Republican Lawmakers Distinguish between Crypto Commodities and Securities in Draft Bill

The proposal attempts to set clear roles for the SEC and the CFTC.

Republican members of the House of Representatives released a draft bill on June 2 that aims to define a clear role for regulators in the cryptocurrency industry.

SEC Capabilities

The draft bill specifically aims to separate the regulation of cryptocurrencies as securities from the regulation of cryptocurrencies as commodities.

The proposed rule would prevent the U.S. Securities and Exchange Commission (SEC) from treating payment stablecoins and digital goods as securities.

The rules would prevent the SEC from denying exemptions simply because certain exchanges offer digital assets, and “ancillary activities” such as wallet provisioning, software releases, and node operations would not be regulated by the SEC.

The SEC will also be required to change and update general rules regarding customer protection, record keeping and digital assets.

Still, the rules would give the SEC anti-fraud powers over certain transactions involving crypto commodities. Parties that are registered with the SEC but offer cash and spot markets will need to be registered with the CFTC and the SEC.

CFTC Authority

Instead, the proposed rule would give the Commodity Futures Trading Commission (CFTC) new powers over cash and spot markets for digital commodities.

The CFTC will receive authorization for transactions involving payments for stablecoins and digital commodities on its registered platforms. However, the CFTC has no control over the design and operation of these stablecoins.

The act establishes requirements for digital commodity exchanges registered with the CFTC and the process by which a service can determine which assets are eligible to trade on a registered platform. It also allows the CFTC to set requirements for digital asset custodians, but does not allow the CFTC to directly supervise those custodians.

The proposal would also create a joint advisory body between the CFTC and the SEC, create other regulatory groups, and conduct initiatives and studies.

Crypto Innovation

Rep. Patrick McHenry, who introduced the bill, said the draft is "a step toward ... clarifying the rules of the road." He added that the bill aimed to strike a balance between "protecting consumers and encouraging responsible innovation".

The bill represents a joint effort between the House Financial Services Committee, chaired by McHenry himself, and the House Agriculture Committee, chaired by Rep. Glenn Thompson (R-D.). Representatives French Hill and Dusty Johnson also supported the bill.

The bill ties into several regulatory debates that have taken place in recent months, including the extension of exchange rules to non-exchange services, changes to custody requirements, and the differing regulatory roles of the CFTC and SEC.

The bill is in its early stages and has yet to receive feedback from Democratic lawmakers.