Sen. Pat Toomey, the ranking member of the Senate Banking Committee, on August 26, 2021, put out a call for ideas on legislative reforms around cryptocurrencies and their underlying blockchain technology. The panel will be taking proposals through September 27, according to the Pennsylvania Republican.
Toomey will use the input “in forming legislation that clarifies ambiguity around how existing laws, especially in the tax and securities realms, may apply to cryptocurrencies,” according to a news release.
“Rather than trying to ignore or suppress cryptocurrency and related technologies, regulators and legislators alike need to recognize that open, public networks are here to stay,” Toomey said in a statement. “Our laws and regulations must adapt to these developments.”
Among other topics, the lawmaker wants to see proposals that address the securities implications of cryptocurrencies; crypto exchanges; custody regulation; and “removing existing regulatory ambiguities related to cryptocurrency.”
The move is the latest sign of Republican dissatisfaction with the direction the SEC is taking on crypto, where enforcement has largely come before rulemaking.
SEC Chair Gary Gensler earlier this month asserted the commission’s authority to regulate assets traded on crypto exchanges if they qualify as securities, writing in a letter to Sen. Elizabeth Warren that he believes “investors using these platforms are not adequately protected.” (See SEC Chair Gensler Asks Congress for Power to Regulate Cypto Trading, Decentralized Finance in the August 13, 2021, edition of Accounting & Compliance Alert.)
A typical trading platform has more than 50 tokens, with many offering twice that amount, he wrote.
“While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50 or 100 tokens, any given platform has zero securities,” Gensler wrote. “I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight.”
The SEC’s ability to bring enforcement actions in the crypto market largely hinges on its ability to tie the assets to the definition of a security. To determine whether an asset represents a security, the SEC applies the “Howey test” established in the 1946 Supreme Court ruling in SEC v. W.J. Howey Co. Under that test, a security must involve an investment of money in a common enterprise, with an expectation of profit from the efforts of a third party.
“Certain rules related to crypto assets are well-settled,” Gensler wrote. “The test to determine whether a crypto asset is a security is clear. The SEC has taken and will continue to take our authorities as far as they go.”
The letter led Toomey’s House counterpart, Rep. Patrick McHenry of North Carolina, to issue a statement accusing Gensler of a “blatant power grab.” McHenry is the ranking Republican on the House Financial Services Committee.
Recent years have seen a flood of legislation, some of it bipartisan, that seeks push financial regulatory agencies toward a clearer regulatory regime for crypto assets. Most recently, Rep. Darren Soto, a Florida Democrat, introduced two bills that would require the CFTC to study different aspects of the crpyto market, emphasizing the commodities regulator’s role over that of the SEC. (See Bipartisan House Bills Would Require CFTC to Conduct Virtual Currency Studies in the August 27, 2021, edition of ACA.)
Proposals can be sent to the Senate Banking Committee at submissions@banking.senate.gov.
This article originally appeared in the August 30, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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