Nearly eight hours after Day 1 of the House Financial Services markup hearing commenced, it ended with approval of the signature bill of the day – the digital assets market structure bill a.k.a. H.R. 4763, the “Financial Innovation and Technology for the 21st Century Act.”
The final vote was … 35-15 in favor of the digital assets market structure bill as amended.
The vote was along party lines except for six (6) Democrats who broke with their party’s leadership: Rep. Ritchie Torres (D, NY), Rep. Wiley Nickel (D, NC), Rep. Josh Gottheimer (D, NJ), Rep. Steven Horsford (D, NV), Brittany Pettersen (D, CO), and, in particular, Rep. Jim Himes, (D, CT), who seemed exasperated with his party’s positioning.
Keep in mind, tomorrow’s House Agriculture Committee markup will also vote on the same digital assets market structure bill.
Read below for coverage of the day’s House Financial Services markup pertaining to the “Financial Innovation and Technology for the 21st Century Act.”
opening remarks
At the top of the markup hearing, House Financial Services (HFS) Chair Patrick McHenry (R, NC) outlined that any debate of the bills being marked up today would be completed before a final vote on all of the day’s bills by the Committee.
See all the bills on the HFS hearing page. And, see the video recording.
Clearly, the digital assets market structure bill was the featured bill today – the “Financial Innovation and Technology for the 21st Century Act.”
At a high level, the bill aligns certain crypto regulatory oversight with the Commodity Futures and Trading Commission (CFTC) versus the Securities and Exchange Commission (SEC).
In his opening remarks, Chair McHenry stated: “Just as joint stock companies revolutionized how companies are owned, digital assets and their underlying blockchain technology hold the same promise to revolutionize ownership in the digital economy.” Read a transcript of his remarks.
Ranking Member Maxine Waters (D, CA) made clear that she did not support the digital assets market structure bill due to a lack of funding, creating more confusion about digital assets, fewer consumer protections, and loopholes for traditional finance to participate, she said.
As for stablecoin legislation, Waters welcomed continue negotiation with McHenry on the bill. There was a sense that there still may be more negotiation required beyond the limited timetable remaining until tomorrow’s markup on the stablecoin bill.
Waters, speaking about the market structure bill, said, “In sum, this bill is the wish-list of big crypto and is undeserving of any of our support. This is why I call this bill the ‘Not Fit for the 21st Century Act’ and I will be calling on Members to treat it just like that.” Read her opening comments here.
Rep. Hill
Speaking next, Rep. French Hill (R, AR), HFS’ Chair of the Subcommittee on Digital Assets, Financial Technology and Inclusion, began the Committee’s wider discussion of the digital assets market structure bill.
Countering Democratic criticism, Rep. Hill said, “This bill is not a partisan effort to reshape securities and commodity laws in order to create a carve out for digital assets. Quite the contrary, with Democrat and Republican input it modifies and mirrors existing authorities such as allowing for the registration of digital asset exchanges under the alternative trading system, or ATS. In fact, friends, Treasury Secretary Janet Yellen, [CFTC] Chair Behnam, market participants all agree there are regulatory gaps in the spot markets for digital assets, they’re not securities and they need to be fixed by legislation.”
Rep. Sherman
Rep. Brad Sherman (D, CA) began his critique of the digital assets market structure bill saying, “… it will allow publicly traded companies to tokenize their equity securities, and then circumvent SEC regulation, choosing instead to be regulated by the CFTC.” Overall, Sherman’s view on the digital assets was predictably negative, given his previous comments, and equated the world of cryptocurrency with Enron, Worldcom and Charles Ponzi.
Rep. Davidson
Rep. Warren Davidson (R, OH) pivoted from the tone and substance of Sherman’s comments to one of the timeliness of the digital assets market structure bill. He said, “In fact, our failure to act is why so much of this market has moved offshore – because we don’t have legal clarity. That will end If this bill becomes law.” He believes the “FIT for the 21st Century Act” clearly creates these rules and defines the process. In fact, it creates a “bright line test.”
Briefly, Davidson expressed sympathy for Democrats who may support some of the digital assets legislation but may not be able to say so in that it conflicts with the position of the Democratic caucus leadership.
Ranking Member Waters
Ranking Member Waters was decidedly against the digital assets market structure bill. She said, “I’m so very confused as to why the chair is ceding our jurisdiction of the digital assets market In this way. this bill would substantially shift jurisdiction of digital assets to the CFTC is jurisdiction, which is outside of our reach, as a committee. This bill or oversight of the digital assets market would shrink considerably, and I for one am not prepared to make such a concession.” Unspoken was her concern about losing jurisdiction to the House Agriculture Committee. She suggested labor and consumer organizations were all against this bill.
Chair McHenry
The Chair, one of the chief architect’s of the bill, said now is the time for the digital assets market structure bill. He stated, “Major crypto exchanges currently today have no federal law that they operate under the Securities Exchange Commission and the CFTC are arguing over jurisdiction.”
Countering Democrats sense that there was a rush to create the bill, McHenry noted the extensive bipartisan participation in the creation of the bill led by the Chair and Rep. Hill.
Rep. Himes
Rep. Jim Himes (D, CT) offered the first sign that not all Democrats agree with the Ranking Member Waters and Democratic party leadership. With the digital assets market structure bill, he said, “I am confident that this legislation while not perfect, makes the status quo better.”
In support of the legislation, he concluded, “I’m a deep skeptic of this [digital assets] industry but we deserve better than the status quo.”
Rep. Lynch
Rep. Stephen Lynch (D, MA), Ranking Member of the Digital Assets Subcommittee,was next up – perhaps in a strategic move by Dems considering Himes POV – and said that the digital assets market structure bill was the “worst legislation” he’d ever seen. “First of all, it completely changes the definition of the long standing and well-tried, and well litigated – and well settled interpretations of securities law. And it is contrary to the longstanding interpretations of the securities law in this country.” Lynch claimed the bill protected bad actors and put them “beyond prosecution by the SEC.” He suggested that rulemaking would take 8-9 years to implement should the bill become law.
Rep. Scott
Rep. David Scott (D, GA) immediately showed he won’t be digressing from Democratic party leadership’s position on crypto and said he agreed with the strong rejection of the bill by Rep. Lynch.
In that Scott is Ranking Member of the House Agriculture Committee, he revealed Democratic leadership’s position at tomorrow’s House Ag markup hearing on the digital assets legislation, too. He said, “This bill before us would exempt most cryptocurrency from well-established securities laws and regulations under the purview of the SEC. And this would pose serious concerns for our investors, our customers and putting at risk the entire stability of our financial markets.”
Rep. Casten
Giving “a hard no,” Rep. Sean Casten (D, IL) arguably gave a more nuanced, thoughtful rejection of the digital assets market structure bill than some of his colleagues. He said, “I have some serious concerns about giving the SEC a mandate to reward innovation I think [Rep. Brad Sherman} is right that not all innovation is good innovation. Some of the most creative people in the world are criminals.” He believed funding for the bill was not going to happen. Chair McHenry disputed Rep. Casten by saying the “pay for” was in the bill.
Rep. Steil
Rep. Bryan Steil (R, WI) came out in support of the bill. He gave an impassioned defense of the bill and its broader implications. Steil began, “I think it’s absolutely imperative that this committee takes a step forward in providing the rules of the road in the market structure to make sure that we’re getting this right. I think many of us in this room have concerns and challenges with big tech. I think there’s some parallels of the conversation we’re having today to conversations that were probably had across Capitol Hill at the beginning of the internet.”
He added, “What we’re going to do is step away from allowing enforcement actions to be dictating our policy and allow policymakers to be dictating our policy and to delineate the roles between the SEC in instances where the SEC should have potential authority, where the CFTC should have authority, and it provides us rules of the road.”
Rep. Foster
Rep. Bill Foster (D, IL), a past Congressional Blockchain Caucus member, announced his “license plate” amendment – an idea he’s shared in past hearings – for digital assets wallets in the hopes of connecting Anti-Money-Laundering (AML) and Know-Your-Customer (KYC) rules to digital assets. He said, “A wallet licensing regime would be the single most important thing that we can do in the United States to bring healthy development of this industry onshore and keep it on shore.”
Rep. Donald
Rep. Byron Donald (R, FL) predictably supported the Republican-led bill and called out an “overzealous SEC.” Donald said, “For a country that has been the pillar and, really, the epicenter of the financial world – so now also is the same place where innovators cannot come and find ways to do business in our country… [this] is a sad statement. And this bill gives us an opportunity to begin to rectify that.”
Rep. Nickel
Rep. Wiley Nickel (D, NC) became the second Democrat to break from Democratic Party leadership and said he supported the digital assets market structure bill. Nickel said in part, “If we fail to act, the SEC’s regulation by enforcement will push this industry overseas to places like the Bahamas, where Americans don’t have any protections.”
Chair McHenry quickly responded to Nickel’s 5-minute speech telling him, “What you’ve done is move this bill to bring enhance consumer protections marketplace. What you’ve done is move this bill into a more functional place with the feedback you’ve given your staff has given I very much appreciate the direct engagement here.”
Rep. Norman and Rep. Davidson
Rep. Ralph Norman (R, SC) announced his support of the market structure bill and then yieled to Rep. Davidson who argued why Rep. Foster’s “license plate” idea wasn’t needed due to the immutable nature of blockchain technology. Davidson said, “But the fact that it is on a public ledger shows that it doesn’t provide real secrecy. In fact, if you wanted secrecy, you would never put something on an immutable public ledger.” He concluded, “You should accurately understand the technology.”
Rep. Vargas
Rep. Juan Vargas (D, CA) said he doesn’t have “faith” in the bill. But, he did seem to have faith in Rep. Hill, “I have great faith in the members of our side who I think we’re working in good faith also but this bill I think is lacking and I will not be able to support it.” Vargas then yielded to Rep. Lynch who took up the “regulation by enforcement” approach by the SEC and disputed its lack of effectiveness by supporters of the digital asset market structure bill. He predicted the Ripple-SEC decision would be overturned on appeal because the decision leaves “retail customers with no protections.” Lynch then disputed Rep. Himes assertion that commingling was addressed in the bill. Lynch said “the bill was designed to facilitate” commingling.
Rep. Emmer
Majority Whip Rep. Tom Emmer (R, MN) issued plaudits to Chair McHenry, Chair Hill and their staffs for creation of the bill.
Speaking of the House’s mission and, likely his caucus, Emmer said he wanted “ensure that any legislation that comes out of this Congress is done right the first time, is globally competitive and puts the United States in the driver’s seat on crafting the future peer to peer digital economy.”
Rep. Beatty
Rep. Joyce Beatty (D, OH) spoke next against the bill, read several previously stated criticisms and yielded to Rep. Scott. Scott suggested there were two reasons why this bill was not the way to go claiming it would harm to consumers and there isn’t any money for carrying out provisions of the bill. Scott said, “Common sense tells us this is not the way to go.” Then Rep. Bill Foster spoke next about how crypto is supporting fentanyl and these transactions are not traceable via mixers.
Rep. Lawler
Rep. Mike Lawler (R, NY) spoke in support of the bill and, in the process,, spoke in support of the NYDFS Superintendent Adrienne Harris and against New York State Attorney General Letitia James, both Democrats, in the way they approach digital assets.
Rep. Torres
Rep. Ritchie Torres (D, NY) announced he was in support of the bill adding “If you consider that regulatory clarity – then you live in a different planet. I am confused by the mixed messaging, by the lack of rules and guidance that had been provided by the [SEC] and I know this legislation is far from perfect. But, it represents a good faith attempt to bring clarity to an area where none exist, and I associate myself with the comments of Congressman Himes and Congressman Nickel and I will support the legislation.”
Amendments
After several more Members voiced their approval or disapproval (Democrats against, Republicans for), Rep. Bill Foster (D, IL) presented the “license plate” amendment for the digital assets market structure bill. Rep. Foster assured Members that the “license plate” amendment would insure American “leadership in safe crypto.” Republicans did not agree and the amendment was rejected.
Among other amendment highlights:
innovation and the SEC
With Rep. Lynch, his amendment sought to include the word “innovation” in the SEC’s mission. This amendment was agreed to by Chair McHenry and the Committee in the interest of goodwill.
decentralization certification
Rep. Himes, a Democrat, asked for a lengthening of the review process – currently at 30 days in the bill – for “decentralization certification” by regulators. Rep. Hill and Chair McHenry, Republicans, encouraged support of the amendment in the interest of goodwill. The amendment was approved by the Committee.
a new era
Rep. Nickel stated he supported the bill and asked to add an amendment which formally recognizes “a new era” of innovation which will improve access to capital while protecting consumers. The connection to the beginning of the Internet was recognized by several Members in affirmation of the amendment, which passed.
financial literacy
Rep. Steven Horsford (D, NV) submitted an amendment to the digital assets market structure bill that supports a financial literacy study for digital assets for consumers. This amendment was approved by the Committee.
insider trading
Rep. Ayanna Pressley (D, MA) looked to add an “insider trading” amendment using the STOCK Act as a basis that would prevent Members from Congress using non-public information to trade crypto. Chair McHenry suggested the addition of the amendment on the digital assets market structure bill could weaken the STOCK Act. Chair McHenry suggested a colloquy with Rep. Pressley on the amendment in exchange for the withdrawal of the amendment. This was agreed to.
SAB 121
Rep. Lynch asked that an amendment be added which requires the elements of Staff Accounting Bulletin 121 (see discussion) – a controversial “bulletin” by the Securities and Exchange Commission (SEC) which requires publicly-traded companies to recognize digital assets on their balance sheets. This has prevented publicly-traded companies from offering digital asset products. This amendment was rejected by Chair McHenry who added that this rule around custody hurt consumers.
the amendment strategy
House Financial Services’ Democratic leadership – Ranking Member Waters and Rep. Lynch – continued to add amendments for several hours to the digital asset market structure bill, a bill Waters/Lynch rejected at the outset of the hearing. Its purpose may have been to push the committee vote later (and for 5 other bills). And, it may also have previewed tomorrow’s HFS markup on the stablecoin bill (and 6 other bills).
Democrats continued to try and pin Republicans with a number of “hot button” crypto issues such as commingling, a lack of consumer protections, whistleblower protections and insider trading.
the vote
After a recess and brief discussion of remaining bills, the vote on the digital assets market structure bill commenced at approximately 7:45 p.m., almost 10 hours after the markup had started.
Final vote was 35-15.
Majority Whip Tom Emmer’s and Rep. Darren Soto’s H.R. 1747, the Blockchain Regulatory Certainty Act, passed from the Committee with a vote of 29-21 with no support from HFS Democrats.