Crypto bill from Republicans lays out clear roles for SEC and CFTC

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Rep. Patrick McHenry, a Republican of North Carolina and ranking member of the House Financial Services Committee, speaks during a hearing in Washington, D.C.
Andrew Harrer | Bloomberg | Getty Images

Republican lawmakers released a draft bill on Friday that would provide crypto assets and exchanges a clearer regulatory plan, allowing digital assets to be traded on more conventional trading platforms and introducing a division of authority between the top two U.S. financial regulators.

The discussion draft was co-authored by Reps. Patrick McHenry, R-N.C., and Glenn Thompson, R-Pa., and would grant the Commodity Futures Trading Commission explicit spot market authority over crypto commodities under existing law.

The Securities and Exchange Commission would regulate digital asset securities.

The bill would “prohibit the SEC” from preventing an alternative trading system, or ATS, from listing crypto securities and would require the SEC to “modify its rules to allow broker-dealers to custody digital assets,” according to a draft summary.

The bill proposes a clearer pathway for the registered offer and sale of digital assets. The SEC has based several enforcement actions against American crypto entities, including Gemini, Genesis, and Kraken, by arguing that the companies engaged in the unregistered offer and sale of securities.

A key carveout for so called DeFi assets, or decentralized finance assets, would allow SEC-certified assets to be exempt from registering as securities.

Crypto exchanges have been calling for regulatory clarity in the wake of expansive enforcement actions that have left companies and developers scrambling to move operations beyond the U.S. Crypto exchanges Coinbase and Gemini have both announced off-shore exchange operations.

Coinbase is also engaged in a bruising courtroom battle with the SEC over the very issues that apparently prompted the McHenry-Thompson bill. The crypto exchange received a Wells notice, a warning of impending enforcement action, from the SEC earlier this year.

The draft bill will likely be reshaped and modified in coming weeks and months, but it represents a powerful vote of support from two influential Republican members.

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