The House on September 23, 2021, narrowly passed a Defense authorization bill that includes a provision directing the SEC and CFTC to set up a joint working group on digital assets.
The inclusion of the bipartisan amendment to the National Defense Authorization Act (NDAA) came over the opposition of an influential House Financial Services Committee Democrat, while the Chamber of Commerce voiced its support for the measure.
The amendment, introduced by a group of lawmakers led by Rep. Patrick McHenry, a North Carolina Republican, is identical to the text of H.R. 1602, the Eliminate Barriers to Innovation Act of 2021, which easily cleared the House in April. McHenry is the ranking member of the House Financial Services Committee. (See House Passes Bills on Executive Trading Plans, Digital Assets, Senior Investor Protection in the April 22, 2021, edition of Accounting & Compliance Alert.)
The Senate has so far shown little interest in taking up the measure as a standalone bill. Its inclusion in “must-pass” legislation such as the NDAA gives the measure new legs.
McHenry has also urged the SEC and CFTC to undertake the changes under their own authority, without success. (See House Republicans Ask SEC, CFTC to Launch Digital Asset Group in the August 17, 2021, edition of ACA.)
Under the Eliminate Barriers to Innovation Act, the joint working group would have one year following enactment to submit a report to the SEC and CFTC analyzing the legal and regulatory framework, and related developments in the U.S. and other countries, for digital assets, with recommendations on the “creation, maintenance, and improvement” of digital asset markets; custody, cybersecurity, and other standards; and best practices to reduce fraud and manipulation, protect investors, and aid in countering money-laundering and financial terrorism.
McHenry’s efforts underscores broader dissatisfaction among Republican lawmakers over the direction of the SEC’s cryptocurrency oversight, which today has chiefly focused on enforcement even without formal crypto rules. The amendment also reflects a desire by some lawmakers, who feel that digital assets more closely resemble commodities than securities, to have the CFTC more closely involved in their regulation.
(See SEC Chair Gensler, Sen. Toomey Spar on ‘Howey Test’ for Crypto in the September 16, 2021, edition of Accounting & Compliance Alert.)
The passage of the NDAA with the McHenry provision comes days after Rep. Brad Sherman, a California Democrat who chairs the House Financial Services Committee’s Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, spoke before the House Rules Committee to call the amendment “a bad idea, put on a bill it has nothing to do with.”
“You may ask, ‘well, what’s this doing in the NDAA?’” Sherman said. “It has nothing to do with defense, nothing to do with our international relations.”
He attacked the makeup of the proposed working group as “carefully crafted to be in control of the trillion-dollar cryptocurrency industry,” without any members dealing specifically with tax evasion, sanctions evasion, drug trafficking, human trafficking, or other financial enforcement issues.
The amendment, he said, is opposed by the SEC. The SEC has not publicly commented on its stance on the measure.
Under McHenry’s measure, the SEC and CFTC would appoint an equal number of their own employees to serve as members. And each agency would appoint an equal number of nongovernmental representatives, the total of which cannot be greater than or equal to the number of commission representatives.
Those nongovernmental members must include at least one representative from financial tech companies providing digital asset products or services; financial firms overseen by the SEC or CFTC; organizations doing research or advocacy on digital asset use; small fintech businesses; investor protection groups; and institutions and organizations that support investment in historically-underserved businesses.
In a September 21 letter to lawmakers supporting the McHenry amendment, the Chamber of Commerce called that private sector perspective critical, “especially individuals with hands-on experience with confronting regulatory ambiguities or challenges that are inhibiting innovation.”
This article originally appeared in the September 27, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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