Rep. Patrick McHenry blames White House for lack of urgency on stablecoin bill negotiations

July 27, 2023 Coin Telegraph

Republican leadership has blamed the Biden administration for not having a "sense of urgency" on stablecoins, while the Democratic response suggested "impatience" by lawmakers.

United States House Financial Services Committee chair Patrick McHenry has pointed a finger at the Biden administration for the lack of bipartisan agreement on a stablecoin bill.

In a July 27 hearing, Rep. McHenry said the version of the Clarity for Payment Stablecoins Act, H.R. 4766, being considered for markup was not based on negotiations between himself and ranking member Maxine Waters. He added that though the committee was “closer than [they]’ve ever been” on a bipartisan solution, the White House did not “share that same sense of urgency” as lawmakers.

“A few small, but nonetheless important, provisions stood between us and a deal,” said Rep. McHenry. “It was the White House’s unwillingness to compromise that has once again brought that negotiation to a halt.”

The stablecoin bill was one of many pieces of crypto-related legislation in the House committee. On July 26, lawmakers moved two key bills through which were aimed at providing regulatory clarity to crypto firms: the Financial Innovation and Technology for the 21st Century Act and the Blockchain Regulatory Certainty Act.

Rep. Waters placed the blame for the lack of bipartisan agreement on the stablecoin bill on the “impatience of Republican leadership”, claiming the legislation was “a race to the bottom” with limited oversight over licensing and potential conflicts between approaches by U.S. state regulators and those at the federal level.

“Important legislation takes time,” said Rep. Waters. “The chair is impatient and has decidedly to abruptly end our negotiations and move forward with the bill that is deeply problematic [...] Under this framework, Amazon, Walmart, Facebook can create their own stablecoins or even be affiliated with a stablecoin issuer.”

“The Fed do not support the bill, Treasury does not support the bill, and we don’t have the support of those who asked us to get involved with a stablecoin bill to begin with.”

At the time of publication, it was unclear whether H.R. 4766 had the votes for passage through the committee. Lawmakers are also expected to discuss the Keep Your Coins Act introduced by Rep. Warren Davidson, a bill aimed at preventing U.S. government agencies from exercising certain authority over individuals’ self-custodied crypto wallets.

Magazine: Opinion: GOP crypto maxis almost as bad as Dems’ ‘anti-crypto army’

US lawmakers invoke FTX and spar on direction of crypto bills

July 26, 2023 Coin Telegraph

Coin Telegraph

On July 26, six pieces of legislation were being considered by the House Financial Services Committee including ones on regulatory clarity and consumer protection in the space.

Members of the United States House Financial Services Committee seem to be divided on the best legislative path forward dealing with regulatory clarity for crypto and blockchain technology.

In a July 26 markup hearing, the committee had several bills on its agenda including the Financial Innovation and Technology for the 21st Century Act, Blockchain Regulatory Certainty Act, and Financial Technology Protection Act of 2023 — all directly related to addressing the regulation of cryptocurrencies. Many lawmakers supported the first bill, claiming it would help address another failure like the collapse of the FTX exchange, while others criticized the measure as favoring crypto firms over consumers.

Committee chair Patrick McHenry said the Financial Innovation and Technology for the 21st Century Act would help clarify the authority the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission had over payment stablecoins. However, ranking member Maxine Waters and others claimed the bill would still allow for the commingling of customer funds — as allegedly happened between FTX and Alameda Research — and required the development of an “entirely new regulatory structure” rather than relying on existing securities laws.

Key changes include:

✅ Revisions to pre-registration oversight of intermediaries
✅ Fine-tuned registration requirements
✅ Clarifies SEC & CFTC authority for payment stablecoins
✅ Increased CFTC funding
— Financial Services GOP (@FinancialCmte) July 25, 2023

The debate concerning the bill was not entirely split along party lines. Democratic Representative Jim Himes acknowledged that the legislation could have prevented the collapse of FTX, but also expressed ignorance about certain aspects of the crypto space, including the recent ruling in the SEC v. Ripple lawsuit on XRP as a security. Massachusetts Representative Stephen Lynch referred to the bill as the “worst piece of legislation that has been presented for markup” in his roughly 20 years in government.

House Republicans said the bill would offer $120 million in funding to the CFTC to build up its resources addressing regulation of the crypto space, but some Democrats objected to how the funds would be redirected from the SEC, potentially limiting its capacity for enforcement. At the time of publication, lawmakers continued to debate the bills and proposed amendments, with a vote expected on July 26.

The bills are just a few of several proposed pieces of legislation aimed at addressing what may have called a regulatory gap in dealing with digital assets. The SEC has filed lawsuits against Coinbase, Binance, and others in addition to enforcement cases against executives at FTX and Celsius.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

Two more crypto bills in the US: Law Decoded, July 17–24

July 24, 2023 Coin Telegraph

CFTC

Last week was marked by two new legislative initiatives for the crypto industry in the United States.

Last week was marked by two new legislative initiatives for the crypto industry in the United States. Senator Jack Reed sponsored a bipartisan bill that would tighten Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations and sanctions requirements for decentralized finance (DeFi). The bill would subject DeFi operations to the same requirements as “other financial companies, including centralized crypto trading platforms, casinos, and even pawn shops.”

Two major crypto lobbying groups slammed the legislation: Coin Center and the Blockchain Association. The former released separate statements describing the legislation as a “messy,” “unworkable” and “unconstitutional” way of regulating DeFi. Kristin Smith, the CEO of the Blockchain Association, echoed Coin Center’s concerns and described the new legislation as redundant. Smith said federal law enforcement agencies already have the tools and expertise to combat this “relatively small but important issue.”

Republican House Agriculture and House Financial Services Committee members introduced the Financial Innovation and Technology for the 21st Century Act. The bill gives the Commodity Futures Trading Commission (CFTC) jurisdiction over digital commodities, clarifies the authority of the Securities and Exchange Commission (SEC), and creates a process for digital assets deemed initially securities to be sold as commodities. Representatives French Hill and Dusty Johnson, who are among the bill’s cosponsors, sent a letter to SEC Chair Gary Gensler a day before the bill’s introduction criticizing the agency’s so-called “regulation by enforcement” of the crypto industry.

Multiple spot crypto ETF applications go to Federal Register

Spot Bitcoin exchange-traded fund (ETF) applications from several firms have been published in the Federal Register, moving them one step along in the SEC process. The Federal Register received notices of proposed rule changes allowing Bitcoin ETF applications from BlackRock, Fidelity, Invesco Galaxy, VanEck and WisdomTree. Publishing the applications in the official journal of the U.S. government gives the SEC a window of opportunity to accept or reject the request, extend the time allowed or open the application for public comment.

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Kuwait bans crypto and virtual asset transactions

The state of Kuwait is the latest jurisdiction to ban virtually all operations involving cryptocurrencies like Bitcoin (BTC). Kuwait’s main financial regulator, the Capital Markets Authority (CMA), issued a circular on the supervision and issuance of virtual assets in the country. In the circular, the CMA confirmed the commitment to “absolute prohibition” on major use cases and operations involving cryptocurrencies, including payments, investments and mining. The circular also bans local regulators from issuing licenses allowing firms to provide virtual asset services as a commercial business.

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Marathon shareholders file lawsuit against company’s top management

U.S.-based crypto mining company Marathon Digital is heading to court after its shareholders alleged that its CEO Fred Thiel, alongside other top executives, breached fiduciary duties, unjustly enriched themselves and wasted corporate assets. According to the legal team, the company’s management has been downplaying its problems, artificially inflating Marathon’s valuation, receiving excessive compensation, making lucrative insider sales, and receiving unjustifiably elevated bonuses based on false and misleading statements.

The shareholders aim to correct the company’s governance by strengthening the board’s supervision of operations, nominating at least four candidates from shareholders to the board and eliminating the previous procedure of directors’ elections.

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US GAO says lack of interagency cooperation needs to be addressed in crypto regulation

July 24, 2023 Coin Telegraph

CFTC

In a report requested by Rep. Maxine Waters, the country’s top watchdog is carefully neutral but dissatisfied with agencies’ abilities to work together.

The United States Government Accountability Office (GAO), a Congressional watchdog agency, has released a report it completed in June on the regulatory framework for the use of blockchain in finance.

The 77-page report was requested by Reps. Maxine Waters and Stephen Lynch before the midterm elections, when they were the chair and ranking member, respectively, of the House of Representatives Financial Services Committee. The report unsurprisingly found that more regulation is needed. The agency has a framework for evaluating regulatory reform proposals developed in 2009.

The report pointed to crypto asset trading platforms and stablecoins as products that lack regulation, but it examined regulators’ policies and activities without straying into “turf war” controversies related to defining securities. Thus, it identified the spot markets for nonsecurity crypto assets as the center of a regulatory gap and stated:

“By designating a federal regulator to provide comprehensive federal oversight of spot markets for nonsecurity crypto assets, Congress could mitigate financial stability risks and better ensure that users of the platforms receive protections.”

Traditional assets in that category enjoy robust regulation, the report noted. Crypto assets are subject to limited oversight, such as from the Treasury’s Financial Crimes Enforcement Network and through state money transmitter licensing.

Stablecoins need regulation regarding the composition of their reserves, auditing and disclosures, and redemption rights. The report said current regulation is a hodgepodge of measures by the Securities and Exchange Commission, Commodity Futures Trading Commission and states that does not amount to “consistent and comprehensive prudential regulation and oversight.”

Decentralized finance is capable of being regulated in inverse relationship to the level of its decentralization, the GAO said. When an ecosystem is fully decentralized, there is no individual who can be identified as responsible for developing, operating or governing it. It may also span multiple regulatory jurisdictions in its operations.

Blockchain technology—like #cryptocurrency—could offer faster, cheaper financial transactions. But recent price crashes & bankruptcies have raised concerns about gaps in federal regulations that could put consumers at risk. Our new report & video explore: https://t.co/1vyIgZVaYi pic.twitter.com/nxHrk1g5dQ
— U.S. GAO (@USGAO) July 24, 2023

Moving closer to turf war issues, the report identified a need for greater coordination between regulators and noted complaints from market participants about the slow response of regulators to innovations in the market. The report noted that the Treasury’s Financial Stability Oversight Council was tasked with leading an effort to create a unified approach to crypto asset oversight by the March 2022 Executive Order on Ensuring Responsible Development of Digital Assets.

The report recommended that the seven pertinent regulatory agencies “jointly establish or adapt an existing formal coordination mechanism […] for collectively identifying risks posed by blockchain-related products and services and formulating a timely regulatory response.” Furthermore:

“This mechanism could include formal planning documents that establish the frequency of meetings and processes for identifying risks and responding to them within agreed-upon time frames.”

The National Credit Union Administration expressed agreement with that finding, while the others did not agree or disagree. The GAO is the country’s highest auditor. While its recommendations are not legally binding, the century-old agency’s findings carry considerable moral weight.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

Congressman Warren Davidson calls to ban and criminalize CBDCs

July 24, 2023 Coin Telegraph

CBDC

“Money should not be programmable by a central authority,” argues Republican Representative Warren Davidson.

United States Republican Representative Warren Davidson has spoken out against Central Bank Digital Currencies (CBDCs), urging Congress to ban them and criminalize its development.

In a July 23 Twitter post, Congressman Davidson accused the Federal Reserve of “building the financial equivalent of the Death Star," stating that CBDCs corrupts money into a tool for coercion and control, adding:

“Congress must swiftly ban then criminalize any effort to design, build, develop, test or establish a CBDC.”

Davidson’s comments came in response to a position advertised by San Francisco’s Federal Reserve Bank for a “senior crypto architect” to work on a CBDC project.

The Federal Reserve is building the financial equivalent of the Death Star.

Central Bank Digital Currency (CBDC) corrupts money into a tool for coercion & control.

Congress must swiftly ban then criminalize any effort to design, build, develop, test or establish a #CBDC. pic.twitter.com/9JWiyj5H2f
— Warren Davidson (@WarrenDavidson) July 23, 2023

Responding to a comment from a Twitter user, Davidson argued that money should be a stable store of value, and should not be programmable by a central authority.

“Sound money should facilitate permission-less peer-to-peer transactions,” he added.

The Federal Reserve has been actively researching the technology for a potential digital dollar but has not made any decisions on whether to issue one. The possibility of a digital version of the U.S. dollar has stirred controversy in the country and is expected to be a key talking point in the upcoming presidential election.

Congressman Davidson is also not alone in his concern over a potential Fed-controlled digital dollar.

On July 14, U.S. presidential candidate and Florida Governor Ron DeSantis said he would “nix any central bank digital currency” if he became president. In May, DeSantis signed a bill restricting the use of CBDCs in the state.

Republican Tom Emmer has also been vocal in his warnings over state-controlled digital money. In March, the libertarian think tank said a programmable CBDC would be “easily weaponized” as a spying tool to “choke out politically unpopular activity.”

Emmer introduced the CBDC Anti-Surveillance State Act in February to “halt efforts of unelected bureaucrats in Washington, DC from stripping Americans of their right to financial privacy.” The bill was endorsed by Texas Senator Ted Cruz who introduced his own CBDC blocking bill in March.

Magazine: Crypto regulation — Does SEC Chair Gary Gensler have the final say?

US House Republican committees introduce joint digital assets bill

July 20, 2023 Coin Telegraph

CFTC

The House Agriculture and Financial Services Committees have been working together all year on a bill to rival Lummis and Gillibrand’s RFIA.

A bill to create a regulatory framework for digital assets has been introduced by Republican members of the Agriculture and Financial Services Committees of the United States House, the result of several months of joint effort by the two committees.

The 212-page bill — called the Financial Innovation and Technology for the 21st Century Act — was introduced on July 20. According to an accompanying explainer, it's intended to address regulatory gaps by creating a framework for the "specific risks of different digital asset-related activities.”

The bill gives the Commodity Futures Trading Commission (CFTC) jurisdiction over digital commodities, clarifies the jurisdiction of the Securities and Exchange Commission (SEC) and creates a process for digital assets originally deemed securities to be sold as commodities.

The bill also sets conditions for a digital asset to be considered a commodity, with decentralization being the main requirement. Digital asset commodities could be sold on SEC-registered digital asset trading systems. Market participants are subject to new and more comprehensive disclosure requirements and could have registration with both agencies.

Introducing the Financial Innovation and Technology for the 21st Century Act. This bill establishes a regulatory framework for digital assets, protects consumers, fosters innovation, and positions America as a leader in finance and technology. #crypto https://t.co/0ihzY3MP0k
— House Committee on Agriculture (@HouseAgGOP) July 20, 2023

The agencies would also be required to work with foreign regulators to create consistent regulatory standards. The Government Accountability Office would be required to complete a study on nonfungible tokens (NFTs) and how they fit into traditional marketplaces.

Reps. French Hill and Dusty Johnson, who are among the cosponsors of the bill, sent a letter to SEC chair Gary Gensler a day before the introduction of the bill criticizing the agency’s so-called "regulation by enforcement" of the crypto industry.

SEC policy was also highlighted in the bill’s introductory materials. One of the documents stated:

“The SEC’s existing regulatory regime is not designed to accommodate the registration and regulation of digital assets. The SEC has failed to provide the clarity these entities need to operate.”

The other cosponsors of the bill were Glenn Thompson, Tom Emmer and Warren Davidson. The two House committees began working together on a digital assets bill earlier this year and held more than one joint meeting in preparation for it.

Last week, Sens. Cynthia Lummis and Kirsten Gillibrand introduced a new version of their bipartisan Responsible Financial Innovation Act (RFIA), which this bill will compete with.

Magazine: Opinion: GOP crypto maxis almost as bad as Dems’ ‘anti-crypto army’

SEC Fishing for Publicity and Political Impact With Crypto Agenda, Republican Representatives Say

July 19, 2023 The Daily Hodl

Bipartisan bill to regulate DeFi, crypto security risks introduced into US Senate

July 19, 2023 Coin Telegraph

ATM

The bill was introduced in the evening and has not been published yet, but it is already causing a stir. Crypto Twitter calls it a “nonstarter.”

United States Sen. Jack Reed sponsored a bipartisan bill introduced into the Senate on July 18 that would tighten Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations and sanctions requirements for decentralized finance (DeFi). According to a news release on Reed’s website, the bill is titled the Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act.

The bill would subject DeFi operations to the same requirements as “other financial companies, including centralized crypto trading platforms, casinos, and even pawn shops.” The bill would make “anyone who controls that project” liable for the use of the DeFi service by sanctioned persons. Furthermore:

“If nobody controls a DeFi service, then — as a backstop — anyone who invests more than $25 million in developing the project will be responsible for these obligations.”

The bill would also “modernize” Treasury Department AML powers by extending them beyond the traditional financial system. According to the statement:

“As new technologies like cryptocurrency increasingly enable new ways to conduct financial transactions, it is critical to extend Treasury’s authority to crack down on illicit financial activity that may occur outside the banking sector.”

The bill also set new requirements for operators of crypto kiosks (or ATMs) to prevent their use in money laundering. Kiosk operators would be required to verify the identities of both counterparties in a transaction.

The bill has not been published at the time of writing. A member of Reed’s staff contacted by Cointelegraph could not say when the bill would be published. A text purporting to be the draft bill has been posted on GitHub.

Case in point:

The definition of "control" is so broadly worded that it's meaningless. No thresholds, no specifics, just "control," as determined by the Secretary of the Treasury. Completely and utterly unworkable.https://t.co/rVk26MJwfA
— Meat (,) (@MeatEsq) July 19, 2023

Crypto Twitter has wasted no time in condemning the bill. One commenter called it “an existential threat to DeFi” and a “nonstarter.” Another said that “imposing control responsibility for a $25mm investment is going to chill VC investment into DeFi b/c passive tokenholding does NOT equal control.”

Sens. Mike Rounds, Mark Warner and Mitt Romney are cosponsors of the bill. Reed and Warner were cosponsors of a bill introduced by Sen. Elizabeth Warren — the Digital Asset Sanctions Compliance Enhancement Act — in March 2022.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

US Representative Torres demands investigation of SEC deal with Prometheum

July 14, 2023 Coin Telegraph

Coin Telegraph

The United States Securities and Exchange Commission might be investigated for a “haphazard and heavy-handed approach to digital assets.”

The United States Securities Exchange Commission (SEC) could be investigated for a "haphazard and heavy-handed approach to digital assets,” or, more specifically, for its “sweetheart deal” with crypto platform Prometheum.

Such requests were filed on July 13 to the SEC's Inspector General Deborah Jeffrey and the Government Accountability Office's Comptroller General Gene Dodaro by Congressman Ritchie Torres. In the letters, published by the congressman on his Twitter, he writes:

“The SEC refuses to bring even the barest amount of clarity to the application of securities law to digital assets. Its preferred means of communicating is neither rule nor guidance but enforcement”.

Torres emphasizes the SEC’s May decision to grant a special broker purpose dealer (SPBD) license to Prometheum, a digital assets platform, created in 2017 by two American financial attorneys. According to Torres, “Prometheum appears to be nothing more than a Potemkin platform, operating as a timely talking point for crypto critics rather than a true trading platform for crypto customers.”

He calls for an examination of both the SEC’s failure to create “a workable process for registering” digital assets platforms and “the unusual backdoor deal” for Prometheum.

Prometheum recently became a public enemy for the crypto industry and Torres’ demand for investigation is not the first one. The company was thrust into the spotlight after a Congress testimony of its co-founder, Aaron Kaplan in June. The problem seems to be Kaplan’s general support of the SEC’s regulatory strategy under current securities laws.

Immediately after the hearing, theories about Prometheum started swirling on Twitter, emphasizing its possible ties to Chinese investors. On June 15, Blockchain Association filed a request with the SEC, seeking information about the company. In July, Six Republican Congressmen called on SEC to investigate Prometheum’s “ties to the Chinese Communist Party.”

Collect this article as an NFT to preserve this moment in history and show your support for independent journalism in the crypto space.

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US lawmakers allege CCP connection in calling for SEC, DOJ investigation of Prometheum

July 10, 2023 Coin Telegraph

China

Republican members of Congress stepped up their allegations of Prometheum’s ties to the Chinese Community Party, claiming potentially false or misleading statements to the SEC.

Six members of the United States Congress have called on the U.S. Securities and Exchange Commission (SEC) and Department of Justice to investigate Prometheum, claiming the firm has ties to the Chinese Communist Party.

In a July 10 letter, Alabama Sen. Tommy Tuberville and five members of the House of Representatives alleged Prometheum co-CEO Aaron Kaplan may have provided false testimony at a June 13 hearing on regulatory clarity in the crypto space. The U.S. lawmakers claimed Prometheum was connected to investors with “with ties" to the Chinese Community Party: Shanghai Wanxiang Blockchain and HashKey Digital Asset Group.

According to Tuberville and the Representatives, Kaplan’s testimony before Congress suggested Prometheum had been developed independently of Wanxiang and HashKey, allegedly contradicting information the firm had provided in SEC filings. The lawmakers called on SEC Chair Gary Gensler and Attorney General Merrick Garland to look into the matter.

.@SenTuberville op-ed: It’s past time for the DOJ and the SEC to investigate Prometheum’s ties to Chinahttps://t.co/57yMDtMt7V
— 1819 News (@1819News) July 10, 2023

Many lawmakers within the Republican party — which includes the six members who signed onto the July 10 letter — have often invoked concerns about affiliations with China-based entities or the country’s government in considering regulation or laws on digital assets. Former Sen. Pat Toomey and Minnesota Rep. Tom Emmer both issued warnings on using China’s digital yuan at the Beijing 2022 Winter Olympics.

Cointelegraph reached out to Aaron Kaplan for comment but did not receive a response at the time of publication. However, a June 23 Wall Street Journal op-ed by Aaron Kaplan and co-CEO Benjamin Kaplan claimed Tuberville’s concerns on Prometheum’s alleged ties to China were “without merit” and relied on “out-of-date information.”

“We formally terminated all co-development work and strategic relationships with Wanxiang and its affiliates on Oct. 21, 2021,” said the co-CEOs. “Prometheum has severed all intellectual property and technology ties to Wanxiang, giving it and its affiliates no access to any information that could expose the U.S. or its citizens to risk.”

The Prometheum co-CEO said the firm left the U.S.-based crypto advocacy group Chamber of Digital Commerce in early 2023.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

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Multiple spot crypto ETF applications go to Federal Register

Kuwait bans crypto and virtual asset transactions

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