The U.S. House of Representatives passed a bill that would direct the CFTC and SEC to jointly create a digital assets working group.
The bill would require that the working group include at least one individual representing each of the following groups: (i) financial technology firms providing digital assets products or services; (ii) financial firms within the jurisdiction of the SEC or the CFTC; (iii) institutions or organizations conducting academic research or engaging in advocacy efforts concerning the use of digital assets; (iv) small businesses using financial technology; (v) organizations concerned with investor protection; and (vi) institutions and organizations advocating for investment in historically underserved businesses.
Additionally, the bill would require that, within a year of its enactment, the working group must submit a report to the SEC, the CFTC and “relevant committees” that includes, among other things, an analysis of:
- the United States’ legal and regulatory framework concerning digital assets, including the effect of (i) the ambiguity of the framework on primary and secondary digital assets markets, and (ii) domestic legal and regulatory digital assets regimes on the “competitive position of the United States”;
- recommendations regarding (i) the implementation, maintenance and enhancement of primary and secondary digital assets markets, including the improvement of “fairness, orderliness, integrity, efficiency, transparency, availability and efficacy” of those markets, and (ii) standards for custody, private key management, cybersecurity and business continuity as it pertains to digital asset intermediaries; and
- best practices to (i) decrease the prevalence of digital assets fraud and manipulation in cash, leveraged and derivatives markets, (ii) enhance investor protections for participants in such markets and (iii) aid in compliance with the Bank Secrecy Act’s AML anti-terrorism financing provisions.
Why is it necessary to have the SEC and CFTC conduct a joint study, with each naming the same number of members? Would it not make more sense to empower one agency (generally the SEC) and direct it to consult with other agencies, including the CFTC and, for example, FinCEN, if AML is a topic of concern?
Second, explicit directions as to the members of the joint study detract from the efficacy of the study. Do the legislators believe that because one financial firm – subject to the regulation of the SEC – is included in the study, that firm can speak on behalf of all the other regulated financial firms?
Third, the topics seem to be a grab bag of wholly unrelated issues: is there some link between digital custody and historically underserved businesses where the same committee members will bring value to both discussions? If so, it is not obvious. If Congress wants both issues (or any of these issues) studied, it should direct the SEC to conduct the studies, and let the SEC figure out how to do so.