Takeaways:

• Two new congressional subcommittees have been created by the U.S. House of Representatives to consider issues and potential legislative action concerning cryptocurrency and digital assets.
• The creation of these subcommittees signals Congress’ intent to consider how digital assets are regulated, which agencies should have the authority to regulate and enforce the asset class, and the scope of any such authority. The subcommittees will sit under the U.S. House Financial Services Committee (Financial Services Committee) and the U.S. House Agriculture Committee (Agriculture Committee), which maintain jurisdiction over the U.S. equities markets and U.S. commodities markets, respectively.

Overview

Two congressional committees of the U.S. House of Representatives commenced the new year by announcing the creation of new subcommittees for the 118th Congress that are expected to analyze issues concerning cryptocurrency and digital assets. The creation of these subcommittees signals the potential for legislative action in the wake of jurisdictional uncertainty regarding federal agency regulation and enforcement of these assets.

On Jan. 12, the Financial Services Committee, which has jurisdiction over matters related to the economy, the banking system, housing, insurance, capital markets, securities and exchanges, monetary policy, international finance, international monetary organizations, and efforts to combat terrorist financing, announced the creation of the Digital Assets, Financial Technology and Inclusion Subcommittee.[1] On Feb. 2, the Agriculture Committee, which oversees subjects relating to federal agriculture and commodity policy and the Commodity Futures Trading Commission (CFTC), announced the creation of the Commodity Markets, Digital Assets, and Rural Development Subcommittee.[2] Both subcommittees will analyze issues concerning digital assets, although the focus of each will be influenced by the underlying purpose of their respective committees.

U.S. House Financial Services Committee

The new Digital Assets, Financial Technology and Inclusion Subcommittee will cover digital assets, including cryptocurrencies, stablecoins and central bank digital currencies. The creation of this subcommittee reflects legislative priorities announced by Chairman Patrick McHenry (R-NC) earlier this year, which include capital formation, data privacy and digital assets. The subcommittee’s goals include:[3]

• providing clear rules of the road among federal regulators for the digital asset ecosystem;
• developing policies that promote financial technology to reach underserved communities; and
• identifying best practices and policies that continue to strengthen diversity and inclusion in the digital asset ecosystem.[4]

Specifically, the subcommittee will consider issues related to:

• the development of new or alternative forms of currency;
• activities of intermediaries, including digital asset issuers, trading and lending platforms and custody providers;
• matters and activities related to contemporary financial products, including consumer transactions using mobile devices, and services offered by non-bank firms, such as regulatory technology;
• agencies that exercise supervisory or regulatory authority over (1) digital assets, (2) nonbank entities, (3) innovative products and services offered by nonbanks, and (4) digital asset intermediaries, such as the Department of Treasury, the Securities and Exchange Commission, Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Federal Reserve System, and the National Credit Union Administration;
• matters related to financial technology firms promoting greater financial inclusion and providing consumer protection under the Consumer Financial Protection Bureau; and
• matters related to technologies of machine learning and artificial intelligence.

U.S. House Agriculture Committee

The new Commodity Markets, Digital Assets, and Rural Development Subcommittee introduced by the Agriculture Committee’s Chairman Glenn “GT” Thompson (R-PA) will cover, among other things, policies to bring robust oversight and retail customer protections to digital commodity markets and operations and authorities of the CFTC and as well as legislation to reauthorize the commission (the process by which Congress prescribes revisions, additions and deletions to the CFTC’s statutory authority). The new subcommittee would have jurisdiction over policies, statutes, and markets relating to commodity exchanges, rural development, energy, and rural electrification as well as related oversight of such issues.[5]

Conclusion

The outlook for consensus in Congress on digital asset policy is likely more challenging than it has ever been. Many lawmakers have been more outspoken in their skepticism about the industry in the wake of criminal actions and the “crypto winter.”

Key lawmakers, such as McHenry and Senate Banking Committee Chairman Sherrod Brown (D-OH), maintain diametrically opposed positions on the industry, and the jurisdictional rift that has paralyzed Congress and regulators shows no signs of abating. Until there is consensus, the cryptocurrency and digital asset industry remains in a perilous position, solely subject to existing SEC and CFTC authorities, which are ill defined in their application to the industry.

Still, the intense scrutiny currently facing the industry could spur a legislative breakthrough that creates a bipartisan framework to finally resolve jurisdictional disputes between the SEC and the CFTC and on Capitol Hill.

The two committees have worked together on digital asset policy in the past[6] and reportedly are working to coordinate their digital asset efforts in the 118th Congress.[7] But the prospects for comprehensive legislation face substantial challenges because of the committees that claim jurisdictional ownership: the House and Senate agriculture committees, the House Financial Services Committee, and the Senate Banking, Housing and Urban Affairs Committee. Negotiating complex policy between two committees is difficult; doing that among four committees is exponentially more challenging. Notably, if future crypto legislation would involve new revenue or transaction reporting to the IRS or changing existing or adding new civil or criminal penalties, then four additional congressional committees could be added to the jurisdictional mix, which would further complicate the process for consensus.

Another possible impediment to achieving broad congressional agreement on crypto policy is that farm bill reauthorization is the top legislative priority for both the House and Senate agriculture committees and will dominate both panels’ agendas in the coming months, inhibiting these committees from focusing on cryptocurrency and digital assets.

The BakerHostetler White Collar, Investigations, and Securities Enforcement and Litigation; Blockchain Technologies and Digital Assets; and Federal Policy teams are composed of dozens of experienced individuals, including attorneys who have served in the Department of Justice, the SEC and Congress. Our attorneys include former U.S. attorneys, branch chiefs and unit chiefs; partners who have served in the SEC’s Division of Enforcement and the SEC’s Office of the General Counsel; and attorneys with extensive experience in commodities and derivatives and across all sectors of the blockchain and cryptocurrency markets, including investigations, Bank Secrecy Act/anti-money-laundering compliance, tax, privacy, transactions, intellectual property, media and technology design, federal legislation, congressional oversight, and public policy. Please feel free to contact any of our experienced professionals if you have questions about this alert.

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