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On September 15, 2022, the Senate Committee on Agriculture, Nutrition, and Forestry (the “Ag. Committee”) held a hearing to discuss Senate Bill 4760, the Product Consumer Protection Act. of 2022 (the “Bill”) which was introduced by Senators Debbie Stabenow (D-MI) and John Boozman (R-AR). Senate Minority Whip John Thune (R-SD) and Sen. Cory Booker (D-NJ) joined as original co-sponsors. The bill establishes a framework for potential oversight by the Commodity Futures Trading Commission (“CFTC”) over certain parts of the cryptocurrency market.

The G. The committee has been responsible for overseeing the CFTC since the CFTC was established approximately one hundred years ago, following the enactment of the Grain Futures Act of 1922. The CFTC was created largely to oversee what was, at the time, a new developing commodity market. forward market. The bill is one of several bills currently before Congress relating to the regulation or reform of the digital asset industry, including Senate Bill 4356, the Responsible Financial Innovation Act, sponsored by by Senator Cynthia Lummis (R-WY) and Senator Kristen Gillibrand (D-NY) who is also trying to create a more comprehensive regulatory framework for digital assets

Current CFTC Chairman Rostin Behnam commented in his opening remarks on the opportunity to discuss the CFTC’s potential role in overseeing another developing market, the digital asset market, on the occasion of this centenary. President Behnam’s full opening remarks are available here.

The G. The committee meeting was divided into two sections: the first of which Chairman Behnam was the sole witness, and during the second session, committee members posed questions to various industry experts who were invited to speak.

During the two sessions, digital assets were categorized into three distinct groups: (1) digital asset products (which Acting Committee Chair Deborah Stabenow specifically stated Bitcoin (“BTC”) and Ethereum (“ETH”) fall under); (2) digital asset securities; and (3) stablecoins. Proponents of the bill have made it clear that this bill is only intended to regulate the first group (digital asset commodities) and merely be one “piece of the puzzle” on digital asset regulation that would necessarily require other regulations covering digital asset securities and stablecoins.

Topics for discussion during the hearing

Throughout both sessions of the hearing, emphasis was placed on the need for regulation that provides regulatory clarity and sustains innovation and market development in the United States, while providing essential consumer protection. Some potentially interesting discussions from the audience include:

  • As noted above, Chair Stabenow and many other committee members have taken it for granted that BTC and ETH are in fact commodities and should be regulated as such. This somewhat follows the position of the now controversial “Hinman’s speechin which Acting SEC Director of Corporation Finance Bill Hinman took the position that ETH and BTC had become “decentralized enough” to no longer be considered securities. The SEC has since distanced itself from this position vis-à-vis ETH.

  • Emphasis was placed on the access that digital assets can provide to individuals and communities that are underserved by the traditional banking sector, while also noting that the lack of regulation has made these already vulnerable communities even more vulnerable. fraud and mismanagement. There seems to be a strong interest from Ag. Committee to get at least one regulation related to digital assets through Congress within the next 6-12 months, even if political realities make that unlikely.

  • Chairman Behnam said his office estimates it will need an additional $112 million over the next three years to fund the resources needed to oversee the digital asset industry, including rulemaking, hiring, training and awareness. This budget increase is expected to be paid for by user fees on digital asset trading platforms under the bill. This request opens the president up to the cynical view that at least part of his motivation is to stretch his judgment and his budget.

  • Several senators emphasized that they do not believe blockchain technology and the overall Web3 ecosystem is a phase, and the urgent need for regulatory clarity in the United States on many of the issues facing this industry to prevent the country from taking lagging behind its economic rivals (mainly China) .

  • Senator Gillibrand and many expert industry witnesses applauded the bill as a great first step, but noted that the current form of the bill, including definitions of decentralized finance (“DeFi”) , what constitutes a “digital asset product” versus a “digital asset security”, and what actions make an entity a broker/dealer, will need to be reviewed before the bill can move forward. ‘before.

While there appears to be near-universal acknowledgment from committee members and witnesses that this bill is not a complete solution to the lack of regulatory clarity in the digital asset industry, committee members generally indicated support on a bipartisan basis. There is hope that due to the bill’s bipartisan nature, its seemingly large support among Ag. Committee members, and the almost undisputed need for some regulatory clarity in this space, that the next round of amendments and comments to the bill can be expected on an expedited basis. However, even if the Ag Committee were to vote in favor of the bill, its passage by the full Senate and a comparable bill in the House remains fraught with pitfalls.

Hearing on other digital assets on September 15, 2022

The G. The committee hearing on the bill took place at the same time as the Senate Banking, Housing and Urban Affairs Committee held a hearing to question Gary Gensler, Chairman of the Securities and Exchange Commission (“SEC”) of the United States regarding the SEC’s regulation of the digital asset industry. It’s unclear if these overlapping hearings were a coincidence. During the Ag. During the committee hearing on the bill, several committee members questioned the CFTC’s ability to work with the SEC to avoid creating a bureaucratic quagmire of competing oversight of federal agencies that would be detrimental to the industry and ultimately consumers. While Chairman Behnam was confident that the agencies could work together on this, the same way they work together on swap markets and oversight of other dueling registered entities, Chairman Gensler indicated that the two agencies often have overlapping jurisdictions and suggested that the SEC should implement a security-based swap execution facility regime similar to that implemented by the CFTC when Gensler was head of that agency.

It remains to be seen, however, whether the SEC will approve or support the bill’s attempt to place a level of regulatory oversight over the digital asset industry in the hands of the CFTC instead of being under the sole jurisdiction of the CFTC. DRY.

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