HFSC Ranking Member Waters Seeks Analysis from Treasury and SEC on Digital Asset Framework Proposal
Commentary by Steven Lofchie
House Financial Services Committee Ranking Member Maxine Waters (D-CA) requested analysis and recommendations from Treasury and the SEC on the Republican-proposed legislation that would establish a digital asset framework.
As previously covered, the House Financial Services Committee recently proposed legislation (the "Discussion Draft") that would establish a digital asset framework and provide for related joint rulemaking from the CFTC and the SEC. (See also, section by section summary provided by the House Financial Services Committee.)
The bill would provide that (i) digital commodity exchanges, digital commodity brokers and digital commodity dealers would be permitted to register with the CFTC and (ii) broker-dealers and alternative trading systems would be permitted to register with the SEC. Issuers of digital assets would be required to comply with a new disclosure regime based on the "nature of the risks" surrounding the digital assets. The Discussion Draft also provided an exemption from securities laws for digital assets issuers whose sales meet specific conditions. Further, the SEC and the CFTC would have the authority over transactions involving stablecoins with an SEC- or CFTC-registered entity, respectively. However, the Discussion Draft does not give the SEC or the CFTC authority over the "design, structure, or operation" of payment stablecoins.
Ranking Member Waters' letter to Secretary of the Treasury Janet Yellen requested written analysis and recommendations on the impact of the legislation on the Treasury Department's mission, government financial management, investor and consumer protections, existing market participants and practices, and its alignment with policy recommendations. The letter also sought guidance on the necessity of the legislation and potential alterations to existing laws for enhancing financial stability, oversight, and investor and consumer protection in the digital assets ecosystem.
The letter that Ranking Member Waters sent to SEC Chair Gary Gensler requested analysis and recommendations on the proposal, as well as an assessment of the draft legislation's impact on the existing authorities and mission of the SEC. She also sought an evaluation of the effects on existing market participants, practices, workload and resources. Additionally, the letter invites suggestions for recommendations or changes to existing laws outside the scope of the bill to enhance investor protection within the digital assets sector.
The two letters requested that the Treasury and the SEC be prepared to brief House Financial Services Committee members on their agencies' views and recommendations after submitting a written response by June 30, 2023.
Commentary
Given that the Biden Administration has been hostile to digital assets, it is a virtual certainty that Secretary Yellen and the Treasury Department will assert that there are material problems with the Discussion Draft, which was been sponsored by members of the Republican Party. SEC Chair Gensler will likely conclude that existing laws are adequate to the regulation of digital assets and that the Discussion Draft is not needed.