Senior Republicans on the committees in the U.S. House of Representatives that are drafting legislation to create comprehensive frameworks for digital assets pressed Securities and Exchange Commission Chair Gary Gensler to work with Congress on the legislation.
“Legislation would do far more to prevent future collapses of digital asset firms than enforcement actions,” said Reps. French Hill, R-Ark, and Dusty Johnson, R-S.D., subcommittee chairs on the House Financial Services and Agriculture Committees, respectively. “A statutory framework would establish a process for firms to come into the regulatory parameter and comply with consumer protections, rather than relying on enforcement actions to punish a bad actor after the damage has already been done.”
The pair borrowed language from an October 2022 report on digital asset policy issued by senior regulators that identified three areas where legislation could help close “regulatory gaps” with “clear rules of the road.”
House wants 'productive engagement' from Gensler
Though not a lawmaker, Gensler holds a significant position to affect how legislation moves forward, with many congressional Democrats deferring to the SEC over its view on the bills. The chair of the Senate Banking Committee, Sen. Sherrod Brown, D-Ohio, told The Block earlier this year that he and his staff were in frequent touch with the SEC chair on digital assets. Any effort to create new laws for the sector would likely end up at the Banking Committee at some point.
The House Financial Services Committee is currently scheduled to debate and vote next week on comprehensive regulatory bills for stablecoins and cryptocurrencies that represent the legislation with the greatest chance of creating digital asset-specific rules since the inception of bitcoin, with particular bipartisan support for the stablecoins bill. The House Agriculture Committee, which shares jurisdiction over the market structure bill because it oversees the Commodity Futures Trading Commission, is also expected to mark up its portion of that bill next week.
In a letter to Gensler, Hill and Johnson expressed concern over recent SEC rule proposals around digital assets as well as some of the commission's enforcement actions against the industry. They noted the pattern of major enforcement actions seeming to happen around the time of House hearings focused on digital assets.
Sam Bankman-Fried was arrested and simultaneously civilly and criminally charged by the Justice Department and SEC the night before he was due to appear before the House Financial Services Committee to testify about FTX’s collapse last December, and last month’s Binance and Coinbase enforcement actions were announced shortly before legislative hearings on the digital assets bills under consideration.
“This approach does not result in compliance and customer protection, but instead creates further confusion, as demonstrated by the recent summary judgement,” the Republicans wrote, alluding to last week’s split decision in federal court over whether sales of XRP violated securities laws. “This concern is exacerbated by certain Commission actions, seemingly timed to coincide with related Congressional activity, which appears calculated for maximum publicity and political impact.”
The pair concluded the letter by asking Gensler for "productive engagement" with the commission on passing new laws for regulating digital assets.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
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