Congress may soon try to clarify digital asset regulation in the U.S.
Reps. Patrick McHenry (R-N.C.) and Stephen Lynch (D-Mass.) introduced legislation Tuesday to create a working group composed of industry experts and representatives from the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to evaluate the current legal and regulatory framework around digital assets in the U.S.
The three other co-sponsors of the bill are Glenn Thompson (R-Pa.), Ted Budd (R-N.C.) and Warren Davidson (R-Ohio).
The ultimate goal of the legislation, called the "Eliminate Barriers to Innovation Act of 2021," would be to clarify when the SEC has jurisdiction over a particular token or cryptocurrency (i.e., when it is a security) and when the CFTC has jurisdiction (i.e., when it’s a commodity).
U.S. regulations can often appear lacking, with no clear rules on when a certain cryptocurrency is treated as a security or not, with SEC enforcement actions providing much of the guidance in this area. SEC Commissioner Hester Peirce, who is outspoken on the issue, tried tackling it in 2020 by proposing a three-year safe harbor for projects to get off the ground.
Under the terms of the bill, Congress would create a working group within 90 days of the bill’s passage composed of SEC and CFTC representatives.
Non-governmental representatives would come from a financial technology company, a financial services institution, small businesses using financial technology, investor protection groups, organizations that support investments in underserved businesses and at least one academic researcher.
Within a year, this group would be required to file a report analyzing current regulations, the impact they have on primary and secondary markets and how the regime impacts the U.S.’ competitive position.
The report would also look at how custody, private key management and cybersecurity are currently treated under law, and what future best practices for fraud prevention, investor protection and other issues could look like.
The report would also include recommendations for improving primary and secondary digital asset markets, including their “fairness, orderliness, integrity, efficiency, transparency, availability and efficacy.”
Amy Davine Kim, chief policy officer at the Chamber of Digital Commerce, told CoinDesk the legislation aims to establish an organized, comprehensive regulatory framework for digital assets in the U.S.
“It brings together both the SEC and CFTC in a formal way, to work through some of the key issues that have impacted legal clarity in the space for years,” Kim said. “Now we have an opportunity to start addressing them in a methodical way with a number of stakeholders.”
The bill was originally supposed to be introduced Monday and considered under a voice vote by the full House of Representatives, indicating broad bipartisan support, according to Rep. Don Beyer (D-Va.), but was pulled due to procedural actions taken by the Freedom Caucus.