subcommittee and the fintech, Rep. French Hill, R-Ark. Thursday’s hour-long hearing titled “The Future of Digital Assets: Identifying Regulatory Gaps in the Market Structure of Digital Assets.”

Currently, the SEC [Securities and Exchange Commission] and CFTC [Commodities Futures Trading Commission] disagree on the classification of many digital assets, which is impractical for entrepreneurs and consumers. Agencies need direction from Congress, the subcommittee chair added, saying lawmakers need to dive deep into the regulatory environment and lead in the right way.

Read more: SEC Chairman Gensler Defends Crypto Crackdown in Controversial House Hearing

Are two commissions better than one?

In a joint statement released ahead of both hearings, House Financial Services Committee Chairman Patrick McHenry, RN.C., House Agriculture Committee Chairman Glenn GT Thompson, R-Pa., and the two chairs of the respective Digital Assets Subcommittees, Hill and Dusty Johnson, R.S.D., said of their combined efforts: We are committed to finding workable solutions that provide much-needed regulatory clarity and certainty. , while adhering to proven principles that protect market participants. .

Its clear digital assets and their underlying blockchain technology hold great promise, lawmakers pointed out. The transformational nature of this technology also creates regulatory challenges affecting both the agriculture and financial services committees of the House.

Two committees working hand-in-hand on a joint piece of legislation like this is unprecedented, and I think it dramatically increases our chances of getting it right, Hill said.

Developers, users and digital asset institutions need clear and thoughtful rules of conduct, Thompson added.

In an interview with PYMNTS CEO Karen Webster last October, before Republicans took control of the House, McHenry said digital asset legislation, particularly around stablecoins, was definitely on the way. agenda.

Much ink has been spilled on digital assets, their value, purpose and ultimate benefit to society, Johnson said. The difficult task we begin today is to develop a legislative framework.

The two congressional committees will hold a joint subcommittee hearing next month to craft legislation intended to provide regulatory clarity and certainty, while adhering to proven principles that protect market participants.

The European Union (EU) has already adopted a historic regulatory framework designed specifically to help bring cryptocurrency into its market legally.

Without legislation, our regulators are just pushing entrepreneurs, developers and job creators overseas, Hill said.

What is a digital asset, anyway?

I think all of our assets are already digital, Hilary Allen, a professor at American University who teaches banking and securities law, told lawmakers gathered.

Many of these assets are dual-use and difficult to categorize because they contain both speculative and utilitarian aspects, said witness Zach Zweihorn, a partner at Davis Polk & Wardwell law firm in Washington, D.C., specializing in securities regulation, adding this classification should probably include a utility threshold.

A third witness, Daniel Gorfine, who once served as chief innovation officer for the CFTC, added, “The problem with the term digital assets is that it’s incredibly broad.

We have to be careful as regulations look at what an asset is because there are things that may not relate to both raw materials and security [definitions]said Gorfine.

That’s not the case, according to SEC Chairman Gary Gensler.

Nothing about the crypto markets is inconsistent with securities laws. The vast majority of crypto tokens are securities. It’s the law; it’s not a choice, he told a House hearing earlier this month. Calling yourself a DeFi platform, for example, is no excuse for defying securities laws.

As for what happens next, and what hope is there for an effective landscape for digital asset innovation in the United States?

Perhaps next month’s joint hearing will provide some of the clarity that lawmakers have repeatedly stressed they are both after and ultimately responsible for.

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