House Republicans push for new crypto rules after Ripple decision

Key Republican members of the House of Representatives formally unveiled a bill to establish rules for oversight of crypto markets in the wake of a recent court ruling that is viewed by some observers as favorable for the sector. 

The legislation, previewed as a draft in June, would make clear when and how crypto firms should register with the Securities and Exchange Commission or the Commodity Futures Trading Commission, which would gain new powers to directly oversee trading in certain tokens. The bill would also provide a pathway for digital assets that start as securities to eventually be regulated as commodities. The test for when an asset is a commodity would largely depend on whether the blockchain network it’s affiliated with is sufficiently decentralized. 

The bill’s co-sponsors include House Agriculture Committee Chairman Glenn Thompson of Pennsylvania, and Republican Reps. French Hill and Dusty Johnson, who helm the digital assets subcommittees on the House Financial Services and House Ag panels, respectively. Financial Services Chair Patrick McHenry of North Carolina is also backing the legislation.

The bill “marks a significant milestone in the House Committees on Agriculture and Financial Services efforts to establish a much-needed regulatory framework that protects consumers and investors and fosters American leadership in the digital asset space,” Thompson said in a statement Thursday. 

Earlier this week he expressed hope that a recent ruling in the SEC’s case against Ripple Labs Inc. — in which a judge concluded some offerings of the firm’s XRP token were subject to securities rules and some weren’t — convinces more Democrats to support the effort. 

The lawmakers plan to advance the measure through their committees next week. 

The latest version of the bill makes several changes from the June draft. For instance, it tweaks an earlier measure on provisional registrations with the SEC or CFTC. Under the bill released Thursday, firms would be able to file a notice of intent to register with the agencies. As long as they comply with requirements around safeguarding customer assets and disclosure, they won’t face enforcement actions over registration or token listings. The regulators will, however, retain the right to go after companies for fraud or manipulation. 

In addition, the bill includes a new provision that would require crypto firms registered with the SEC to maintain and enforce written policies and procedures to reduce conflicts of interests with affiliates. The legislation would also direct the SEC and CFTC to conduct a joint study to “assess whether additional guidance or rules are necessary to facilitate the development of tokenized securities and derivatives products.” The regulators would have to consider how such rules would impact the fairness of the markets, the public interest, and investor protection.

So far, the bill is still a Republican-led effort. It will need Democratic support — particularly in the Senate — to get enacted this Congress. Key lawmakers, including Maxine Waters, the top Democrat on the Financial Services Committee, have expressed concerns about the bill. Meanwhile, the SEC has repeatedly said new rules aren’t needed to define when a token is under its remit. 

Republicans say the Ripple ruling showed clarity is needed and they hope to sway Democrats to join their cause. Still, they have very little time to do so before next week’s planned committee votes. 

If the bill is passed in the House, it would then be up to the Democrat-led Senate to decide whether to advance it further.