U.S. Congress to Tackle SEC Oversight, Stablecoin Legislation

By Ryan Ozawa

SEC Chair Gary Gensler will be in the hot seat on Tuesday, the star witness before the full U.S. House Committee on Financial Services on the topic of "Oversight of the Securities and Exchange Commission." The next day, the Subcommittee on Digital Assets, Financial Technology and Inclusion will take up draft legislation relating to stablecoins.

On the regulatory front, Gensler has found himself again under fire from within his own agency, with SEC Commissioner Hester Peirce on Friday filing a robust dissent against Gensler's latest policy move, which changes the statutory definition of a securities exchange to include cryptocurrency and digital asset exchanges.

Gensler said amendments to the definition of “exchange” under the federal Exchange Act Rule are necessary to address platforms that trade crypto asset securities, including "so-called 'DeFi' systems," asserting that "many crypto trading platforms already come under the current definition of an exchange."

Pierce titled her rebuttal, "Rendering Innovation Kaput."

"Rather than embracing the promise of new technology as we have done in the past, here we propose to embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology," Pierce wrote, going as far as to say the SEC's release "undermines fundamental First Amendment protections."

The dispute over the definition of an exchange is only one of the items on the Financial Services Committee agenda, however.

"This hearing will examine the regulatory developments, rulemakings, and activities that the SEC has undertaken in the period since the last hearing on October 5, 2021," explained the committee majority staff, including the definition change that "potentially [expands] the SEC’s authority over digital asset trading platforms."

Also on the docket, a SEC declaration from last March calling on digital asset custodians to change the way they report liabilities and assets—which some lawmakers said increased potential losses. The committee will also revisit a SEC proposal made in February that called for registered investment advisors to include Bitcoin holdings among other assets held by "qualified custodians."

“In what is becoming something of a habit, the Commission is once more proposing to dictate contract provisions involving entities the Commission does not regulate,” Peirce said at the time. “The Commission does not have authority to regulate custodians directly, but we propose to regulate them indirectly."

The next day, Congress will take up the topic, "Understanding Stablecoins’ Role in Payments and the Need for Legislation." The Wednesday hearing agenda includes reviewing 72 pages of draft legislation "to provide requirements for payment stablecoin issuers, research on a digital dollar, and for other purposes."

The draft bill includes extensive definitions, establishes requirements at the federal and state level to issue stablecoins, and sets up standards for interoperability, reporting, and enforcement. The legislation also calls for a two year moratorium on new stablecoins until a study can be completed by the U.S. Treasury.

Jeremy Allaire, Co-founder & CEO of Circle, called the bill "a product of bi-partisan efforts" and "the first comprehensive proposed law for Payment stablecoins."

"It's an extraordinary moment for the future of the dollar in the world, and the future of currency on the internet," Allaire declared on Twitter. "It's time for US leadership, and that means clear regulation and empowering entrepreneurship and innovation within the framework of US prudential law."

Among those expected to testify are Dante Disparte, Chief Strategy Officer and global policy head at Circle, Jake Chervinsky, Chief Policy Officer at the Blockchain Association, Columbia Business School adjunct assistant professor Austin Campbell, and Adrienne A. Harris, sSuperintendent of the New York State Department of Financial Services.

Advising followers to tune into the Wednesday hearing, Allaire acknowledged that the proposed bill still needs more work.

"While comprehensive, there are clearly open and challenging issues with the bill as proposed, and now is the time for our country and political leaders to really dig in and get this right," he said. "The role of the dollar in the world is at stake."

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