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Crypto’s New Congressional Subcommittee Aims For ‘Responsible Innovation’

 |  January 30, 2023

Cryptocurrency industry regulation in the post-FTX era has emerged as a pressing concern for the new Congress.

It is no less pressing a concern for American consumers.

This, as Sen. Elizabeth Warren claimed in an interview Wednesday (Jan. 25) with the American Economic Liberties Projects (AELP) that the prior administration “essentially gave the green light” to a cryptocurrency market “full of junk tokens, unregistered securities, rug pulls, Ponzi schemes, pump and dumps, money laundering and sanctions evasions.”

A slate of crypto industry collapses, from FTX to now Genesis and beyond, have evaporated countless billions of dollars of customer funds in a daisy-chain of interlinked implosions, seen the loss of thousands of jobs, and drawn attention, ire and unease to the decade-old industry that once promised to revolutionize the global financial services ecosystem.

Rep. Patrick McHenry, the chair of the House Financial Services Committee, has created a new crypto-focused subcommittee called the Subcommittee on Digital Assets, Financial Technology and Inclusion.

Crypto’s Newest Committee

Rep. French Hill of Arkansas will chair the subcommittee and steer its direction. Hill also serves as vice chairman of the House Financial Services Committee. The subcommittee’s vice chair will be Ohio Rep. Warren Davidson.

“At a time of major technological advancement and change in the financial sector, it is our job to work across the aisle and promote responsible innovation while encouraging FinTech innovation to flourish safely and effectively in the United States,” Hill said in a statement announcing his appointment.

Mission-critical for Hill and the new congressional subcommittee will be striking a balance between protecting consumers and conferring legitimacy on cryptocurrencies through regulation.

“Congressman Hill has the experience and expertise necessary to tackle this challenging undertaking,” said McHenry in a statement. “French is a team player, which is one of the reasons why there is no one I trust more with one of my top priorities. FinTech — particularly digital assets — holds immense promise as a tool to build a more inclusive financial system. I look forward to working with him to provide clear rules of the road for this ecosystem that protect consumers, while allowing innovation to thrive here in the U.S.”

Hill, who in his private sector past life was a community banking executive, formerly served as deputy assistant secretary of the Treasury for Corporate Finance during the administration of President George H.W. Bush.

The goals of the freshly established subcommittee are threefold. It aims to provide federal regulators with clear rules for the digital asset ecosystem; develop policies that promote financial technology to reach underserved communities; and identify best practices and policies to strengthen diversity and inclusion in the digital asset ecosystem.

The subcommittee will also play a critical role in developing legislation.

Crypto businesses generally prefer to headquarter their operations in amenable regulatory and tax environments, including the Bahamas, Bermuda, the British Virgin Isles, and other jurisdictional geographies that allow them to technically operate outside the oversight of more stringent governmental bodies, including the U.S.

“Much of this is offshore,” Securities and Exchange Commission (SEC) Chairman Gary Gensler has said.

Read more: UK & EU’s Crypto Regulation Divergence Set To Accelerate

“Unfortunately for the investing public, the entrepreneurs in this field have chosen — and it’s a choice — they have chosen to try to skirt the law, whether they’re setting up overseas and they’re servicing overseas actors,” he added. “That’s for other jurisdictions. That’s for other regulators around the globe. But if they’re in U.S. markets, they need to come into compliance.”

The creation of the new crypto subcommittee within the umbrella of the House Financial Services Committee is viewed by some observers as a strong signal of Congress’ intent to potentially align oversight of the digital asset industry with traditional financial institution (FI) oversight.

Lobbying Lawmakers for Light-Touch Legislation

Nearly one in three members of Congress, or 196 legislators, received donations from executives of the failed FTX crypto exchange, including both House Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer.

Warren said in her Wednesday (Jan. 25) interview with AELP that the “crypto industry is scared of a strong SEC, and that’s why it is spending millions of dollars each year lobbying to escape SEC oversight.”

As with all things FTX, there is no clear-cut answer as to whether the politicians need to return the funds, donate them to charity, or wait for further instructions from the FTX debtors.

What the donations have done in the meantime is cast a pall over proposed legislation tied to the lawmakers who accepted FTX’s money.

The most notable piece of legislation to be stalled is the Digital Commodities Consumer Protection Act (DCCPA), which FTX founder Sam Bankman-Fried was in support of.

The bill would rely largely on the Commodity Futures Trading Commission (CFTC) to police cryptocurrency markets and leave the SEC in charge of overseeing the digital securities offered and traded on those markets.