House GOP Financial Services and Agriculture Committee Chairs Propose Settlements

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House Financial Services Committee Chairman Patrick McHenry (RN.C.) and House Agriculture Committee Chairman Glenn Thompson (R-Penn.) unveiled a discussion bill as a framework possible to regulate cryptocurrency.

The Republican proposal serves as the first step in legislation to regulate crypto and follows six months of meetings with Republican members and staff on the direction of the new rules, according to policymakers from the Financial Services Commissions and of agriculture familiar with the drafting of legislation. .

Cryptocurrency is digital currency that acts like digital money; it allows two people to send money to each other without a central bank or regular bank. It does not imply that governments uphold or maintain its value. Its value is largely derived from what the next person is willing to pay for it, as opposed to a stock, which is valued for the sales and profits of the underlying business.

No Democrat was consulted for this first draft discussion. So far, Republican committee leaders want to share the draft with other Republican members and then have conversations with House Financial Services ranking member Maxine Waters (D-California) and other Democrats. Committee aides hope the concerns expressed by Democrats will align with those of Republicans and be included in the draft.

The US Treasury and other banking agencies, including the SEC and the CFTC, have been briefed on the direction of the broad themes of the proposed regulations, but no specifics.

“This draft discussion is the first step toward fulfilling Republicans’ commitment to developing clear rules of conduct for the digital asset ecosystem,” McHenry said. “Our goal is to strike the right balance between protecting consumers and encouraging responsible innovation.”

McHenry also encourages industry members to provide feedback on the legislation.

Coinbase chief policy officer Faryar Shirzad, who had told Yahoo Finance that there was no way to register with the SEC, said in response to the new draft, “We welcome the steps taken by Congress to establish a clear federal regulatory framework for crypto regulation. We need to study the details of the proposal, but we agree with congressional leaders from both parties.”

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The bill aims to clarify discrepancies between the rules of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). It also tries to say what companies need to do to register with the SEC and forces the SEC to write new custom rules to govern crypto.

So far, the SEC has not written specific rules for crypto; he only said that current securities laws apply to crypto. SEC Chairman Gary Gensler has repeatedly asked crypto companies to register with the SEC and launched more than a dozen enforcement actions against crypto companies for violating privacy laws. securities.

The bill attempts to clarify a long-standing question for the crypto community, what criteria would cause a crypto token to be classified as a commodity or a security. It grants the CFTC jurisdiction over digital products and clarifies the jurisdiction of the SEC over digital assets offered under an investment contract.

The bill offers a “decentralization” test to help decipher whether the token is a commodity, but that wouldn’t necessarily rule it out from becoming a security depending on how it’s used.

The so-called decentralization test concerns the blockchain network on which the digital asset operates. If the assets that operate on the network are considered decentralized, meaning there is no central authority or intermediaries, then they would be treated as a commodity.

Issuers of digital assets will need to demonstrate that their digital assets operate on a decentralized network and meet certain tailored disclosure requirements. From there, the bill leaves plenty for the CFTC and SEC to complete definitions to provide more clarity for compliance with their rules.

The bill does not designate one agency over another as the lead regulator, although it does establish a joint CFTC-SEC digital asset advisory committee, which will include 20 market participants, who will offer advice to the CFTC and to the SEC on how to regulate crypto.

Crypto regulation finally? The United States Capitol (REUTERS/Evelyn Hockstein)

As for decentralized finance, the drafters of the bill wanted to set aside space for Republican members of the House Financial Services and Agriculture Committees to discuss these assets and how they want to treat them. Thus, the project has created a list of activities related to the operation of a blockchain network that are excluded from regulation and registration but still subject to monitoring.

Among other actions of the bill, it imposes customer protections for all companies that must register with the SEC and the CFTC. The legislation also attempts to fill in the gaps in separate legislation to regulate stablecoins first released in the last Congress, including addressing manipulation, market structure, and issues around the timing of stablecoins. payment are exchanged on a platform. And it forces the SEC to change its rules to allow brokers to take custody of digital assets if they meet certain requirements.

McHenry has repeatedly called for more clarity and rules and criticized the SEC for refusing to provide information on whether crypto under an investment contract is subject to securities laws. and how cryptocurrency businesses must comply with these laws.

“We have a market that lacks clarity and we have a duty to create regulation, a regulatory environment that allows responsible innovation and responsible consumer protection to sit side by side with appropriate legal clarity,” McHenry said during a hearing last month before the House subcommittee. on digital assets. “This ecosystem has been deprived of legal clarity for too long and market participants and consumers are worse off because of it.”

And after? There is no official schedule, according to committee aides. Right now the committee chairs want to get input from members and industry and update the draft until there is a product that everyone can rally around.

Jennifer Schonberger has been a financial journalist for over 14 years covering markets, economics and investing. At Yahoo Finance, she covers the Federal Reserve, cryptocurrencies, and the intersection of business and politics.

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