New Sandbox Legislation Promises Protection For Innovation; Digital Assets AML Bills

innovation sandbox

Yesterday, House Financial Services (HFS) Chair Patrick McHenry (R, NC) formally announced the reintroduction of the “Financial Services Innovation Act of 2024” [H.R.7440] framing the creation of new offices for financial innovation across banking regulators as “sandboxes.”

The bill was previously introduced by the Chair in December 2022 in the 117th Congress.

From the Chair McHenry press release, “Budding fintech firms currently operate in fear of heavy-handed penalties brought down by regulators that have failed to work with Congress to provide clear rules of the road. That’s why I’m reintroducing the Financial Services Innovation Act. This commonsense legislation will give entrepreneurs an opportunity to test legal and regulatory waters before taking new products and services to market. Innovators have long flocked to American markets…”

what you should know: McHenry’s bill will be up for a vote at tomorrow’s HFS markup. How Democrats will line up on the bill is unknown, but if it’s anything like the markups last July for the stablecoin [H.R.4766] and digital asset market structure [H.R.4763] bills, five to six Democrats seem possible at a minimum such as Reps. Jim Himes (CT), Ritchie Torres  (NY) and Josh Gottheimer (NJ).

innovation sandbox – SEC

The McHenry bill hearkens back to the crypto development sandbox proposed by Republican SEC Commissioner Hester Peirce in 2021 called “Token Safe Harbor Proposal 2.0.”

The central idea of Commissioner Peirce’s proposal was a sandbox that provides “network developers with a three-year grace period within which, under certain conditions, they can facilitate participation in and the development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws.”

The proposal has not seen the light of day under the Democratic majority of Commissioners at the SEC.

video interviews

Senator Elizabeth Warren (D, MA) discusses cryptocurrency and her Digital Asset Anti-Money Laundering Act (Video) – via Alex Thorn on X

Senator J.D. Vance (R, OH) discusses his criticism of SEC Chair Gary Gensler and the agency’s approach to digital assets regulation (Video) – via Bill Hughes on X

CBDC litmus test

Like, CBDCs? If you’re a Republican, that could be treacherous.

Politico’s Morning Money reported yesterday that the Heritage Foundation, an influential lobbyist in conservative circles, will “grade lawmakers based on their support for anti-CBDC legislation from Rep. Tom Emmer (R, MN) and Sen. Ted Cruz (R, TX). It will be part of the group’s conservative scorecard…” Read more.

The crypto-relatedmove by Heritage begs the question on what grade a senator such as Roger Marshall (R, KS) could receive. Marshall has garnered criticism (see March 2023 letter) for being an early co-sponsor of Senator Elizabeth Warren (D, MA) and her “Digital Asset Anti-Money Laundering Act.” [S.2669]. Could he come out in support of anti-CBDC legislation, too?

what you should know: Majority Whip Emmer added House Republican co-sponsor #98, Rep. John Rose (TN), to his anti-CBDC bill on Monday.

House vs. Senate AML

Twelve bills will be up for a vote at Thursday’s House Financial Services (HFS) markup hearing including Rep. Scott Fitzgerald’s (R, WI) “Combating Money Laundering in Cyber Crime Act of 2024” [H.R.7156].

See the HFS Committee Memoradum (PDF).

Fitzgerald’s bill appears to “answer the bell” of Senate Democrats and their multiple, digital asset anti-money laundering bills (DAAMLSen. Warren (MA); TFPSen.  Mark Warner (D, VA); CANSEESen. Jack Reid (RI)). All of the Senate bills have Republican co-sponsors.

Bipartisan co-sponsorship of Rep. Fitzgerald’s legislation includes Reps. Gregory Meeks (D, NY), Zach Nunn (R, IA), Madeleine Dean (D, PA), Mike Flood (R, NE) and Donald Davis (D, NC).

more tips:

    • Opinion:  It’s Time to Scrap AML/KYC Entirely – CoinDesk

what you should know: According to Fortune’s Leo Schwartz in December, Rep. Sean Casten (D, IL) has been rumored to be looking for a House Republican co-sponsor for the House version of Senator Warren’s DAAML bill. Apparently, (still) no luck so far…

amicus brief

Amicus curiae brief in support of Kraken in the SEC v. Kraken case (PDF) – Digital Chamber of Commerce

still more tips

Opinion: “Vanguard, one of our top investment firms, shuns crypto ‘like the plague.’ That’s good for its customers” – LA Times

Initia raises $7.5M seed round to simplify blockchain development – TechCrunch

Hot New Bitcoin Funds Could Soon Have Rivals – The Wall Street Journal

FSB Chair highlights key issues (including crypto) to the G20 – Financial Stability Board

He Laundered $4.5 Billion in Bitcoin. Now He’s a US Government Witness – Bloomberg