WASHINGTON — House Financial Services Committee Chairman French Hill (R-AR) said efforts by federal regulators to establish rules for cryptocurrency markets cannot provide the long-term certainty the industry needs without legislation from Congress, renewing his call for passage of a comprehensive digital asset regulatory framework.
Hill said the Securities and Exchange Commission and Commodity Futures Trading Commission have taken steps to clarify how digital assets should be regulated, but warned that administrative rules, exemptions and guidance cannot replace permanent statutory authority.
“In my judgment, these regulatory policies fall short of what we have to do, which is have a legislative solution,” Hill said, according to a report by Decrypt, which cited an interview with Fox Business.
His comments follow the Senate’s failure in September to advance the Digital Asset Market Clarity Act, commonly known as the Clarity Act, in a 49-50 vote.
The legislation was intended to establish a comprehensive regulatory framework for cryptocurrency markets, including clearer jurisdictional boundaries between the SEC and CFTC.
Regulators Move Forward Without Legislation
According to Decrypt, Hill acknowledged efforts by SEC Chairman Paul Atkins and CFTC Chairman Mike Selig to use their existing regulatory and exemptive authorities to address uncertainty surrounding digital assets.
The SEC has pursued several initiatives, including an innovation exemption intended to accommodate tokenized stocks and other blockchain-based securities activities.
The exemption would allow certain activities to proceed with relief from existing regulatory requirements.
The SEC has also proposed changes to rules governing how investment advisers and investment funds hold cryptocurrencies on behalf of clients, an issue that has presented challenges for institutional participation in digital asset markets.
Meanwhile, the CFTC has submitted cryptocurrency market rulemaking initiatives for White House review and issued an advance notice of proposed rulemaking addressing federal oversight of cryptocurrency exchanges.
The CFTC’s approach seeks to establish a regulatory pathway for digital asset trading platforms using its existing authority rather than waiting for Congress to enact broader legislation.
Covered Issues
Together, the initiatives are intended to address several issues that would have been covered by the Clarity Act, including:
- Regulatory jurisdiction: Clarifying which digital assets and activities fall under SEC or CFTC oversight.
- Trading platforms: Establishing requirements for cryptocurrency exchanges and other digital asset marketplaces.
- Custody arrangements: Addressing how financial institutions, investment advisers and funds may hold digital assets.
- Tokenized securities: Providing regulatory accommodations for securities represented and traded using blockchain technology.
- Market oversight: Establishing clearer standards for digital asset trading and related activities.
Hill Warns of Limits to Agency Authority
Despite those efforts, Hill said regulatory actions remain vulnerable to legal challenges and changes in presidential administrations.
Exemptions and regulatory guidance can be modified, withdrawn or challenged in court, while formal agency rules can face questions about whether regulators have exceeded the authority granted to them by Congress.
Legislation, by comparison, could establish more durable requirements and jurisdictional boundaries that regulators would be responsible for implementing.
Hill helped develop the Financial Innovation and Technology for the 21st Century Act, known as FIT21, during the previous Congress and the Clarity Act during the current session.
His position comes as some cryptocurrency companies have increasingly looked to federal regulators to address longstanding legal uncertainties rather than waiting for Congress to act.
However, significant gaps remain. The Wall Street Journal reported that the latest regulatory proposals do not establish comprehensive federal oversight of spot cryptocurrency trading, one of the issues the Clarity Act was designed to address.
Hope for Action After Elections
Hill said he remains hopeful Congress could revive the Clarity Act during the lame-duck session following the November midterm elections.
“We need that permanent law change to make sure America is No. 1 in digital assets and blockchain technology,” Hill said, according to Decrypt.
The legislation faces significant obstacles after failing to secure sufficient support in the Senate in September. Lawmakers also have a limited legislative calendar before the end of the year.
