Senate Banking FSOC Hearing Could Highlight Illicit Finance Bills; Prometheum Re-Emerges

‘Ether is a security’

Prometheum CEO Aaron Kaplan re-appeared on the media landscape yesterday with his company’s imminent launch of crypto custody services for Ether (ETH) “securities.” Read more in CoinDesk.

Last year was a busy year for Mr. Kaplan.

He earned the wrath of Senator Tommy Tuberville (R, AL) among others for Prometheum’s ties to Chinese investors. And then, he endured a very public questioning at a June House Financial Services (HFS) hearing which included Rep. Mike Flood (R, NE) trying to get Kaplan (see it) to answer whether certain crypto was a security or commodity.

Mysteriously, Kaplan’s company had just received a rare, crypto-related seal of approval from the Securities and Exchange Commission (SEC) – a special purpose broker-dealer license – based on the idea that nearly all crypto are securities.

Kaplan says his company will start taking custody of Ether by the end of next month and tells CoinDesk’s Jesse Hamilton emphatically, “The CFTC is not our regulator…. When the SEC says to us, ‘It’s not a security,’ then we’ll be troubled.”

In reaction to the Prometheum news, Willkie Farr crypto counsel Mike Selig said on X: “SEC has effectively conceded ETH isn’t a security multiple times, but left ambiguity. Prometheum need only reasonably believe ETH is a ‘crypto asset security’ to custody it. SEC permitting Prometheum to custody ETH as a security [because] of this ambiguity won’t make ETH a security.”

more tips:

SEC may be forced to declare Ethereum a security after controversial new launch – Fortune on Yahoo

what you should know: The clientele which Prometheum produces at the end of March – if it does – will be a story unto itself. Few have stated that Ether is a security, but perhaps the shield of an SEC special purpose broker-dealer license will be attractive to some – such as certain foreign investors.

digital Yuan update

Decrypt reports that the Hong Kong Chamber of Commerce is pushing for the the issuance of a Chinese Yuan-Backed stablecoin alongside what it’s calling, a “Virtual Asset Connect Scheme.” The Chamber of Commerce said that “yuan-backed stablecoins would ‘promote the broader adoption of RMB and facilitate international trade transactions,'” according to Decrypt. Read more

what you should know: This is another step in digital Yuan trying to compete with the US Dollar as the world’s reserve currency.  It has a long way to go, but currency moves fast on the blockchain. Hong Kong appears to be an international “test bed” for the Chinese currency.

stablecoin love

Politico’s Eleanor Mueller announced on X last night that there may be a breakthrough with stablecoin legislation: “Maxine Waters (D, CA) tells me she and McHenry are ‘very, very close’ to reaching an agreement on stablecoins legislation.” HFS Ranking Member Waters has been representing White House interests in negotiations with HFS Chair Patrick McHenry (R, NC) over stablecoin legislation which came out of a rancorous July markup.

The publicly acknowledged sticking point has been the insertion of a “federal floor” in the bill – supported by Democratic leadership – which would give the Federal Reserve final say on US Dollar-backed stablecoin issuance. Waters tells Mueller as much in Politico. Read it.

McHenry and Republicans have wanted to preserve parallel or states rights to issue a stablecoin.  But, parallel rights is also supported by some Democrats in New York State such as New York Department of  Financial Services Superintendent Adrienne Harris, Rep. Gregory Meeks and Rep. Ritchie Torres. The state has a robust stablecoin regime of its own.

what you should know: Waters expressed optimism about stablecoin legislation in March of last year only to have seen the shifting political sands move under her feet, which caused an about face by the Ranking Member one month later.

today – Senate Banking

The Senate Banking Committee led by Chair Sherrod Brown (D, OH) will hold a hearing titled, “The Financial Stability Oversight Council Annual Report to Congress” with U.S. Treasury Secretary Janet Yellen reprising her Tuesday appearance in front of House Financial Services.  The hearing begins at 9 a.m. ET in Dirksen Senate Office Building. Livestream will be here.

Unlike Tuesday, any digital assets discussion will likely involve crypto and illicit finance given the Committee’s Democratic majority.  This could be the hearing where Chair Brown finally reveals his long-rumored bill covering illicit finance and crypto.

Undoubtedly, Senator Elizabeth Warren (D, MA) will be touting her digital assets/illicit finance legislation: the Digital Asset Anti-Money Laundering Act [S.2669]. Senator Bill Hagerty (R, TN) may mention his own illicit finance bill introduced in January, the Preventing Illicit Finance Through Partnership Act [S.3603], which is co-sponsored by Senator Cynthia Lummis (R, WY). The bill has been referred to the Senate Judiciary Committee. Hagerty has been openly suspicious of an “Operation Choke Point” against digital assets, too.

Also, Senator Jack Reed’s (D, RI) “Crypto-Asset National Security Enhancement and Enforcement Act” or CANSEE [S.2355] and Senator Mark Warner’s (D, VA) “Terrorist Financing Prevention Act” [S.3441] will no doubt be promoted by the two Banking Committee Members seeking to add more anti-money laundering restrictions in digital assets and decentralized finance (DeFi).

Meanwhile, Senator Lummis may choose to highlight her Lummis-Gillibrand Responsible Financial Innovation Act (RFIA) [S.2281].  During the House hearing on Tuesday, committee members highlighted the contradiction of Secretary Yellen’s call for digital asset legislation from Congress. The Committee had already approved a digital asset market structure bill out of a July HFS markup. Democratic leadership through its proxies such as HFS Ranking Member Maxine Waters (D, CA) and Rep. Steven Lynch (D, MA) have shown only rejection of the bill to-date. Sen. Lummis could raise the same query here: “RFIA is already here. Can you get your leadership behind it, please?”

more tips:

US Treasury says criminals and scammers are increasingly turning toward crypto – The Block

today – tokenization

The Office of the Currency of the Controller (OCC) is holding its “OCC Symposium on the Tokenization of Real-World Assets and Liabilities” today in Washington, D.C. In-person attendance is sold out according to the OCC.

But, a livestream will be available here. The event starts at 9 a.m.

what you should know: The event highlights the prudential regulator’s understanding that tokenization and the underlying blockchain technology will be transformative in finance.

the state of crypto

Crypto platform Coinbase dropped a new report titled, “The State of Crypto.” Get the PDF here.

Politico’s Jasper Goodman said yesterday that the new report “touts digital assets as a solution to an array of issues with traditional finance. It’s part of the industry’s ongoing efforts to build support among lawmakers as they weigh legislation that would help legitimize the industry.”

new co-sponsors

Another day, another 4 Republican co-sponsors…. Majority Whip Tom Emmer’s (R, MN) CBDC Anti-Surveillance State Act [H.R.5403] added Reps. Mark Amodei (NV), Sam Graves (MO), Diana Harshbarger (TN) and Elijah Crane (AZ).

That brings the number of co-sponsors for the anti-Central-Bank-Digital-Currency (CBDC) bill to 83. It’s an impressive show of support for the Whip by his caucus which helps position not only the bill, but Whip Emmer for the next Congress.

For the “Financial Innovation and Technology for the 21st Century Act” or FIT 21 [H.R.4763], a new co-sponsor was added on Tuesday according to Rep. Jim Banks (R, IN).

FIT 21 now has 7 Republicans and 2 Democrats co-sponsoring the bill introduced by House Agriculture Chair Glenn “GT” Thompson (R, PA), which passed through markups in HFS and House Ag in July.

Rep. Banks is on the House Armed Services Committee, House Education and the Workforce Committee and the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party.

still more tips

February 14 – House Financial Services Committee Hearing: “Oversight of the Financial Crimes Enforcement Network (FinCEN) and the Office of Terrorism and Financial Intelligence (TFI)” –

SEC Charges TradeStation Crypto for Unregistered Offer and Sale of Crypto Asset Lending Product; TradeStation Settles for $1.5 Million –

Q&A: Dan Romero and Jesse Pollak think this may be Farcaster’s ‘inflection point’ – Blockworks

Opinion: Diversifying Stability – Stablecoins Finding Home Beyond the Greenback – CoinDesk

Digital Currency Group Objects to Genesis Global’s Chapter 11 Plan – The Wall Street Journal