What a week for lawmakers on House Financial Services (HFS) including Rep. French Hill (R, AR), who is Vice Chair of HFS and Chair of its Subcommittee on Digital Assets, Financial Technology and Inclusion.
One of the HFS Committee’s two signature bills, the Financial Innovation and Technology for the 21st Century [H.R.4763] – or “FIT 21” – passed with a resounding bipartisan majority on the House Floor, 279-136.
At nearly the same moment as FIT 21’s passage, there was more good news after a bipartisan Congressional letter co-signed by Rep. Hill and others on Wednesday urged the Securities and Exchange Commission (SEC) to approve applications for spot Ether Exchange-Traded Product (ETP) applications.
Late Thursday, the SEC did just that by approving the first leg of the ETH ETP process.
And then there’s stablecoins [H.R.4766] and the SAB 121 [H.J.R.109] resolution – both with more favorable momentum than ever before.
The digital assets policy “tide” has clearly shifted in Washington D.C. Yet, Rep. Hill, who has represented central Arkansas’ 2nd congressional district since 2015, remains vigilant and attuned to future legislative opportunity including plans for a series of upcoming Digital Assets Subcommittee hearings on tokenization and decentralized finance (DeFi) in addition to HFS closing the deal on stablecoin legislation.
On Friday, blockchain tipsheet spoke with Rep. Hill across a range of digital asset topics including:
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- SEC and Ether Exchange-Traded Products
- Digital assets and The Hill
- Bipartisanship
- Tipping point versus turning point
- Legislative momentum
- The education process
- Managing jurisdictions
- Next for the Digital Assets Subcommittee
(This transcript has been edited for clarity.)
blockhain tipsheet: Congressman, you co-signed a letter on Wednesday, that urged the SEC to approve an ETP. Yesterday – a day later – the SEC responded with approval on the first leg of that process. Is this what you wanted?
Rep. French Hill: I was pleased to see the Commission follow through and approve “Step 1” of the idea that they’re going to extend their exchange-traded product category to Ether.
In my view, the long process they took in the Bitcoin ETP approval – and the Federal court’s intervention on that topic – caused this to flow more smoothly and they met their deadline. So, I was pleased to see it.
blockchain tipsheet: Prior to the letter, there has been a series of surprising, legislative developments regarding support for digital assets. Overall, has something different happened within the past month that you’re seeing in regards to digital assets on the Hill?
Rep: Hill: There’s an old expression in entrepreneurship that the average overnight success takes 10 years.
Personally, I don’t believe so. But, I want to say that the House Financial Services Committee has worked on this topic, learned about this topic, engaged on how best to craft a regulatory framework for digital assets as well as how to consider payment stablecoins… literally going back to 2018 when [Ranking Member] Maxine Waters (D, CA) was chair of the committee -and we were working through Facebook’s experiment with Libra -and we had a FinTech Task Force and an AI task force.
So… all during that ensuing period, Members on both sides of the aisle have tried to learn and discuss the best approach to a payment stablecoin in a market structure built for digital assets.
We were able last year – between March and July – to design, craft, debate, write and publish the market structure bill with bipartisan support.
It was outstanding work by the members of the staff that worked on it. And we saw it meet with a resounding, bipartisan vote of 279 votes this week in the House including senior members of Democratic leadership voting for it: Mrs. Pelosi (D, CA), Whip Clark (D, MA) and Conference Chair Aguilar (D, CA).
On top of that – almost contemporaneously – you’ve seen our membership for months reject the SEC’s approach to custody of digital assets.
We’ve had hearings on this, done a series of letters and had private meetings with the Chairman. We’ve also asked the other bank regulators – OCC’s Acting Comptroller Michael Hsu, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen – “Were they consulted on it?” The answer was “no.”
So, when we proposed the Congressional Review Act on Staff Accounting Bulletin 121 – the custody rule – we again got 21 Democrats in the House and 12 Democrats, including Majority Leader Chuck Schumer (D, NY) in the Senate, to vote with us and signaling that there is this growing, bipartisan consensus that we want America to be an innovator.
We think writing applications on a blockchain in financial services or in another segment of the economy is the next step for technological development on the World Wide Web. And I’m just pleased to see these years of effort come to fruition.
You could argue that, in public, the Congressional Review Act (CRA) vote “on the record” in the House and Senate – in the span of one week – that was significantly bipartisan and rejecting the SEC approach to digital asset custody was… you could argue that’s a turning point.
But, I believe it’s much more evolutionary, including President Biden’s own Executive Order, basically, two years ago.
more on momentum
Rep: Hill: While the President issued a [May 8] veto threat on the CRA on SAB 121, it was not met with tremendous concern by Democratic members including the Senate Majority Leader.
And because of the work we’ve done, the President did not issue a veto threat on FIT 21. And I think that demonstrates the good faith, bipartisan work we’ve done on the Hill, but also the good faith work that we’ve done with the Executive Branch in the preparation of these legislative products.
None of this should be a partisan issue, and we’ve made no effort to make it a partisan issue. This is about technology.
And you’ve heard my theme in my public comments about this. And it’s actually in the bill. House Ag Rep. Dusty Johnson (R, SD) and I had a bill that we emulated: [former Rep. Chris Cox‘s (R, CA) 1998 Internet Tax Freedom Act] where Congress had a bill saying, “We don’t want to tax and regulate the Internet out of existence.”
It was kind of clunky because they didn’t know commercially what the Internet would be. There were some legitimate concerns, but they decided “No, this is for the betterment of technological advance in the country.”
We patterned our own similar resolution about web3 and blockchain and then Wiley Nickel (D) of North Carolina attached it as an amendment to FIT 21. So that text is actually a part of FIT 21.
I do think it’s more evolutionary over a longer period of time and with political context, there are tipping points as opposed to a turning point.
So President Trump engaged and said, “I’m very supportive of technology and crypto” and he made a political comment there.
We had the bipartisan vote on SAB 121 – the rejection of the approach SEC Chair Gary Gensler is taking. And it’s really a minority of members on both sides of the aisle that want to pursue Chair Gensler’s approach. That’s a minority of people now in either party – that’s my point.
That doesn’t mean that blockchain or crypto has gone mainstream – that’s not the point.
The point is we recognize it’s an early-stage emerging technology as the Internet itself was in the 90s. There was a lot of experimentation and a lot of money lost in that – I don’t think people bought their dog food on Pets[dot]com. And yet, when Amazon went public, people were like “Oh my god, I don’t know if this is gonna work or not.” And look at what Amazon has become – right at 27 or 28 years later. It’s an extraordinary business.
I remember when I was a stockbroker and money manager in 1998. I remember “Should you buy Amazon?” and it just seemed preposterous for some people. Jeff Bezos from Day 1 had this vision of what he would do: he would lose money knowing that he could create an extraordinary business written on this open protocol, called the Internet as a part of what we call Web 2, which was merchandising and commerce.
tipping versus turning point
Rep: Hill: I think “tipping point” is better than “turning point” right now.
I’m not gonna deny that we achieved some tipping points this year and we’re grateful for the extra weeks we’ve had to work with our colleagues on this. And the Commission has taken some bad decisions along the way.
Another part of that would be the Federal courts rejecting SEC arguments. Federal Courts ruling in Ripple… that was very confusing and actually inverted the way the rule should be: they were protecting institutional investors and saying individual investors are out on their own. There’s a whole list of things that have happened in the last 60 to 90 days and added to the momentum of something which was already moving.
blockchain tipsheet: How has that education process gone? And, how does this compare to other legislative process where education is an essential part of it?
Rep Hill: You cannot pass a bill in the House, or enact the law in the Congress, without a robust, tremendous coordinated education campaign of lead staffers who are charged with the drafting documentation and careful stewardship of the actual legislative tags. And then the promotion of it.
So let’s start with committee staff, Financial Services and Agriculture, that’s your base group. It pivots out from there. And, then seeking those outside entities that are interested in seeing progress as well. And then meeting with those who aren’t to learn their concerns.
So, you’re listening to people who want to see progress and change, and people who say, “No, the status quo is fine” because of this reason -because you can’t win an argument if you can’t counter the argument. And that’s the base case. That would be the same whether we’re talking about an Ag bill or this.
[Digital assets] has been much more complicated because you are breaking new ground for the first time in American history to change securities and commodity laws based on something we consider fit for purpose -because the nature of the asset is fundamentally different -because it’s a computer programmable technology, as opposed to a more traditional thing.
And it has a component piece to it, which is a lack of intermediation instead of being dependent on intermediation. So you’re trying to blend that.
So, that means you’re dealing with…
….a technology people are not familiar with: blockchain.
…. many Members.
… a technology that has a dark side as noted and advertised routinely by people who are “cryptocurrency traders, brokers and promoters” with reason and with daily or weekly press coverage about the bad things that people do in fraud or AML/BSA violations or illicit finance.
… And then you’re amending the status quo significantly in Washington, DC. That’s really hard to do. I’ve done it several times in my career and this is among the hardest because you’re introducing all kinds of new definitions and new approaches.
That has been intensive for exactly the last 14 months. So…. new Congress came into place. Chairman McHenry, Chairman Thompson laid out the guiding principles. We were doing this and doing it together.
We had to build a team between the Ag and Financial Services staff and then we had to go engage our Democratic colleagues, as well as those off the Hill both for and against it, and craft something in the middle that can pass and get bipartisan support.
I think it’s been a textbook case of how to do that in the right way.
But, new disruptive technology – to go get a member [who is] not involved and explain that technology – it took a lot of work. And we were working on it until literally the day before the vote. We were having two-hour meetings with Members about saying, “Here’s what we’re doing and what we’re not doing.” And, we listened to exactly what their concerns are.
This idea that this whole [digital assets] category is a “pet rock” is not right.
And so, moving that conversation -we want to have strict AML BSA. We’re very concerned about people who commit fraud and do bad things. We are with cash, too. We spent many hours down in the Treasury Department and other places having these conversations, so I think we did our homework.
blockchain tipsheet: Can you talk a little bit about managing jurisdictions in Congress when the underlying technology spreads across many disciplines as blockchain does? As an example, I’ve noted how House Agriculture and House Financial Services worked together on FIT 21. Meanwhile, House Energy and Commerce had three blockchain-related bills pass which were related to commerce in the House this month. So – how do you manage those jurisdictions?
Rep. Hill: Carefully is the short answer.
Parliamentary referrals are always internally very controversial. And people spend a lot of time manipulating language to avoid certain parliamentary referrals. But, the important thing is that Energy and Commerce, Ways & Means on the tax piece, and Financial Services and Ag, all recognize that blockchain is an operating technology that has application across the economy. And we want to make sure that we coordinate that response.
I don’t think there’s a better example of careful stewardship and coordination than what you witnessed with FIT 21 with the House Ag and House Financial Services Committees. I mean – excellent.
And Energy & Commerce Chairwoman Cathy McMorris Rogers (R, WA) had a colloquy with House Ag Chair GT Thompson (R, PA) on the floor during the debate on FIT 21 about questions that she had about non-financial services, non-commodity use of blockchain and tokens.
And we’re going to plan a series of hearings on other uses for tokens. We will be pursuing our payments stablecoin legislation. We’ll be talking about studies on decentralized finance and tokenization and other ways that existing industries will use tokenization.
So, I think we’ll continue to see the committee Chairs and the Majority Leader’s office trying to work to make sure that everybody’s jurisdictional responsibilities are met.