As digital assets gain prominence in the financial world, a sense of urgency arises surrounding the need for clear regulatory frameworks. Two Republican lawmakers from the US House Financial Services Committee and the House Agriculture Committee have joined forces to address this need, working on a discussion draft to regulate digital assets. Their primary goal is to establish clarity in determining when a digital asset is considered a security, thus falling under the purview of the Securities and Exchange Commission (SEC). This draft proposes a process outlining how digital assets should be treated, as well as the registration process for intermediaries with the SEC or the Commodity Futures Trading Commission (CFTC).
In an attempt to find a unified path forward at the end of the last Congress, House Financial Services Chair Patrick T. McHenry of North Carolina and House Agriculture Chair Glenn “GT” Thompson of Pennsylvania joined forces, backed by senior policy officials familiar with the draft legislation. This collaboration resulted in the proposed “Digital Asset Market Structure Discussion Draft,” which aims to establish a legal framework recognizing the CFTC’s jurisdiction over digital commodities, while clarifying the SEC’s jurisdiction over “digital assets offered as part of an investment contract.”
Under this legislative framework, the SEC and CFTC would be required to work together on rulemakings regarding certain terms and the oversight of dually registered exchanges. The legislation also provides guidelines for how and when certain digital assets would become decentralized commodities under the CFTC, therefore removing them from the SEC’s jurisdiction. In case of objections by the SEC, detailed analyses are expected.
Furthermore, the Act could establish a joint CFTC-SEC Advisory Committee on Digital Assets. This committee would advise the SEC and CFTC on digital asset matters and require a joint study on decentralized finance. To promote bipartisan support for the legislation, senior policy officials have stated that lawmakers are actively pursuing common ground, as various legislators continue to introduce their own bills to regulate cryptocurrency.
Despite not being shared with Democrats ahead of the announcement, the discussion draft has raised hopes for involving Rep. Maxine Waters, D-Calif., former chair of the House Financial Services, in conversations about the legislation. As the House Agriculture Committee plans to host a hearing next week on digital assets titled “The Future of Digital Assets: Providing Clarity for Digital Asset Spot Markets,” it remains to be seen whether this proposed regulatory framework will foster further collaboration and result in the long-awaited clarity much needed for the blossoming digital asset market.