Republicans court Democratic support of crypto bill

Andrew Harrer/Bloomberg

WASHINGTON — Democrats took issue with a few key elements in Republicans' new crypto bill, which was released as an effort between the House Financial Services Committee and House Agriculture Committee. However,  neither party closed the door entirely to bipartisan compromise on the issue.  

Rep. Maxine Waters, D-Calif., the ranking member of the House Financial Services Committee, said that a bill released by Rep. Patrick McHenry, R-N.C., the chairman of the panel, and Rep. Glenn Thomson, chairman of the House Agriculture Committee, wasn't circulated early enough among Democrats to have sufficient input. That bill gives the Commodity Futures Exchange Commission authority in the oversight of many digital assets, including, potentially, some that the Securities and Exchange Commission have taken action against as unregistered securities. 

"The bill is 160 pages long, highly complex and was only made public about a week ago. Any bill that would so dramatically overhaul our nation's capital markets must be worked on with the minority," Waters said. "We also need the analysis and views of independent regulators, the administration and stakeholders on the implications of this legislation." 

Initially, she said she has a few key concerns, including a "provisional registration" element of the bill that she said would allow some crypto firms currently under legal scrutiny by the SEC for violating securities laws to continue doing business. 

McHenry advances Fincen beneficial ownership rule complaints with bills

"The bill appears to halt any enforcement actions by the SEC against crypto firms, even when they have committed fraud," Waters said. "This provisional registration could reward bad actors with a get out of free card." 

Waters also took issue with the lack of a provision that would prohibit the intermingling of customer funds and crypto assets, citing the unwinding of the crypto exchange FTX, which was severely compromised by doing just that. 

"We know that FTX commingled customer funds to make undisclosed investments and to trade against its own customers," she said. "SEC has ramped up its enforcement against other crypto firms for the same misconduct." 

While Republican committee staffers said that the initial draft discussion of the crypto bill was released without any Democratic feedback, or any feedback from key agencies, McHenry invited bipartisan debate during Tuesday's hearing. 

"As I've said at all of our markups, I have an open door. This should be a bipartisan process, and I intend it to be," he said. "So, please share your input; this is a draft bill. There's plenty of time for members to find common ground on how we legislate."

He said that he plans a markup of some kind of digital assets legislation when Congress returns from its July 4 recess. 

The House has the ability to pass legislation on digital assets with Republican votes alone, but Republican leadership on the House Financial Services Committee has repeatedly stressed that they want Democrat input before sending the bill to the Senate, where it will need the backing of lawmakers like Sen. Sherrod Brown, D-Ohio, the chairman of the Senate Banking Committee. 

Rep. French Hill, R-Ark., the chairman of the subcommittee on digital assets, acknowledged concerns at Tuesday's hearing about the provisional registration issue that Waters raised.

"The ranking member brought this subject up…it's very important," he said. "It's a tricky area to get right, we want to make sure that we draft it as best as possible."