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HFSC Full Committee Mark Up July 26th, 2023

House Committee on Financial Services

Full Committee Markup

Wednesday, July 26, 2023

Topline

  • The committee marked up and reported six pieces of legislation favorably to the House.
  • The most contentious bills were H.R. 4763, the Financial Innovation and Technology for the 21st Century Act, and H.R. 1747, the Blockchain Regulatory Certainty Act, which received some Democratic support.
  • The other four bills were reported favorably with bipartisan support, receiving all Democratic votes.

Legislation

 

Opening Statements

Chairman Patrick McHenry (R-N.C.)

In his opening statement, McHenry discussed how the legislation in front of the Committee represented a historic step towards innovation. He said that cryptocurrency is a software and financial revolution, and that developers are using blockchain technology to create the next generation of decentralized Internet, which will give individual users more ownership. He concluded that H.R. 4763 and H.R. 1747 focus on decentralization and functionality.

 

Ranking Member Maxine Waters (D-Calif.)

In her opening statement, Waters said her bill, H.R. 4768, will help with the issue of food scarcity. She expressed her disappointment in Republicans because they made a unilateral decision to move forward with a massive market structure bill to rewrite the Investor Protection Act. Waters said the US doesn’t need to invent new regulatory structures simply because crypto companies refused to follow the rules of the road. She closed by noting that she and McHenry maintained barriers to facilitate good, working relationships between them, their members, and their staff.

 

Consideration of Legislation

H.R. 4763, the Financial Innovation and Technology for the 21st Century Act

Rep. French Hill (R-Ark.) offered an ANS and explained the bill. He said this bill is a major step in establishing a regulatory framework for digital assets in the US. Hill noted that the collapse of FTX made clear that we need Congress to act to protect consumers and establish clear rules of the road for good actors. He emphasized that failing to act puts American consumers and investors at risk. Hill also noted that H.R. 4763 will provide the CFTC with jurisdiction over digital commodities and will fill the gaps in the existing system. He closed by saying he welcomes amendments.

McHenry, Rep. Warren Davidson (R-Ohio), Rep. Brian Steil (R-Wisc.), Rep. Ralph Norman (R-S.C.), Rep. Tom Emmer (R-Minn.), Rep. Mike Lawler (R-N.Y.), Rep. Blaine Luetkemeyer (R-Mo.), Rep. Dan Meuser (R-Pa.), Rep. Young Kim (R-Calif.), and Rep. Byron Donalds (R-Fla.) criticized the current lack of guidance and authority to the CFTC and SEC to regulate crypto and voiced their support for the bill.

Rep. Brad Sherman (D-Calif.) said the bill would have an unintended consequence that will allow publicly traded companies to tokenize their equity securities and then circumvent SEC regulation by choosing to be regulated by the CFTC. Waters criticized the bill and said the bill does not offer clarity, as Republicans say they intended.

Rep. Jim Himes (D-Conn.) voiced support for the bill and said he is confident that the legislation, though not perfect, makes the status quo better. He closed by asking his colleagues whether they are comfortable having done nothing in the cryptocurrency space and urged Democrats to support the bill. Himes was joined by Rep. Wiley Nickels (D-N.C.), Rep. Ritchie Torres (D-N.Y.), and Rep. Brittany Pettersen (D-Colo.) in supporting the legislation.

Rep. Stephen Lynch (D-Mass.) said the bill was the worst piece of legislation presented during a markup in his 20 years on the committee. He explained how the bill strips consumer protections that have been installed since the 1930’s and said it will hurt the global trust that the US has earned. Rep. David Scott (D-Ga.), and Rep. Sean Casten (D-Ill.) agreed with Lynch.

Rep. Bill Foster (D-Ill.) offered an amendment to ensure that a technically feasible framework for licensing digital wallets is in place. He noted that this would be a certificate provided by FinCEN that provides a legally traceable handle. Waters voiced her support for the amendment, while Rep. Bill Foster (D-Ill.) called for a more tailored approach. Davidson, Rep. Ann Wagner (R-Mo.), and McHenry opposed the amendment by noting that blockchain transactions are already visible to all. Sherman supported the amendment saying that a government-issued license is nothing new and that people need a license to make a bank account.

Sherman offered an amendment to clarify SEC jurisdiction. Hill said that the Committee does not have the jurisdiction to propose such a thing.

Waters offered an amendment to better protect investors by ensuring more robust oversight of the digital asset ecosystem. Hill said this amendment is unnecessary because it is already addressed in the bill text. Sherman showed support for the bill and said that it is within the Committee’s jurisdiction to define what a security is.

Rep. Josh Gottheimer (D-N.J.) offered an amendment to require the SEC and the CFTC to come to the table upon passage of the bill to develop rules on certain responsibilities of firms. Hill supported the amendment, and it was agreed to.

Lynch offered an amendment to address funding of the SEC and CFTC. Rep. Erin Houchin (R-Ind.) said that the amendment violates the rules of the Committee. Hill and McHenry agreed, and the amendment was withdrawn.

Lynch offered another amendment requiring the SEC to remove the idea of innovation as a factor in its rulemaking process because it is not a clear definition. McHenry said he agreed with the amendment, but that innovation needs to be reconsidered at a later date. Waters also agreed with the amendment. The amendment was agreed to.

Himes offered an amendment to implement a timeframe for the SEC to review a decentralization application. Hill and McHenry voiced support for the amendment, and it was agreed to.

Nickel offered an amendment to ensure that the Committee works with stakeholders to understand how to enact a regulatory framework for digital assets. Davidson and Hill supported the amendment, and it was agreed to.

Rep. Steven Horsford (D-Nev.) offered an amendment to ensure that investors and consumers have access to an adequate financial education. Barr and Rep. Joyce Beatty (D-Ohio) expressed support for the amendment.

Rep. Ayanna Pressley (D-Mass.) offered an amendment to ban insider trading. McHenry said that the amendment was not appropriate to the bill. Lynch supported the amendment. The amendment was withdrawn.

Lynch offered an amendment that would strike the section of the bill that mentions overturning guidance from an agency through legislation. Rep. Mike Flood (R-Nebr.) and McHenry opposed the amendment.

Lynch offered another amendment to strike a section in the bill that allows customers to wave a restriction on comingling by the digital asset broker-dealer. Davidson and McHenry opposed the amendment.

Lynch’s last amendment regarded directing the CFTC, SEC, and the CFPB to ensure that consumer protections for digital assets are equivalent to those that exist for other securities and commodities. Hill opposed the amendment.

Rep. Al Green (D-Texas) offered an amendment to specify additional market practices that are harmful to investors and would authorize the SEC and CFTC to go after bad actors. Hill said he agrees with certain aspects of Green’s amendment but does not support it as it’s written at the moment. McHenry said he was supportive of the whistleblower protection aspect of the amendment. Lynch showed full support of the amendment. The amendment was eventually withdrawn.

The ANS was agreed to by a recorded vote, and H.R. 4763, as amended, was reported favorably to the House by a vote of 35-15.

 

H.R. 1747, the Blockchain Regulatory Certainty Act

Emmer offered an ANS and explained the bill. He noted his bill would ensure that validators and wallet providers do not have to register as money transmitters. He said this guidance was published in 2013 and remains the guidance that FinCEN follows today under the Biden Administration.

Lynch criticized the bill’s proposal and said the bill would carve a hole in our defense against financial crimes. He urged his colleagues to vote against the bill. Flood supported the bill.

The ANS was agreed to by a recorded vote, and H.R. 1747, as amended, was reported favorably to the House by a vote of 29-21.

 

H.R. 2969, the Financial Technology Protection Act of 2023

Nunn offered an ANS and explained the bill. He noted that through the transparency of cryptocurrency, law enforcement now has a unique insight into the movement of illicit funds that helps them track down and ultimately reclaim illegal profits and stop those from going to those who pose a direct threat to the US.

The ANS was agreed to by a recorded vote, and H.R. 2969, as amended, was reported favorably to the House by a vote of 50-0.

 

H.R. 4768, the No Russian Agriculture Act

Waters offered an ANS and explained the bill. She said over the last 17 months, Russia’s unprovoked criminal war against Ukraine has posed tremendous harm to Ukraine’s infrastructure and its citizens. Waters concluded that the bill would require the Secretary of the Treasury to use Congress’s voice, vote, and influence at the World Bank and the IMF to support projects that decrease reliance that countries have on Russian agricultural commodities.

Nunn voiced his support for the bill and concluded that it will help the American agricultural market and economy.

The ANS was agreed to by a recorded vote, and H.R. 4768, as amended, was reported favorably to the House by a vote of 49-0.

 

H.R. 4765, the Exposing China’s Support for the Taliban Act

Lynch offered an ANS and explained the bill, which he said will require the Secretary of the Treasury to examine and report to Congress on the activities undertaken by the CCP and Chinese-regulated companies.

Nunn voiced support for the bill.

The ANS was agreed to by recorded vote and H.R. 4765, as amended, was reported favorably to the House by a vote of 49-0.

 

H.R. 3244, the Stop Fentanyl Money Laundering Act of 2023

Luetkemeyer offered an ANS and explained the bill, which enhances the anti-money laundering systems in place to identify and stop those who are profiting.

Pettersen voiced strong support for the bill. Kim, Beatty, Nunn, Rep. Sylvia Garcia (D-Tex.), and Foster all agreed with Pettersen.

The ANS was agreed to by a recorded vote, and H.R. 3244, as amended, was reported favorably to the House by a vote of 49-0.

 

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.