US lawmakers discuss crypto regulatory framework in light of SEC lawsuits

By: Dickson Arinze

June 13, 2023 9:29 PM

Offering crypto businesses interim licenses under a proposed framework, according to Rep. Maxine Waters, "could reward bad actors with a 'get out of jail free' card."

Members of the United States House Financial Services Committees gathered to discuss clarity for the digital asset ecosystem, with some citing recent SEC legal action against cryptocurrency firms.

During a committee hearing on June 13, ranking member Maxine Waters stated→ that Democrats were taking a "serious and thoughtful look" at a proposed framework for regulating digital assets submitted by Republicans. Committee head Patrick McHenry stated that he anticipates bipartisan participation in a draft bill, with mark-ups following the July legislative recess.

Waters argued that the digital asset legislation could open the door to potential fraud and exploitation of client funds if extensive analyses and collaboration between the two major parties are not conducted. The California Representative referenced the collapse of FTX, the criminal charges filed against former CEO Sam Bankman-Fried, and the SEC's recent moves→ against Binance and Coinbase.

In particular, Waters expressed concern that temporary registration under the Republican measure would enable cryptocurrency firms being sued for violations of U.S. securities laws to continue operations. The bill seems to halt any SEC enforcement actions against cryptocurrency firms, even if they have committed fraud." This interim registration could provide unscrupulous actors with a 'get out of jail free' license, allowing them to continue causing harm to consumers and investors."

The draft measure, introduced on June 2, would ban the SEC from refusing to register digital asset trading platforms as a regulated alternative trading system and would allow such firms to sell "digital commodities and payment stablecoins." It would also reform the duties of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in regulating digital assets in the United States.

"When it came to FTX and the violations, or alleged violations, with Binance and Coinbase, the American public was left holding the bag," said Prometheum creator and co-CEO Aaron Kaplan at the hearing. "The best way forward is pretty clear and logical: apply federal securities laws [via the SEC]."

Other lawmakers have reacted differently to the SEC's apparent regulation-by-enforcement strategy. On June 12, Ohio Rep. Warren Davidson, who serves on the House Financial Services Committee, introduced→ legislation that would reorganize the SEC and lead to the removal of SEC chief Gary Gensler. It's not apparent whether or not this action is legal.

In the midst of the SEC cases, Binance.US has resisted the commission's attempts to freeze its assets. At the time of publication, a federal judge in the District of Columbia was examining opposing filings from the Securities and Exchange Commission, Binance, and Binance.US regarding how to handle the assets, as well as other pending legal activities.