(Bloomberg) -- Republican chairs of two key House committees released a draft bill that would offer a pathway for digital assets that begin as securities to eventually be regulated as commodities.
The draft legislation was unveiled Friday by House Financial Services Committee Chairman Patrick McHenry and House Agriculture Committee Chairman Glenn Thompson. The bill on market structure is meant to act as a jumping off point for discussions between Republicans and Democrats on the two committees, as well as with the Senate, regulators and the private sector, senior staff familiar with the drafting of the proposal said.
The 162-page draft bill will likely face long odds getting the agreement from Democrats in Congress needed for it to become law but it offers a glimpse into Republicans’ thinking on the issue after months of calling for a regulatory framework for digital assets.
Tokens offered as part of an investment contract would remain in the Securities and Exchange Commission’s remit, while those that qualify as commodities would be overseen by the Commodity Futures Trading Commission. Whether or not an asset is a commodity would depend largely on whether a blockchain network is decentralized.
A network would be considered decentralized if it meets certain requirements, including that no person — during the previous 12 months — had unilateral authority to “control or materially alter” the function or operation of the network and that no token issuer or affiliated person owned 20% or more of the digital asset units outstanding.
Under the draft, a token issuer can certify to the SEC that the blockchain is sufficiently decentralized but the SEC can object. The agency has 30 days to make a decision, though it can seek one 90-day extension.
SEC Chair Gary Gensler has repeatedly said that most digital assets are securities and that new rules aren’t necessary. He’s said the issue isn’t lack of clarity but trading platforms’ unwillingness to abide by existing regulations — a position that’s been backed by some Democrats on Capitol Hill. The crypto industry has pushed back, claiming that current rules aren’t workable or clear and is asking Congress to step in.
The draft bill from the Republican chairs would offer guidance on how platforms can register at the SEC, CFTC or both, and would require the two regulators to jointly issue rules on definitions and oversight of dually-registered exchanges.
It also would provide a transition period while the regulators are working on rules to allow platforms to file a provisional registration statement with the SEC or CFTC. At the same time, it would mandate studies on nonfungible tokens — NFTs — and on decentralized finance, or DeFi.
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