Key Democrats back Gensler crackdown, tell crypto companies they’re ‘abiding by the law of the land’

by Arthur · April 27, 2023

By Chris Matthews

A path remains open in the House for bipartisan legislation

Leading Democrats in the House of Representatives on Thursday cast a critical eye on efforts by Republicans and the crypto industry to create a tailored regulatory framework for the market structure of digital assets, although there are still enough friendly Democrats to keep hopes of bipartisan legislation alive.

“We don’t need to create a whole new and special framework for crypto. We already have one,” the rep said. Maxine Waters of California, the top Democrat on the House Financial Services Committee, during a hearing. “Crypto firms, like other tech companies before them, must realize that they are not exceptional. They must comply with the laws of the land.”

Waters also pointed to a hearing last week with Securities and Exchange Commission Chairman Gary Gensler, when the regulator told representatives he had the authority needed to bring crypto companies into compliance with securities laws.

Noting that the SEC has yet to lose an enforcement case against a crypto company in the federal judiciary, Waters said “the SEC’s success in the courts proves his point.”

Read more: SEC’s Gensler slams digital asset industry for ‘ignoring the law’ as crypto crackdown continues

Rep. Stephen Lynch, the ranking Democrat on the Financial Services Subcommittee that oversees digital assets, pushed back on arguments that the SEC has not provided sufficient clarity on the issue of how existing laws apply to cryptocurrencies, noting that the agency first started warning about the dangers. of investing in digital assets ten years ago.

Lynch also provided an example of SEC enforcement actions, arguing that “each of these cases went through a legal process, culminating in each case in a written regulatory decision and many had administrative decisions written on appeal that … provide clarity and set up rules of the road that should guide other crypto firms.”

See also: ‘Crypto is dead in America.’ How FTX’s collapse led to a Biden crackdown on the digital asset sector

Republicans, meanwhile, presented a united front in support of new market structure rules that would set up a new test that determines which cryptocurrencies are securities, and therefore must follow existing SEC rules, and which commodities must be overseen by the Commodity Futures Trading Commission. with regulatory authorities and a tailored disclosure framework for digital assets.

“This ecosystem has been denied legal clarity for too long, and both market participants and consumers are worse off because of it,” said Financial Services Chairman Patrick McHenry, a North Carolina Republican.

“We have a market that lacks clarity and we have a duty to create a regulatory environment that allows responsible innovation and responsible consumer protection to sit side by side with appropriate legal clarity,” he added.

McHenry pointed to recent legislation from the European Union and the United Kingdom, which have set up separate regulatory frameworks for crypto, and argued that these steps put the United States at risk of losing innovative companies to foreign competitors.

The GOP is not without allies among some Democrats with less seniority on the powerful Financial Services panel, including Rep. Ritchie Torres of New York.

“If the US continues to operate crypto offshore, there will be more companies in the offshore, deregulated form of FTX,” Torres said, referring to the defunct crypto exchange that failed spectacularly last fall. “It seems to me that it would be in the interest of consumer and investor protection to bring crypto into a workable but strict regulatory regime.”

Rep. Wiley Nickel, a freshman Democrat from North Carolina, echoed those views.

“I am concerned that if trading venues were to leave the US markets, that any American who wants to trade digital assets will find themselves having to have an offshore exchange for us,” he said. “As we learned with the failure of Bahamas-based FTX and others, foreign firms are not always well regulated.”

Chairman McHenry hopes to release a bill proposing a new framework for federal oversight of digital assets as soon as next month, according to an interview last week in The Block.

The bill will interest some members of the Senate, including Democratic Sen. Kirsten Gillibrand of New York and Republican Sen. Cynthia Lummis of Wyoming, who introduced a bill with similar goals last summer.

Still, passage will be an uphill battle, given Democratic control of the Senate and a Senate Banking Committee led by crypto-skeptic Sen. Sherrod Brown of Ohio, a Democrat.

The Biden administration has also become more aggressive in its oversight of the cryptocurrency industry, with the White House and Treasury Department separately releasing reports in recent weeks raising concerns about the threats crypto poses to the government’s efforts to stop money laundering and the financing of illegal activities, including drug trafficking and terrorism.

Major cryptocurrencies bitcoin and ether were both on the rise Thursday, and both are up more than 60% year-to-date.

-Chris Matthews

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04-27-23 1832ET