WASHINGTON — The House will vote on one of its
The bill's text, which has been hashed out between the House Financial Services Committee and the House Agriculture Committee, is largely concerned with delineating authorities between the Securities and Exchange Commission and the Commodity Futures Trading Commission, and establishes a criteria by which the agencies can determine which of them would oversee various digital assets.
But importantly for banks, it would
Specifically, the bill would bar the SEC from requiring or taking any supervisory action that would cause a bank to record a crypto asset held in custody on the institution's balance sheet "except that cash held for a third party by such institution that is commingled with the general assets of such institution." It would also prevent the SEC from requiring that banks hold additional regulatory capital against assets in custody or safekeeping.
Zachary Zweihorn, a partner with law firm Davis Polk, said the bill would create much-needed legislative certainty around at least some aspects of the cryptocurrency market and would give banks a clear basis for becoming service providers to that industry.
"As a supervisory matter, banking regulators have been hesitant about banks engaging in digital asset activities given the regulatory uncertainties and risks inherent in the market," Zweihorn said. "Passage of a comprehensive federal regulatory regime for digital asset activities could reduce the risks that supervisors see as presented by the industry, eventually making them more comfortable with the asset class."
Rep. French Hill, R-Ark., one of the lead sponsors of the legislation, said in an interview that banking regulators sought clarity in the legislation after the SEC didn't consult them before releasing the accounting bulletin.
"The Staff Accounting Bulletin 121 on custody which was not reviewed with the bank regulators, was not reviewed with Treasury and was not consulted with anybody and actually took custody completely in the wrong direction," Hill said. "Not consistent with custody rules that have been longstanding.
"The bank regulators have sought clarity here for custody," he added.
The legislation is getting a last-minute boost from a surprisingly amenable Democratic contingent. While Democratic leaders on the House Financial Services Committee — including Reps. Maxine Waters of California and Stephen Lynch of Massachusetts — are opposing the legislation for applying too light a touch to the crypto industry, Democratic leadership isn't whipping against the legislation.
That means that party leadership isn't pressuring Democrats to vote along party lines, and there could be significant numbers that choose to back the Republicans' bills.
Most Democrats voted against the measure in the Senate, but the vote still previews growing willingness among Democratic lawmakers, especially ahead of elections, to consider crypto bills, even those that are more permissive.
A senior committee staff member involved in the drafting of the bill told reporters that the bill's authors, who include Reps. Patrick McHenry, R-N.C., the chairman of the House Financial Services Committee, and French Hill, the chairman of the subcommittee on digital assets and financial technology and potential future top Republican on the full panel, hope that the Senate sees Democratic votes in the House votes, and that it prompts them to negotiate on the legislation.
With renewed possibility that a crypto structure bill passes along a bipartisan basis, a group of critics, including consumer groups and prominent bank law professors, have released a statement that outlines deeper financial stability concerns with the bill.
Specifically in regard to banks, the coalition, which includes progressive groups like the Americans for Financial Reform, the National Consumer Law Center, National Community Reinvestment Coalition and Public Citizen, said that the bill could allow institutions like banks to bypass regulation.
"Not only could the decentralization framework named above allow crypto firms to largely continue with dangerous business practices as usual; it could also enable traditional financial firms to evade more robust regulatory oversight by claiming their products and platforms meet this decentralization rubric and thus are exempt from conventional regulatory requirements for securities issuers and actors,"
