GOP Reps Introduce Draft Bill to Clarify Regulatory Roles in Crypto Industry

Republican House members unveiled a groundbreaking draft bill yesterday aimed at establishing clear and distinct roles for regulators in the rapidly evolving cryptocurrency industry. The proposed legislation intends to provide regulatory clarity by delineating the treatment of cryptocurrencies as securities versus commodities. This move comes as a response to ongoing debates surrounding the regulatory framework governing digital assets.

Under the draft bill, the regulation of cryptocurrencies as securities would be separated from their regulation as commodities. One of the key provisions is the prevention of the U.S. Securities and Exchange Commission (SEC) from categorizing payment stablecoins and digital commodities as securities. This provision is intended to alleviate concerns within the crypto community that excessive SEC regulation could stifle innovation.

Furthermore, the bill would prohibit the SEC from denying exemptions to certain trading platforms solely based on their offering of digital assets. The draft specifies that "ancillary activities" such as wallet provision, software publishing, and node operation would be exempt from SEC oversight. However, the bill would empower the SEC to enhance and modernize rules concerning customer protection, record-keeping, and digital assets in general.

Despite exempting certain activities from SEC regulation, the draft bill would grant the commission anti-fraud authority over select transactions involving crypto commodities. Platforms that register with the SEC but offer cash and spot markets would be mandated to also register with the Commodity Futures Trading Commission (CFTC), ensuring that both regulatory bodies have jurisdiction over such activities.

Conversely, the proposed legislation would provide the CFTC with expanded authority over digital commodity cash and spot markets. While the CFTC would gain regulatory control over transactions involving payment stablecoins and digital commodities on registered platforms, it would not have jurisdiction over the design and operation of these stablecoins.

The bill outlines requirements for digital commodity exchanges that register with the CFTC and introduces a process for determining eligible assets for trading on registered platforms. Additionally, the CFTC would be permitted to establish requirements for digital asset custodians, albeit without direct regulatory oversight.

To foster collaboration and cooperation between the SEC and CFTC, the draft bill calls for the establishment of a joint advisory committee. This committee would provide a platform for the two regulatory bodies to exchange information and coordinate on matters pertaining to the crypto industry. The proposed legislation also envisions the creation of other regulatory groups and initiatives aimed at ensuring responsible innovation while safeguarding consumer protection.

Representative Patrick McHenry, who spearheaded the bill, hailed it as a significant step towards providing "clear rules of the road" for the crypto industry. He emphasized the need to strike a balance between consumer protection and fostering responsible innovation.

The bill is the result of a joint effort between the House Financial Services Committee, chaired by McHenry, and the House Agriculture Committee, chaired by Representative Glenn Thompson. Representatives French Hill and Dusty Johnson have also expressed their support for the bill.

The introduction of this draft bill marks a critical development in the ongoing regulatory discussions surrounding cryptocurrencies. By addressing issues such as expanding exchange rules to non-exchange services and reevaluating custodianship requirements, the bill aims to bring greater certainty and clarity to the evolving regulatory landscape.

It also seeks to harmonize the regulatory roles of the SEC and CFTC, providing a framework that encourages innovation while ensuring consumer protection in the fast-paced world of digital assets.