US House Financial Services Committee Advances Crypto Bills

Practical Law Legal Update w-040-4092 (Approx. 5 pages)

US House Financial Services Committee Advances Crypto Bills

by Practical Law Finance

Financial Innovation and Technology of the 21st Century (FITC) Act

On July 26, 2023, the US House Financial Services Committee announced publication of a markup and advancement of the FITC Act, sponsored by Glenn Thompson (PA-R) and co-sponsored by French J. Hill (R-AR), Dusty Johnson (R-SD), Warren Davidson (R-OH), Tom Emmer (R-MN), and Marcus J. Molinaro (R-NY). The FITC Act would create a comprehensive regulatory framework for the issuance and trading of digital assets under SEC and CFTC regulatory authority. Among other things, the FITC Act would:

Designate steps for parties to file a notice of intent to register with the CFTC as a digital commodity exchange, digital commodity broker, or digital commodity dealer.
Designate steps for parties to register with the CFTC as a digital commodity exchange, digital commodity broker, or digital commodity dealer.
Establish the requirements of digital commodity exchanges, digital commodity brokers, and digital commodity dealers.
Designate steps for parties to file a notice of intent to register with the SEC as a digital asset trading system, digital asset broker, or digital asset dealer.
Designate steps to for parties register with the SEC as a digital asset trading system, digital asset broker or digital asset dealer.
Establish requirements for SEC-registered digital asset trading systems, digital asset brokers, and digital asset dealers.
Establish the requirements, rights, and exemptions related to such notices of intent to register with the CFTC and/or SEC.
Provide enhanced disclosure and certification requirements for digital assets.
Exempt certain types of digital asset sales from application of the US securities laws.

US House Financial Services Committee Chair Patrick T. McHenry (R-NC) provided opening remarks regarding the committee markup of the FITC Act, which can be found at this webpage. A video of the FITC Act markup hearing can be found at this webpage.

Clarity for Payment Stablecoins (CPS) Act of 2023

On July 27, 2023, the US House Financial Services Committee announced publication of a markup and advancement of the CPS Act, sponsored by McHenry. The CPS Act would establish a regulatory framework for payment stablecoins, which the CPS Act would define as a digital asset that meets all of the following criteria:

It is designed to be used as a means of payment or settlement.
It must be converted, redeemed, or repurchased by its issuer for a fixed amount of monetary value.
The issuer of the asset represents it will maintain or create the reasonable expectation that it will maintain a stable value relative to the value of a fixed amount of monetary value.
It is not a national currency or a security issued by an investment company registered under Section 8 of the Investment Company Act of 1940, as amended (15 U.S.C. § 80(a)-8(a)).

The CPS Act would define permitted issuers of stablecoins as any of:

A subsidiary of an insured depository institution (IDI) that has been approved by the relevant primary federal payment stablecoin regulator to issue payment stablecoins under Sections 5 and 2(16) of the CPS Act.
A federal qualified nonbank payment stablecoin issuer that has been approved by the relevant primary federal payment stablecoin regulator to issue payment coins under Sections 5 and 2(16) of the CPS Act.
A state qualified payment stablecoin issuer.

The relevant primary federal payment stablecoin regulator under the CPS Act would be:

With respect to an IDI (other than an insured credit union) or a subsidiary of an IDI (other than an insured credit union), the appropriate federal banking agency of such IDI (as defined under section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)).
With respect to an insured credit union or a subsidiary of an insured credit union, the National Credit Union Administration.
With respect to a federal qualified nonbank payment stablecoin issuer that is not a national bank, the Board of Governors of the Federal Reserve System.
With respect to any entity chartered by the Office of the Comptroller of the Currency (OCC), the OCC.

The CPS Act would also:

Allow permitted issuers to issue payment stablecoins for use by US persons.
Require permitted issuers to maintain reserves backing their stablecoin on a one-to-one basis using assets as outlined by the CPS Act, such as US coins and currency or other assets regulators determine appropriate.
Establish requirements for:
- the rehypothecation, or reusing, of the reserves backing payment stablecoins by permitted payment stablecoin issuers;
- custodial or safekeeping services for stablecoins or private keys; and
- supervisory, examination, and enforcement authority over non-state qualified stablecoin issuers by a state agency that has primary regulatory and supervisory authority in such state over entities that issue payment stablecoins. Note that these provisions would not supersede any state licensing requirements.

In addition, the CPS Act would:

Place a two-year moratorium on new endogenously collateralized stablecoins, which are stablecoins that rely on the value of another digital asset created or maintained by the same originator to maintain the fixed price. This provision appears designed to address algorithmic stablecoins like TerraUSD (see Legal Update, SEC Charges Terraform and Its CEO with Securities Fraud in Connection with Terra USD (UST) Stablecoin and Other Crypto Assets).
Provide that permitted payment stablecoins are not considered securities under US securities laws.

McHenry provided opening remarks regarding the committee markup of the CPS Act, which can be found at this webpage. Videos of the CPS Act markup hearing can be found at the following webpages:

US House Financial Services Committee Advances Crypto Bills | Practical Law