Category: Hearings

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Politics And Digital Assets Mingle At SEC Enforcement Hearing; Casten Intros Mixer Bill

Rep. Ann Wagner

At the beginning of today’s House Financial Services (HFS) Capital Markets Subcommittee hearing chaired by Ann Wagner (R, MO), the Securities and Exchange Commission’s (SEC) enforcement strategy – particularly around crypto – appeared to be in focus.

quick tips:

    • When the hearing concluded, it was clear that Republicans tried to keep the hearing positioned around the wider abuse of power it sees at the SEC.
    • Meanwhile, Democrats focused mostly on digital assets (some climate change issues), its support for aggressive enforcement and the need to protect consumers in the space.
    • At one point late in the Q&A section, Rep. Bryan Steil (R, WI) observed, “I feel like some of my colleagues might feel like we’re in the financial digital assets subcommittee, not the capital markets subcommittee.
    • Also, Rep. Sean Casten (D, IL) tipped his hand on new crypto mixer legislation he’ll be rolling out later this week.
    • Ultimately, whether you were Republican or Democrat, “digital assets” was the elephant in the hearing room.

See hearing page with testimony and video.

opening

Wagner and the subcommittee’s Ranking Member Rep. Brad Sherman (D, CA) presented their predictable views  – Wagner criticizing the SEC’s enforcment strategy, Sherman defending it.

Initially, it appeared the common thread for the Subcommittee hearing would be on digital assets.

witnesses

Next, the witnesses presented (click name for prepared testimony):

Paul Eckert, Professor, College of William & Mary Law School

Eckert was critical of the slow process of SEC enforcement actions which he suggested should be concluded within two years. Today, only 50% of SEC actions achieve such a goal, he said.

Nick Morgan, Founder, Investor Choice Advocates Network

Morgan was highly critical of “regulation by enforcement” and provided anecdotes of what he saw as an abuse of power by the SEC that ultimately harms victims.

Andrew Vollmer, Scholar at the Mercatus Center, former SEC Deputy General Counsel

Vollmer saw some commendable elements of the SEC enforcement strategy, but was critical of three areas in need of reform:  the civil monetary penalty amounts, the new “disgorgement” strategy for the courts and Administrative procedures which are “biased against the defendant.”

John Reed Stark, President, John Reed Stark Consulting

Reed Stark declared “regulation by enforcement” was false and was not the strategy of the SEC- he believed they were “enforcing the  law.” Reed Stark saw an industry that was attacking the regulator and his presentation was the only one solely focused on digital assets and defending the SEC.

Next, Ranking Member Maxine Waters (D, CA) spoke briefly and echoed themes from her statement the night before at the House Joint Resolution 109 hearing in front of the House Rules Committee. She was entirely supportive of the SEC’s enforcement strategy. Continue reading “Politics And Digital Assets Mingle At SEC Enforcement Hearing; Casten Intros Mixer Bill”

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Senate Banking Hearing On Illicit Finance Includes Stablecoin Focus

Deputy Treasury Secretary Wally Adeyemo

With the “script” written in the previous 24 hours by prepared testimony, a Congressional letter and a draft of new anti-money laundering (AML) legislation for crypto, the Senate Banking Committee hearing titled, “An Update from the Treasury Department: Countering Illicit Finance, Terrorism and Sanctions Evasion,” with Deputy Treasury Secretary Wally Adeyemo and chaired by Senator Sherrod Brown (D, OH) got underway at 10 a.m. today.

See:

    • The on-demand hearing broadcast here
    • Deputy Secretary Wally Adeyemo’s prepared testimony. Download.
    • Senators Thom Tillis (R, NC) and Bill Hagerty’s (R, TN) crypto illicit finance draft. Press release.
    • Monday’s Congressional letter from Senator Elizabeth Warren (D, MA) to House Financial Services Committee leaders regarding the stablecoin bill. Via Politico.

Takeaways from the hearing:

    1. This was a brisk 90-minute hearing.
    2. Not every member of Senate Banking chose to participate such as Sen. Jack Reed (D, RI) of CANSEE, Sen. Cynthia Lummis (D, WY) or Sen. Bill Hagerty (R, TN).
    3. Chair Brown did not given any inkling about whether he had his own bill addressing digital assets and illicit finance.
    4. Ranking Member Tim Scott (R, SC) gave an impassioned defense of digital assets saying that they had become a “scapegoat” of the Biden Administration especially given how traditional finance methods were far larger than crypto when it came to illicit finance.
    5. Democrats were fairly united behind Democratic leadership positioning that crypto assets need to be addressed more aggressively by Treasury.
    6. Deputy Secretary Adeyemo seemed to suggest that more “tools” for Treasury as it related to crypto assets was about taking preventative measures even though he admitted a larger illicit finance problem currently exists through traditional finance means.
    7. The tools were initially shared in a term sheet last November and were re-emphasized – at a high-level – in Adeyemo’s prepared testimony beginning with sanctions of “foreign digital asset providers.”
    8. During her Q&A time, Senator Warren chose to emphasize the House stablecoin bill versus her own anti-money laundering bill.  Her criticism of the House stablecoin effort makes sense in that it’s potential passage is more imminent than any crypto AML bill currently percolating across Congress. The stablecoin bill is seen as a potential threat to Dem leadership’s views about keeping crypto out of the U.S. financial system.
    9. At the hearing, the only Senate AML legislation focused on crypto that was discussed in any depth was by Sen. Tillis and his new bill – available as a discussion draft – co-sponsored by Sen. Hagerty.
    10. Coming out of this hearing, the next step perhaps lies with Treasury and its rulemaking capabilities. Treasury (and the Biden Administration) has “checked the box” and asked Congress for “tools” to address a crypto asset anti-money laundering threat. Now, it may do what it can with its own rulemaking which is outside of a Congress bogged down by a general election and politics.
    11. Nevertheless, Politico’s Eleanor Mueller reported on X that after the hearing, Chair Brown “says he is ‘hopeful’ he can introduce a bill soon that would give Treasury officials the new powers they asked for to prosecute illicit finance in crypto.”

Continue reading “Senate Banking Hearing On Illicit Finance Includes Stablecoin Focus”

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Illicit Finance Gets Another Hearing From HFS Digital Assets Subcommittee

illicit finance

Following up on a hearing from last November, the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion held yesterday, “Crypto Crime in Context Part II: Examining Approaches to Combat Illicit Activity.” See the on-demand webcast.

Led by Chair French Hill (R, AR) and Ranking Member Steven Lynch (D, MA), industry witnesses included the following (click name for prepared testimony):

Of note, Ms. House was the behind-the-scenes creator of President Joseph Biden‘s Digital Assets Executive Order released in March 2022.

The Subcommittee also previewed a slew of new legislation – see it on the hearing page – including a study requiring Treasury, SEC and CFTC to look at decentralize finance (DeFi).

(Will HFS Chair Patrick McHenry (R, NC) hold another HFS markup soon?)

In his opening remarks, Chair Hill noted that crypto was not a primary source of financing for terrorists – traditioinal finance was the culprit. Hill referenced Treasury Undersecretary Brian Nelson’s testimony on the previous day in front of the HFS full committee. But, Hill admitted any use of crypto in illicit finance is too much and pointed to the digital asset market structure bill as a solution.

The bill awaits a House floor vote after passing through a markup last July.

Ranking Member Lynch spoke next and said that digital assets were “vulnerable” to illicit finance. Overall in his opening statement, Lynch’s tone was more muted on digital assets than past hearings by a key member of Democratic leadership on HFS. He said that he favored promoting responsible innovation. Continue reading “Illicit Finance Gets Another Hearing From HFS Digital Assets Subcommittee”

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Senate Banking FSOC Hearing Sees Some Crypto Discussion

Senate Banking

The Senate Banking Committee hearing titled, “The Financial Stability Oversight Council Annual Report to Congress,” took place with U.S. Treasury Secretary Janet Yellen taking questions from members on behalf of FSOC, which she leads.

See the recorded video.

Secretary Yellen’s prepared opening testimony included remarks on digital assets asking for Congress to act on creating a regulatory framework, which largely reflected her digital assets testimony at the House Financial Services FSOC hearing earlier in the week.

“… the Council is focused on digital assets and related risks such as from runs on crypto-asset platforms and stablecoins, potential vulnerabilities from crypto-asset price volatility, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations. Applicable rules and regulations should be enforced, and Congress should pass legislation to provide for the regulation of stablecoins and of the spot market for crypto-assets that are not securities. We look forward to continuing to engage with Congress on this.”

Chair Sherrod Brown (D, OH) guided the day’s agenda on behalf of the Majority Democrats. Ranking Member Tim Scott (R, SC), a possible candidate for Vice President on former President Donald Trump’s 2024 ticket, led the Minority Republicans. Continue reading “Senate Banking FSOC Hearing Sees Some Crypto Discussion”

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Digital Asset Highlights At HFS Hearing With Treasury Secretary Yellen

FSOC

Today’s House Financial Services hearing, “The Annual Report of the Financial Stability Oversight Council (FSOC)” brought Treasury Secretary Janet Yellen (D) to Capitol Hill for a rare chance to hear directly from the Secretary on what may threaten the United States financial system.

Committee members spoke to issues important to their purview – including digital assets – during questioning of the Secretary. Republican members generally believe that FSOC has become a roving regulator unto itself.

Currently, FSOC is comprised of all the U.S. financial system regulators and fulfills the requirements of “Dodd-Frank,” a law which came out of the Great Financial Crisis and meant to ensure that the seeds of the 2008-2009 crisis would never happen again.

    • Get the 2023 FSOC annual report here.
    • Hearing page with prepared testimony and recording of the webcast is here.

digital asset highlights

Though the hearing was broad in its FSOC scope –  covering everything from artifical intelligence and its impact on the financial system to climate change to Basel III endgame – digital assets was a featured talking point.

There were no real “digital asset” surprises as Secretary Yellen reiterated the need for the “federal floor” for stablecoin legislation – meaning the Federal Reserve must have the last word on the issuance of any dollar-backed stablecoin and with no parallel state rights.

Also, overall, Yellen expressed a need for regulation of digital asset markets – though it wasn’t clear that she supported House Financial Services’ and House Agriculture’s digital asset market structure bill.

HFS Committee members who questioned the Secretary about digital assets included:

    • HFS Chair Patrick McHenry (R, NC)
    • HFS Vice Chair Rep. French Hill (R, AR)
    • Rep. Brad Sherman (D, CA)
    • Rep. Warren Davidson (R, OH)
    • Rep. Ritchie Torres (D, NY)

Scroll down for more…

Chair Patrick McHenry (R, NC)

The question-and-answer session early in the hearing between Secretary Yellen and HFS Chair Patrick McHenry (R, NC) began the discussion on digital assets . (Read McHenry’s opening statement.)

on the need for digital assets legislation

Continue reading “Digital Asset Highlights At HFS Hearing With Treasury Secretary Yellen”

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Digital Assets And The Systemically Important Financial Institution – SIFI – Designation

FSOC Hearing

The House Financial Services (HFS) Subcommittee on Digital Assets, Financial Technology and Inclusion gathered yesterday to consider the role of the Financial Stability Oversight Council (FSOC) in overseeing innovative technologies. Chair French Hill (R, AR) and Ranking Member Stephen Lynch (D, MA) presided.

The hearing’s title was “Regulatory Whiplash: Examining the Impact of FSOC’s Ever-Changing Designation Framework on Innovation” and reflected the skeptical view held by the Committee’s majority Republicans, and some Democrats, on the role of FSOC in regulation.

If you’re a nonbank entity in crypto offering some form of a bank’s functions, this hearing was for you.

In fact, from the prepared testimony of the witnesses, digital assets was top of mind along with AI and climate change when it comes to regulation and FSOC – which was established in 2010 by Dodd-Frank after the Great Financial Crisis. See hearing video.

Get witness testimony here:

Among the highlights of the prepared testimony, AEI’s Kupiec hinted at the main theme proffered by Republicans in the hearing: “Congress should reassert its authority and limit the FSOC’s ability to use its ‘systemic risk’ powers to advance a political agenda.” – i.e. the party of the chief executive in the White House.

Nevertheless, back in 2022, in response to President Joseph Biden’s Executive Order on Digital Assets, FSOC produced its opinion on regulation: “Report on Digital Asset Financial Stability Risks and Regulation.” Get it here. At the time, Janet Yellen addressed Congress in a statement, “This report provides a strong foundation for policymakers as we work to mitigate the financial stability risks of digital assets while realizing the potential benefits of innovation.” Continue reading “Digital Assets And The Systemically Important Financial Institution – SIFI – Designation”

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Reps. Torres And Flood Highlight SEC Oversight Hearing With Chair Gensler

SEC Chair Gensler at House Financial Services hearing

Republicans didn’t waste any time questioning the moves and motives of Securities and Exchange Commission (SEC) Chair Gary Gensler at the House Financial Services (HFS) “SEC Oversight” hearing today.

Video is here.

Minutes before the hearing commenced, a full-throated rejection by the Committee’s Republican caucus “slamming the agency for its persistent failure to conduct thorough economic analysis or consider stakeholder feedback regarding its regulatory agenda” was announced in the form of a letter to Chair Gensler. Read the release -and the letter.

Yesterday’s letter on Bitcoin spot market ETF’s sent by HFS committee member Rep. Mike Flood may have been more impressive given its bipartisan nature – both Rep. Ritchie Torres (D, NY) and Rep. Wiley Nickel (D, NC) signed on.

two things

As it turned out, during the hearing, the most revelatory moment related to digital assets was arguably provided by a Democrat (Rep. Torres (D, NY) – see below), Tokenization is a tripwire when it comes to securities laws for Chair Gensler.

And, another highlight was Rep. Mike Flood’s (R, NE) questioning of Chair Gensler about Staff Accounting Bulletin 121 (SAB 121) and, separately, Flood’s announcement about the new “Uniform Treatment of Custodial Assets Act” which would gut the SEC’s bulletin. See below.

Also: This was an uninterrupted 4.5 hour hearing that ended at 2:29 p.m. ET. Wow. April’s House SEC Oversight hearing was only 3 hours and 45 minutes. Continue reading “Reps. Torres And Flood Highlight SEC Oversight Hearing With Chair Gensler”

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House Financial Services CBDC Markup Sends Emmer Bill To House Floor

CBDCs and the House Financial Services Committee

An ambitious markup of thirteen bills was on the docket for today’s markup by House Financial Services Committee led by Chair Patrick McHenry (R, NC) and Ranking Member Maxine Waters (D, CA).

The markup’s themes – led by the Republican majority but coordinated with Democrats – included protecting consumer privacy and preventing the overreach of government. There was also bipartisan legislation protecting United States’ national security interests particularly as it related to China.

Overall, most of the hearing’s tone was one of cooperation across the aisle and was reflected in unanimous passage of every bill not related to Central Bank Digital Currencies (CBDCs).

So, perhaps due to the expectation of extended debate, blockchain-related legislation containing various restrictions on a Central Bank Digital Currency (CBDC) were last on the Committee’s agenda.

With several CBDC bills to pursue, the Republican majority, led by Chair McHenry, apparently decided to solely pursue passage of H.R. 5403, the “CBDC Anti-Surveillance State Act” by Majority Whip Rep. Tom Emmer (R, MN). The bill bans the issuance of a CBDC (but the Fed can study it, as Republicans later emphasized).

See the post-hearing press release from the GOP.

tl;dr – the voting

The voting for H.R. 5403, the “CBDC Anti-Surveillance State Act” was approved along party lines with a vote of 27-20 which sends the bill to the House floor.

Ranking Member Waters and Rep. Stephen Lynch’s (D, MA) attempts to add amendments “softening” Rep. Emmer’s bill were both rejected along party lines in a votes of 27-20, as well.

Rep. Emmer announced the bills’ passage immediately after the hearing. Read it.

the CBDC markup

As the Central Bank Digital Currency (CBDC) portion of the markup arrived, it was clear that Democratic leadership wanted any digital currency associated with the U.S. Dollar in the hands of the Federal government.  The mostly-unspoken implications for private stablecoins was that Democratic leadership was opposed.

After Chair McHenry’s opening statement (read it), Ranking Member Waters made her statement which criticized the Republican anti-CBDC view.

Waters said, “Nobody fully understands the potential benefits and challenges of CBDCs or how their implementation could affect the preeminence of the US dollar and global finance more broadly. That is why the Biden administration and the Federal Reserve are researching this. However, the Republican bill before us today would stifle that research and prevent us from moving forward, even if it means that the dollar loses its status as the world’s reserve currency. And even if it means that US citizens lose out on faster, cheaper and simpler payments. I’m disappointed that Republicans have taken such a deeply anti-innovation stance.”

The “anti-innovation” accusation is an about-face to Democratic leadership’s positioning against the recent stablecoin and digital asset market structure bills which could be considered “pro-innovation.” Continue reading “House Financial Services CBDC Markup Sends Emmer Bill To House Floor”