When the House Financial Services’ (HFS) Committee abbreviated markup concluded last Thursday, Rep. Mike Flood (R, NE) likely felt some well-deserved relief.
With momentum building over the past few months, the Securities and Exchange Commission’s (SEC) controversial Staff Accounting Bulletin (SAB 121) had become an increasing part of Flood’s legislative remit with his sponsorship of a standalone bill [H.R.5741] and co-sponsorship of a joint resolution [H.J.R.109] intended to rescind the controversial rulemaking-but-not-a-rule by the securities regulator.
At its heart, SAB 121 effectively prevents big banks – well-regulated banks – from taking custody of crypto assets which arguably inhibits the growth of digital assets within the U.S. financial system.
By a vote of 31-19, the joint resolution passed out of the HFS committee markup with bipartisan support and now heads to the House floor for a vote. No doubt, the SAB 121 saga is far from over. In addition to the House vote, the Senate will need to move on the resolution as will the President… and time is ticking on the 118th Congress.
Nevertheless, it’s a positive development in the eyes of Rep. Flood who is relishing his first session of Congress as part of the majority on the HFS Committee and its Subcommittee on Digital Assets, Financial Technology and Inclusion.
Flood had been a strong advocate for the creation of digital assets legislation. Overall in the 118th Congress, he has also been a robust legislator sponsoring 12 bills and co-sponsoring 175 bills according to Congress.gov.
On Friday, spinning out of last week’s HFS markup, Rep. Flood discussed SAB 121, digital assets, the SEC and his experience in Congress with blockchain tipsheet.
Topics included:
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- Perspective and the Banking Crisis
- Reviewing SAB 121, Next Steps
- Uniform Treatment of Custodial Assets Act
- Members Need Education… Now
- Congressional Staff
- CFPB’s Wallet Proposal
- Looking Ahead & 119th Congress
The interview has been lightly edited for clarity.
blockchain tipsheet: Beginning with your experience as a freshman Congressman and a member of House Financial Services, has it lived up to your expectations? Any surprises?
Rep. Mike Flood: Well, I started out as a congressman in the Oversight Committee for six months and I switched -I was able to get an appointment on the Financial Services Committee. And when I got there, I was just amazed at how bright and capable the members of the committee are on both sides of the aisle were.
The first day I started, Congressman [Blaine] Luetkemeyer (R, MO) had an in-depth debate going on about the CECL accounting standards that banks were using. And Rep. French Hill (R, AR) was chiming in on that and I thought this is exactly where I want to be.
We have real, seasoned, smart, thoughtful legislators on both sides of the aisle. And everything that I enjoyed about the Financial Services Committee really illustrated itself following the SVB bank crisis.
I remember the Sunday after SVB and Signature Banks were closed by the FDIC, we had a zoom call on a Sunday night and on the call were Treasury officials, FDIC officials, Federal Reserve officials, Chairman [Patrick] McHenry (R, NC), Ranking Member [Maxine] Waters (D, CA), and the Senate Banking Committee folks.
And in a world of partisanship in Washington, the calmness, the maturity, and just the understanding of how big the issue was -everybody on both the Senate and House side, Republicans and Democrats agreed that our number one mission was to make sure that people in America could have confidence in their banking system, and that we would support the decisions that the FDIC made to make all of those depositors whole above $250,000.
That situation in any other committee in Congress was ripe for disdain and hardship and the way they handled it just told me, again, I was exactly where I wanted to be. So, I’ve really enjoyed the committee.
Bipartisanship was a part of that discussion as you illustrate. And turning to digital assets legislation, can you comment a bit on what you’re seeing with bipartisanship in regards to digital assets?
It’s not a partisan issue -our financial system is not a partisan system. It is the world’s foremost financial system that has accrued to the benefit of every American and our stable markets. And so, there are always different ideas on how things can get done. But I think the fact that three Democrats voted in committee to support my Congressional Review Act (CRA) [H.J.R.109] yesterday is proof that this isn’t entirely partisan. There’s a lot more to this.
Let’s talk about the CRA. Your opening comments during Thursday’s markup clearly spoke to the need of rescinding the SEC’s Staff Accounting Bulletin 121 (SAB 121). I wonder if you could distill for us briefly on how we got to yesterday’s joint resolution vote and trying to rescind SAB 121 in House Financial Services?
When Chairman [Gary] Gensler issued SAB 121, it caught a lot of people off-guard, most notably, the prudential regulators who were not consulted at all before this allegedly routine guidance came out that had such a chilling effect on custodians -you know, BNY Mellon, a bank that has $27 trillion in custody, they know how to custody assets.
And I believe that the SEC knew that this would effectively keep players like that out of the digital asset market. Using that route, while it was advertised as some routine bulletin -it was deemed a rule for purposes of the Congressional Review Act.
There are multiple approaches to this. Obviously, I used H.J.R.109. But, there’s the standalone bill that’s still out there, which… I don’t care how it gets done, it just has to get across the finish line. I think that banks and respected banks that are regulated so strictly, the fact that they have pushed back so strongly tells you not only the demand is there in the market for them – they want to be able to have this ability – and the prudential regulators, Jerome Powell and others have said it makes no sense to keep these assets on balance sheet.
So as we find ourselves today, I’m encouraged by the Committee’s vote, especially with three Democrats voting in favor. I’m hopeful that the House will take it up in the summer or before and Senator [Cynthia] Lummis (R, WY) in the Senate. I’m hopeful she makes progress as well.
Obviously, it’s uphill, but it’s a pretty sound rebuke of what I think was a poorly constructed bulletin that’s had such a devastating impact on custodians.
If we double back a little bit, I just want to bring up your Uniform Treatment of Custodial Assets Act [H.R.5741] quickly. Obviously, you and Reps. Richie Torres (D, NY), French Hill (R, AR), Wiley Nickel (D, NC) are a part of that – and lately, Steven Horsford (D, NV). Is there need for that act anymore? Or is this resolution taking over the substance of that act?
H.R.5741 is still an important part of the conversation. My approach from the beginning on SAB 121 was simple. If a legislative solution is needed, we want to use every legislative tool we have available to fix the problem. If the CRA passes, that’s great. That fixes the problem. If it falls short, we’re gonna have a conversation about the standalone bill again.
How we get this done, as I said before – it’s less important to me about how it gets done, but I’m glad we still have the Uniform Treatment of Custodial Assets Act. And I do believe that that bill laid a foundation for the CRA and we did not know that at the time when we introduced H.R.5741 -that SAB 121 was going to be deemed a rule for the purposes of the CRA, so I think it’s all part of the journey and I’m glad it’s still there -and we may still need it.
Moving on to the state of digital assets legislation generally today in Congress… It appears that funding measures and the like have taken over the narrative and schedule of Congress. What would you say about the state of digital assets legislation today and any expectations you can share?
Well, I think to your point it is true that Congress has been preoccupied with appropriations issues recently, but I know that stablecoins and digital asset market structure are still both priorities for Chairman McHenry.
And I’ll retreat to something we talked about earlier, even after the bank failures with Signature and SVB, I thought for a second there that that was serious enough that it would derail what we were trying to do on digital assets and Chairman McHenry was steadfast after that saying that this will not derail those efforts. And you’ve got somebody that’s invested so many years of their life in a Congress… I just feel that this is a passion for him and it’s something he knows how to do. And he’s gonna work hard to get these measures on the House floor and ultimately signed into law.
Congress needs to speak on these issues, particularly in light of the SEC’s ongoing, aggressively anti-digital asset stances. We need a path forward towards regulatory clarity. And I really think that in a world of broken promises for a lot of these issues that there’s a real sense that we can get it done this year.
Back in June, you’ll recall your questioning of Aaron Kaplan of Prometheum, which had its own sense of fame [on X]. Promethium had just received a special purpose broker dealer license from the SEC for crypto asset securities. Why do you think he had trouble answering your questions regarding certain crypto assets being a security or not? And, what do you think needs to change at the SEC at the SEC, other than SAB 121?
The case of Promethium is really interesting.
On one hand, SEC Chair Gensler has been stating since the beginning of his term that almost every digital asset is a security. And on the other hand, Gensler hasn’t issued any rulemaking that would clarify how a broker-dealer would actually operate in a way that satisfies his interpretation of their obligation under securities law.
Instead, the SEC simply continues to bring enforcement actions on digital asset actors. So you have entities in this country that have been trying to figure out what the rules of the game are – and from what I’ve heard – the SEC has basically told them, they’re not interested in working with them.
Then… a Special Purpose Broker-Dealer license is given to Promethium, a company whose CEO has given interviews in the past echoing the same views as Mr. Gensler. It was always unclear to me what he actually meant given that the underlying hostility from Gensler remains the same. What could be traded through a broker-dealer if that broker-dealer doesn’t know if they’re securities or not? Can their customers even trade anything?
There’s a fundamental disconnect there that I wanted to explore with those questions.
In terms of a path forward for the SEC, I think you need to see some movement toward a more conciliatory approach. The SEC Chair is not usually a hyper-divisive position. I’d like to see an approach from the Commission that thinks more pragmatically about solving problems -and less combative.
This week, the Nebraska Attorney General, Mike Hilgers, joined seven other Attorneys General and signed on to an amicus brief in support of Kraken’s motion-to-dismiss effort that challenges the SEC complaint against the company. Given our discussion, any comment on the case or these actions?
I spent 10 years in the state legislature in Nebraska – and I’ve been here for 20 months. One of the things that surprises me is that actions by the executive branch in the federal government occupy a lot more of my bandwidth than they ever did at the state level.
At the state level, it seems pretty clear that the policymaking branch of government is the legislature and, by and large, the legislatures of this country determine what the policies are.
When I got to Washington, whether it’s the Department of Labor, the Department of Natural Resources, the Department of the Treasury, or in this case, the Securities Exchange Commission, you have executive branch agencies that are essentially driving the policy “bus” that’s putting Congress into a reactive position -and it’s exhausting sometimes because you just get up to speed on one of their enforcement or policy bulletins or SAB 121… and you get three more “raining” out of the sky.
And that’s the part of being in Congress that has been a change for me: I’ve been put in a position to react a lot to what the executive branch does -and I don’t think that’s healthy.
What I would like to see is that Congress has to determine what the law is going to be and then we will carry it out. That’s how it worked at the state level. At the federal level. You’ve got these major institutional agencies that have tremendous rulemaking ability. I am convinced that this nation will suffocate someday under the amount of regulation that is adopted, and then swings back and forth, depending on who the president is.
On Nebraska AG Mike Hilgers- he’s a friend of mine, he’s done a good job. I can’t comment specifically on the Kraken dismissal effort because I’m not as up to speed on it. But, I see another example of overreach.
Back to bipartisanship in Congress, particularly as it relates to digital assets today, it appears that Democrats to a large degree are split. What’s your take on all that?
Well, I don’t think it matters what party you’re in. If you’re in New York State and you’re home to one of the most capable department of financial service agencies in the world on a state level, you want to protect your state’s dominance in the area of the financial markets and banking regulation.
So, when you see members from New York saying “yes, this is this is right thing to do,” I think it speaks to what’s important in their state and the fact that this is not going to go away – you’re not going to wish it away if you’re the SEC or a bank regulator, etc.
I think it says a lot when three Democrats oppose pretty strong lobbying by not only the executive branch but I’m sure members of their own party to stay in line with the SEC’s SAB 121. And I think you see that on the other side of the aisle, too.
I mean, I wasn’t in the minority as a member of the Financial Services Committee. But I know there are issues where Republicans on our side agree as it relates to digital assets with the Democrats. That’s been part of the journey that I think is very productive. Ultimately, we’re going to need their help on the floor.
This is something we have not talked about, and if someone’s reading this and they’re like, “How’s this gonna go in Congress?”… Our issue isn’t Democrats and Republicans. Our issue with the digital asset space, and blockchain, and everything else, is explaining it to our membership. And there are just some people that haven’t had as much exposure to it that worry – because it’s not something familiar – that this could be risky.
And this means that everybody regardless of what committee their representatives in Congress sit on, need to reach out and say, “Hey, can I get 30 minutes to explain to you some of the benefits of digital assets” or “where we’re going” or the interest in it.
I’m not worried about Republican versus Democrat at the end of the day. I’m worried about going to the floor and having people on both sides of the aisle not have the time to understand it. And as somebody who’s not in banking myself, and when I started working on this in the state legislature, it felt like the more I learned, the less I know about digital assets. It takes that long to just understand it because so many of us are so wedded to fiat currency.
But you talk to a 21 year-old business student at the University of Nebraska – he’s been digital his entire life. This is like a five-year-old scheme. They’re fearless. I think that they’re ready to go. You know what… when you’re 49 and all you’ve known is fiat currency, you’ve got to really take some time to understand it. And so I think people need to be reaching out to the representatives and explaining to them what this is about.
Regarding congressional staff and “the sausage making” of legislation, how important is congressional staff in creating crypto policy today?
Well, I cannot brag on my legislative director enough. Curt Bliamptis is best-in-class, exceptionally bright and a studier. And he is somebody that I would feel unprepared for my work had I not had somebody like Curt helping me navigate a lot of these different issues.
Also, Allison [Behuniak] supporting the Financial Services Committee… she might be one of the only people in America that understands this at the highest of levels because she’s actually had to put into text what is evergreen law in the United States.
And that’s one of the appealing things about this for staff and for members: we’re walking into a situation where it’s like the US Congress in 1995 deciding what was going to happen on the internet. We are at a point where we are getting to write the law for the first time on concepts that are going to shape our financial services world and the world’s financial services markets for the future.
And what I’ve been impressed by is… when I’m working on something and I care about something, I can sit down with Curt Bliamptis and he knows all the other Financial Services staffers, they’re all exceptionally bright, they network and they coordinate. I walk into that ante-room and I see they all get along and know each other very well. I can’t imagine being on that committee without an exceptional staff.
These issues are complicated and not everybody has been a CEO of a bank like French Hill. So yes, I would say congressional staff is essential in creating digital assets legislation.
You, Patrick McHenry and French Hill sent a letter on January 30 to the CFPB Director, Rohit Chopra, regarding the proposed “Defining larger participants of a market for general use digital consumer payment applications” – at the heart of that is a question around wallet providers. I am curious, were there any outcomes from that letter -did you hear back from CFPB? And, what are next steps for Congress?
We received a response from the CFPB. But, it was very terse, and frankly, not substantive. Sadly, that’s not a huge surprise. They don’t always feel that they need to take our comments seriously.
I think we need to continue putting pressure on them, particularly given that this is a proposed rule. They can make modifications to it and we want to keep sending the message that they need to consider doing so. But we haven’t made the kind of progress that I would have hoped.
You announced in January that you’re running again for your seat and as you think ahead about the 119th Congress… do you think digital assets will still be on the Republican agenda and the agenda of House Financial Services?
Chairman McHenry told me something that really stuck with me, maybe 10 months ago. He said, “You are at a great place on the committee and in Congress because digital assets is going to evolve over the next 10-15 years. And you are going to be there at the start of it and have a front seat to watch it mature.”
I thought that was really important because I want to be part of something that’s evergreen and bigger than, maybe what I’m used to. So, I think we’re laying the groundwork now and these issues will continue to be a priority for the Republicans on the Financial Services Committee.
We already have done so much work on these issues and members have learned so much about them in the last year. I think you’ll see other members of the committee step up on these issues.
But, one of the challenges right now is that I haven’t been here long enough to really to really appreciate some of the frustration that some of my colleagues who are departing have. It’s disappointing to see the kind of talent that is opting not to run again. And I don’t blame anybody for making that decision.
But, we need good people to run for these jobs. And we need people that are in it for the right reasons to come. And we need people that are focused on being policy experts and working to pass bills. We need more workhorses and less show horses.
I’ve always prided myself on being somebody who wants to be a serious legislator. Sometimes that means not having to tell everybody everything that’s on your mind every hour –and do it on TV. And we need people like that in Congress. I feel like I have found a committee where we have serious policy people on both sides of the aisle and I think if America would watch our committee work they would have a renewed confidence inthey would have a renewed confidence in their federal government. And they would appreciate that there are people in Congress that are that are working very hard for all the right reasons.