Two important committees of the US House of Representatives held a join hearing on 10 May to discuss digital asset regulation, concluding with some potential next steps for both regulators and Congress to provide more clarity to the regulatory environment.
The US House Committees on Agriculture and Financial Services held a joint Subcommittee hearing titled "The Future of Digital Assets: Measuring the Regulatory Gaps in the Digital Asset Markets." The Agriculture Committee has oversight over the US Commodity Future Trading Commission, while the Financial Services Committee has oversight over the US Securities and Exchange Commission.
Republican leadership of both committees expressed a desire to develop and move forward with legislation providing regulatory clarity for digital asset markets. Specifically, House Financial Services Committee Chairman Patrick McHenry (R-N.C.) noted the need for potential improvements to the current SEC regime for digital assets disclosure, the expansion of CFTC spot market authority over non-security digital assets like bitcoin, and modification of SEC rules for broker-dealers and security exchanges related to digital assets. McHenry noted legislation would be required, as neither the SEC nor CFTC can take certain actions like these without Congressional approval.
House Agriculture Committee Chairman GT Thompson (R-Pa.) said the current process to determine whether a digital asset is a security or not is unclear, unworkable, and impractical. He also noted that the Committees have a historic opportunity to create a digital asset market framework that provides a pathway for developers and users to engage in digital assets in a safe and compliant manner.
Though a politically divided US Congress generally makes the passage of new legislation difficult, there were areas of bipartisan consensus in the joint hearing. Additionally, most witnesses and many legislators agreed that the digital assets marketplace in the US has been restricted by lingering uncertainty and would benefit from regulatory clarity.
The testimony that was perhaps most relevant for derivatives market participants came from Matthew Kulkin, the former Director CFTC's Division of Swap Dealer and Intermediary Oversight and a current partner at law firm Wilmer Hale. Kulkin said that the statutory definition of a "commodity" is intentionally broad, and that the CFTC has limited enforcement authority related to digital commodity spot market activity for fraud and manipulation. He urged Congress to expand the CFTC's authority in this space, and to make clear that the CFTC is the primary regulator of digital commodities while the SEC is the primary regulatory of digital securities.
Rep. Dusty Johnson (R-S.D.), Chairman of the House Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development, echoed that debates between the CFTC and SEC continue to complicate enforcement actions and create confusion in the industry. Johnson emphasized that Congressional action is ultimately essential to provide clear rules of the road.
"Congressional action is essential to provide clear rules of the road and robust oversight for digital asset market participants and intermediaries," Johnson said. The right policy solution involves both our committees directing the CFTC and SEC to each focus on what they do best.
Rep. Yadira Caraveo (D-Co.), Ranking Member of the House Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development, expressed support for cross-Committee coordination on digital asset policy and said any legislation that passes Congress must address the spot market regulatory gap, avenues to strengthen customer protections, and the need for sufficient resources and funding mechanisms to support these efforts at CFTC. Caraveo said "providing regulatory clarity to the digital asset industry must also support a robust enforcement regime and prioritize market participants."
Ranking Member Maxine Waters (D-Calif.), ranking member of the House Committee on Financial Services, acknowledged previous efforts to reach bipartisan consensus on digital asset regulation and said she hopes Congress "can quickly return to developing legislation together."