Republican lawmakers distinguish crypto commodities and securities in draft bill

Republican House members published a draft bill on June 2 that aims to set out clear roles for regulators in the crypto industry.

SEC’s abilities

The draft bill specifically aims to separate the regulation of cryptocurrencies as securities from the regulation of cryptocurrencies as commodities.

The proposed rules would prevent the U.S. Securities and Exchange Commission (SEC) from treating payment stablecoins and digital commodities as securities.

The rules would stop the SEC from denying exemptions to certain trading platforms simply because they offer digital assets. “Ancillary activities” such as wallet provision, software publishing, and node operation would be exempt from SEC regulation.

The SEC would additionally be required to change and modernize rules for customer protection, record-keeping, and digital assets in general.

The rules would nevertheless give the SEC anti-fraud authority over some transactions involving crypto commodities. Parties that register with the SEC but offer cash and spot markets would be required to register with both the CFTC and SEC.

CFTC authority

Conversely, the proposed rules would give the Commodity Futures Trading Commission (CFTC) new authority over digital commodity cash and spot markets.

The CFTC would gain authority over transactions involving payment stablecoins and digital commodities on platforms that register with it. However, the CFTC would gain no control over the design and operation of those stablecoins.

The bill sets out requirements for digital commodity exchanges that register with the CFTC, as well as a process by which services can determine what assets are eligible for trading on registered platforms. It also allows the CFTC to set requirements for digital asset custodians but does not let the CFTC directly regulate those custodians.

The proposal would also establish a joint advisory between the CFTC and SEC, establish other regulatory groups, and carry out initiatives and studies.

Crypto innovation

Rep. Patrick McHenry, who advanced the bill, said the draft is a “step toward … clear rules of the road.” He added that the bill aims to find a balance between “consumer protection and encouraging responsible innovation.”

The bill represents a joint effort between the House Financial Services Committee, which is chaired by McHenry himself, and the House Agriculture Committee, which is chaired by Rep. Glenn Thompson. Reps. French Hill and Dusty Johnson also support the bill.

The bill is relevant to several regulatory debates that have taken place in recent months, including the expansion of exchange rules to non-exchange services, changing custodianship requirements, and the CFTC and SEC’s differing regulatory roles.

The bill is in an early stage and has not received feedback from Democrat lawmakers.