SEC oversight hearing
Yesterday, Securities Exchange Commission Chair Gary Gensler spent two hours in front of the Senate Banking Committee for an oversight hearing covering a broad range of topics: from the SEC’s robust rule-making pace to artificial intelligence to digital assets -and more. See Chair Gensler’s statement here.
A rough estimate: Crypto came in around fifth place in terms of importance as measured by Senators’ questions of Chair Gensler. When it was over, FoxBusiness reporter Eleanor Terrett tweeted about the hearing, “Partisanship seems to be at an all-time high.” Other than enforcement, crypto legislation was not mentioned.
At the start, Senate Banking Chair Sen. Sherrod Brown (D, OH) used a large part of his opening statement on crypto which helped set the tone for Democrats and perhaps some Republicans such as Senator Mike Rounds (R, SD) who signed on to Sen. Jack Reed’s (D, RI) CANSEE Act in July. Brown concluded in part, “…bad actors keep flocking to crypto. They use it to launder money, evade sanctions, fund crime and human trafficking and terrorism.” Read his statement. Between the lines, Brown’s message: “Chair Gensler, keep up the good work on crypto.”
Mixing in allusions to the FTX implosion, Ranking Member Sen. Tim Scott (R, SC) made it clear in his opening statement that the Republican caucus had a broader approach than just digital assets for the hearing with SEC Chair. He said, “The regulations the SEC has proposed under your leadership are unjustified and are sowing discord and confusion for industry and market participants alike.” Read his statement.
In the Q&A, Chair Brown had one crypto question for Chair Gensler, a video of which Senate Banking Democrats linked to on X… note what happens here.
Sen. Brown: “If crypto markets lived up to the investor protection principles we have in other markets, would that help protect Americans from the crypto abuses that cost consumers billions?”
Chair Gensler: “If they were to live up to the investor protection built into their current laws, it would help investors. But right now, unfortunately, there’s significant non compliance and it’s a field which is rife with fraud, abuse, and misconduct.”
Gensler had to reframe Brown’s question which *perhaps* suggested there were no protections in place, no regulations for crypto. This has been a view supported by some anti-crypto Members of Congress who believe crypto should be left out to rot and not brought underneath the U.S. regulatory umbrella. Gensler gently adjusted Brown’s question saying that crypto markets aren’t living up to the regulation already in place: i.e. the Howey test and the U.S. securities regime overseen by the SEC.
Sen. Catherine Cortez Masto (D, NV) asked about staffing for crypto enforcement to which Chair Gensler made the case for still more headcount growth and used a previous refrain saying he’s “never seen a field so rife with misconduct.” Sen. Bill Hagerty (R, TN) the final seconds of his 5 minutes of questioning to try and understand what it takes to get a Bitcoin Spot Exchange-Traded Fund approved by the SEC. Chair Gensler offered little insight other than there are many applications.
Sen. Cynthia Lummis (R, WY), co-sponsor of the Lummis-Gillibrand Responsible Financial Innovation Act, explored the “nerdier” (her word) with the SEC’s Staff Accounting Bulletin 121 (see previous coverage). SAB 121, as it is known, has served to stifle/slow banks’ efforts to roll out crypto custody products which could, ultimately, benefit consumers looking for safe crypto custody options at well-regulated, traditional banks. As before, Chair Gensler didn’t see SAB 121 preventing anything and tried to pass the mantle of responsibility to the bank regulators even though the bulletin is his agency’s.
Crypto litigation risk versus the breadth of the SEC’s rulemaking strategies was the subject of the final question by Sen. Kyrsten Sinema (I, AZ). The specter of ongoing losses in the courts did not seem to faze the Chair who made perfunctory mention of the importance of the courts and the feedback loop it offers.
anti-anti-CBDC bill
House Republicans made their anti-CBDC (Central Bank Digital Currency) position abundantly clear yesterday as they look to differentiate with Democrats and as the 2024 general election approaches slowly but surely.
Majority Whip Rep. Tom Emmer (R, MN) announced the re-introduction of his CBDC Anti-Surveillance State Act which had already been introduced in February. This time, 49 of his Republican colleagues are coming aboard. So far, Congress.gov shows 46 of the co-sponsoring members who’ve steadily signed on in the past seven months – view here.
According to Fox Business, the latest version of the anti-CBDC bill bans “intermediated CBDCs… CBDCs that are issued by the Fed but managed by retail banks and other financial institutions instead of directly by the Fed. An intermediated CBDC is the model China uses for its digital yuan.” The updated bill also removes a requirement that the Fed to report to Congress on any studies or pilots it runs for CBDCs. That element is now covered in separate legislation and may represent a trend in Congressional digital assets legislation: the “lightweight” approach. At a Cato Institute conference earlier this week, Sen. Bill Hagerty (R, TN) advocating for his “2-page” stablecoin bill originally introduced in the 117th Congress. Hagerty said simplicity – not the “fulsome” approach – was the way forward for digital assets law.
NFTs and collectibles
An op-ed in the New York Law Journal by law firm Pryor Cashman’s Jeffrey Alberts reviews the enforcement action against NFT project creator Impact Theory by the SEC settled in late August. Alberts rings the alarm bills of SEC overreach saying, “by treating these NFTs as securities, the SEC appears to be taking a legal position that could sweep a variety of products that never have been viewed as securities, including collectibles, into the category of ‘investment contract’ and thus within the SEC’s jurisdiction.” Read more.
new HFS hearings
The House Financial Services (HFS) Committee announced hearings for next week which may have – at least – tangential implications for digital assets.
The Capital Markets Subcommittee Hearing Entitled: “Oversight of the SEC’s Division of Investment Management” on Tuesday, September 19.
Also on the same day, the HFS Financial Institutions and Monetary Policy Subcommittee will have a hearing titled: “A Holistic Review of Regulators: Regulatory Overreach and Economic Consequences”
TradFi want digital assets
Franklin Templeton is the latest in the financial services world to throw its application in for a Bitcoin Spot Market ETF with the SEC. See a bit more from Bloomberg ETF analyst Eric Balchunas on X.
That makes BlackRock, Fidelity, Invesco and NASDAQ among the many names waiting for the SEC to finally give its approval to the ETF product.
still more tips
Former Meta crypto exec David Marcus plots course for Bitcoin’s transformation to global payment network – Blockworks
Aaron Rodgers Injury Sends DraftKings NFTs Soaring for Backup QB – Decrypt