With crypto markets in turmoil, regulating the volatile industry has become a priority for lawmakers.
This pivot comes as the collapse of cryptocurrency exchange FTX has sent tremors through the emergent industry. While Sam Bankman-Fried (SBF) has since been arrested, the knock-on effects of his company’s implosion have caused both crypto participants and observers to wonder what Washington could have done differently to prevent it.
It remains unlikely that anything meaningful will be pushed through Congress before the end of the year, but fresh off of two hearings this week into the FTX collapse and the crypto market more generally, lawmakers are gathering information and readying either their proposed legislation or their votes.
Republicans will take over control of the House on January 3rd, 2023, and speculation is growing that the 118th Congress will turn out to be the crypto Congress.
Crypto Cops Are Catching Up
Crypto regulation is set to be a major focus for lawmakers. The past year of so-called ‘crypto winter’ market dips and high-profile implosions have fueled criticisms of inaction by Washington’s watchdogs, as American consumers saw their speculative investments disappear.
There are several bipartisan legislative initiatives on the docket, and lawmakers in general appear to be making a concerted push across the aisle to better safeguard U.S. investors.
“If we are going to learn from FTX’s meltdown, we must look closely at the risks,” said Sherrod Brown, the Senate Banking Committee’s chairman, during a public hearing on Wednesday (Dec. 14). “It means thinking about the kinds of disclosure that consumers and investors really need to understand how a token or crypto platform works.”
Democratic Sen. Elizabeth Warren, who spoke during the Senate Banking Hearing, and Republican Sen. Roger Marshall introduced new legislation meant to police the industry earlier on Wednesday.
The “Digital Asset Anti-Money Laundering Act of 2022,” as the proposed bill is called, is meant to put in place know-your-customer (KYC) controls on blockchain infrastructure actors and crypto industry participants, including developers and even crypto miners.
The stated goal of the bipartisan piece of legislation is to address national security risks posed by cryptocurrencies, as well as “close loopholes” in current anti-money laundering rules in order to prevent bad actors from using digital assets to fund terrorist organizations or rogue governments.
“The crypto industry should follow common-sense rules like banks, brokers and Western Union, and this legislation would ensure the same standards apply across similar financial transactions,” Warren said in a statement.
As part of the bill, the Financial Crimes Enforcement Network (FinCEN) would treat crypto wallet service providers, miners, validators and other network users as “money service businesses.”
FinCEN proposed a similar rule two years ago, but it has yet to be implemented. The bill from Sens. Warren and Marshall hopes to finalize that process.
Major crypto actors spoke out against the 2020 FinCEN proposal, and critics today have similarly categorized the Digital Asset Anti-Money Laundering Act of 2022 as an “opportunistic, unconstitutional assault on cryptocurrency.”
Other Efforts
Separately, on a more international scale, Reuters reported that BaFin, Germany’s financial market regulator, is calling for “global regulation of the cryptocurrency industry.”
While that may a valid argument, one of the trickier elements of policing crypto is that many of the companies are themselves strategically set up in favorable regulatory locations, often offshore and out of reach of U.S. and other developed nations’ oversight.
Still, there are some promising bills under proposal at home in Washington D.C.
Sens. Cynthia Lummis and Kirsten Gillibrand are reportedly keen to reintroduce their wide-ranging bipartisan bill next year to help overhaul how the digital-asset industry is regulated.
As PYMNTS reported over the summer, their Responsible Financial Innovation Act seeks to create a broad and all-inclusive regulatory and legal framework for the crypto industry.
There is also the Digital Commodity Exchange Act, a bill proposed in the House Agriculture Committee, and two recent bills by second-term New York Congressman Ritchie Torres meant to bring transparency to crypto exchanges.
But certain efforts are not without the lingering taint of FTX and its disgraced founder.
Together, Bankman-Fried and FTX helped shape and support the bipartisan Digital Commodities Consumer Protection Act (DCCPA), which hoped to expand the role of the U.S. Commodity Futures Trading Commission in regulating crypto.
The bill, introduced in August, has been languishing ever since as reports emerge that FTX lobbied for the bill more than any other piece of legislation this past year.
Still, it is worth noting that the majority of the efforts being put before Congress have bipartisan backing. With the failures of people, supposed safeguards and existing regulation to prevent the crypto industry’s mishaps thus far, the case for enacting new laws and regulation is valid, even if it happens a little too late.
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