This Week in Policy (9/26)
Hello Fintech Friends!
This week, we are back at reporting on crypto policy news after dedicating last week’s issue to the seven policy reports that were recently released by the Biden administration. The reports gave a fuller picture of the administration’s comprehensive approach to digital assets.
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Coverage this week includes highlights from the ongoing debates in the following crypto policy areas: (1) The SEC v. CFTC; (2) the SEC’s jurisdiction; (3) stablecoin regulation; and (4) crypto regulation. Let’s get started!
1. The SEC v. CFTC
The competition between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over who has the authority to regulate digital assets is one of the main themes in crypto policy debates in the U.S. Last week, we said that we will discuss a recent instance of this competition. Until recently, the most notable development in this regard was the Digital Commodities Consumer Protection Act, a bill that was introduced last August by four Senators on the Senate Agricultural Committee. The main goal of the bill is to grant the CFTC, which is overseen by the Agricultural Committee, an “exclusive jurisdiction” over “digital commodities.” Although the bill does not limit in any meaningful way the SEC’s power to determine which digital assets are considered securities, the bill apparently has given the CFTC a push forward in the regulatory competition. On September 15, Rostin Behnam, the head of the CFTC, told the members of the Senate Agricultural Committee that his agency has already started preparing to be the primary regulator of digital assets. A week later, Rep. Sean Patrick Maloney (D-NY), the chairperson of the House Commodity Exchanges, Energy, and Credit Subcommittee, introduced a bill that basically replicates the Senate bill. While this new bill has almost no chance of passing anytime soon, it seems that its purpose is to bolster Congressional support of the CFTC becoming the primary regulator of digital assets, this time in the House.
2. The SEC’s Jurisdiction
While crypto enthusiasts all over the world were celebrating the Merge, which is all about the shift from proof of work to proof of stake (and which reduces the energy use of the world’s second-largest cryptocurrency by 99%), the Chairman of the SEC Gary Gensler said that staking could turn tokens into securities. According to Gensler, staking (which allows investors to validate transactions on the blockchain by locking up their tokens for a specified amount of time in exchange for new tokens) could make the locked-up tokens pass the Howey test. Accordingly, these tokens could be considered securities, which would put them under the purview of the SEC.
So, in crypto land, it turns out that going green may cost much more than you think!
3. Stablecoin Regulation
Last week, Bloomberg reported a major development in the ongoing negotiations between the House Financial Services Committee Chair Rep. Maxine Waters (D-CA) and Ranking Member Rep. Patrick McHenry (R-NC) over the bipartisan stablecoin bill they introduced last July. The bill, which allows both banks and non-banks to issue stablecoins, will not completely prohibit algorithmic stablecoins like TerraUSD whose collapse led to the Great Crypto Meltdown last May. Instead, the bill now imposes a two-year ban on “endogenously collateralized stablecoins,” and mandates a study of these assets by Treasury, the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Securities and Exchange Commission.
4. Crypto Regulation
On August 30, California’s state legislatures approved a new bill that requires any entity engaging in “digital financial asset business activity” to be licensed by the state’s Department of Financial Protection and Innovation by January 1, 2025. The bill sought to establish a licensing system similar to the “BitLicense” regime of New York. On September 23, California Governor Gavin Newsom vetoed the bill. In his veto letter, Newsom underscored that “[i]t is premature to lock a licensing structure in statute without considering both [the extensive research and outreach of his administration] and forthcoming federal actions” adding that a “more flexible approach is needed.” A two-thirds vote in each house is now needed to override Newsom’s veto.
Look out for updates on the above headings and more in the weeks to come! And let me know your thoughts on this new format of the Policy Edition.
See you next week!