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On Tuesday, September 24, 2024, the House Financial Services Committee held a hearing entitled, “Oversight of the Securities and Exchange Commission,” featuring all five SEC Commissioners as witnesses. 

  • TDC Statement for the Record – available here. 
  • Summary: The five-hour hearing focused primarily on the SEC’s approach to digital assets, despite several unrelated questions related to SEC’s operations.  
  • Lawmakers from both sides of the aisle pressed Chair Gensler and the Commissioners on their enforcement-first approach while questioning the lack of clear, forward-looking guidance.  As this is one of his final congressional hearings, Chair McHenry (R-NC) focused the committee on one of his legacy issues: SEC overreach in digital asset markets, underscoring his long-standing commitment to ensuring regulatory reform in this area. Questions were almost exclusively answered by Chair Gensler, however, Commissioners Peirce and Uyeda were often called on by Republican members to highlight the SEC’s overreach.  
  • Republican Position: Republicans criticized Chair Gensler for turning the SEC into a “rogue agency” that has overstepped its statutory authority. They emphasized that the SEC’s reliance on enforcement rather than providing clear rules is stifling innovation and creating uncertainty. Republicans also highlighted bipartisan opposition to the SEC’s current approach, citing growing dissatisfaction among lawmakers. 
  • Democratic Position: Democrats claimed that the SEC’s role as the “premier” agency for protecting consumers is crucial. They highlighted progress on s legislation and reiterated their commitment to providing the SEC with more resources to maintain its enforcement capabilities. Some Democrats also raised concerns about campaign finance and illicit activity related to cryptocurrency, underscoring the importance of regulatory oversight.  
  • Like last week’s Subcommittee hearing, Democrats such as Reps. Josh Gottheimer (D-NJ), Wiley Nickel (D-NC), and Ritchie Torres (D-NY) criticized the SEC’s current leadership and overreach on digital assets.  

Witnesses 

  • Gary Gensler, Chairman, U.S. Securities and Exchange Commission  
  • Hester Peirce, Commissioner, U.S. Securities and Exchange Commission  
  • Caroline Crenshaw, Commissioner, U.S. Securities and Exchange Commission  
  • Mark Uyeda, Commissioner, U.S. Securities and Exchange Commission  
  • Jaime Lizárraga, Commissioner, U.S. Securities and Exchange Commission 
  • In lieu of individual written testimonies, the full Commission submitted one, joint written testimony – available here. 

Republican Theme: Republicans strongly criticized the SEC under Chair Gensler, labeling it a “rogue” agency that has exceeded its statutory authority and focused too heavily on enforcement rather than clarity and capital formation. Chairman McHenry and Vice-Chair French Hill (R-AR), who also serves as Chairman of the Digital Assets Subcommittee, pointed out that opposition to the SEC’s current approach to digital assets is not limited to Republicans, highlighting growing bipartisan dissatisfaction.  

  • SEC Commissioner Peirce: “We have taken a legally imprecise view to mask the lack of regulatory clarity…we have fallen down [in] our duty as a regulator not to be precise”  
  • Rep. Hill (R-AR): “Over two-thirds of the Members of this Committee have rejected the commission’s approach to regulating digital assets” 
  • Chair McHenry (R-NC): “More than 250 Members of Congress from both parties have signed dozens of letters opposing actions taken by the SEC.”  
  • Rep. Andy Barr (R-KY): “Over the past several years the SEC has brought approximately 150 enforcement actions related to the digital asset ecosystem, in 2023 the SEC brought nearly 50 (up 53% from 2022).”  
  • Rep. Warren Davidson (R-OH): “As you highlighted, you meet with the Chairman of the Federal Reserve regularly do you guys discuss Operation Chokepoint 2.0, a way to block and restrict market certainty for crypto-affiliated firms?”  
  • SEC Chair Gensler: “I’ve never heard that term” 

Democrat Theme (From Leadership): Democratic leadership, led by Ranking Member Maxine Waters (D-CA), highlighted the progress made on Stablecoin legislation, expressing confidence that a bipartisan deal could be reached within this Congress. They also reiterated their commitment to ensuring the SEC remains the “premier” agency for protecting consumers and raised campaign finance issues and North Korean illicit activity.  

  • Rep. Waters (D-CA): “Before the end of this year, I want us to strike a ‘grand-bargain’ on stablecoins…since 2022 we have been working for hours on end and have each made concessions.” 
  • Rep. Brad Sherman (D-CA): “All of the money and power in this town is with the crypto industry…crypto’s one magic skill is the ability to hide money…thank you for standing up to crypto”  
  • Rep. Steven Lynch (D-MA): “North Korea has conducted research on a variety of targets connected to cryptocurrency exchange traded funds, which suggest ETFs may be a target of North Korea soon”  

Democrat Theme (Not from Leadership): Democrats like Reps. Wiley Nickel (D-NC), Josh Gottheimer (D-NJ), and Ritchie Torres (D-NY) voiced strong concerns over the SEC’s Staff Accounting Bulletin (SAB) 121, arguing that it imposes unnecessary burdens on banks by requiring them to treat custodial digital assets as liabilities, which could stifle innovation. They also criticized Chair Gensler’s opposition to Fit for the 21st Century Act (FIT21) and discussed NFT policy issues related to the SEC’s recent wells notice to OpenSea.  

  • Rep. Torres (D-NY): “The trouble with the Gensler theory on investment contracts is that it’s so open-ended it lacks anything resembling a limiting principle…blurs the line between collectible and security, between art and security.”  
  • Rep. Nickel (D-NC): “Chair Gensler, your open towards digital assets is hurting consumers and setting the US behind the rest of the world, it’s also hurting the Biden-Harris administration…you have single-handedly undermined the Administration on Web3 issues with your war on digital assets.”  
  • Rep. Nickel (D-NC): “Will you commit to rescinding SAB 121 today?”  
  • SEC Chair Gensler: “No, it’s good accounting bulletin.”  
  • TDC Perspective: The SEC’s approach, as highlighted by Reps. Nickel and Torres, is crippling innovation with burdensome regulations like SAB 121, which treats custodial digital assets as liabilities without justification. Chair Gensler’s refusal to support FIT21 and his broad, overreaching interpretations of securities law is not only stifling U.S. leadership in Web3 technologies but actively undermining progress, pushing innovation overseas while leaving the U.S. behind. 

Legislative Proposals: 

  • H.R. 5741, the “Uniform Treatment of Custodial Assets Act” 
    • Sponsor(s): Reps. Flood (R-NE), Torres (D-NY), Hill (R-AR), Nickel (D-NC)  
    • The bill would effectively nullify SAB 121 by prohibiting Federal banking agencies, the National Credit Union Administration, and the SEC from requiring banks to include assets held in custody or safekeeping as a liability on the institution’s balance sheet.   
  • H.R. 9578, the “Bridging Regulation and Innovation for Digital Global and Electronic (BRIDGE) Digital Assets Act” 
    • Sponsor: Rep. Rose (R-TN)  
    • The bill would establish a Joint CFTC-SEC Advisory Committee on Digital Assets composed of digital asset marketplace stakeholders. 
  • H.R. ___, the “Securing Innovation in Financial Regulation Act” 
    • Sponsor: Rep. Lucas (R-OK)  
    • The bill would establish the SEC Strategic Hub for Innovation and Financial Technology (FinHub) and LabCFTC in the CFTC.   
  • H.R. ___, To require the Commodity Futures Trading Commission and the Securities and Exchange Commission to conduct a study to assess whether additional guidance or rules are necessary to facilitate the development of tokenized securities and derivatives products 
    • Sponsor: TBD  
    • The bill would require the Securities and Exchange Commission and the Commodity Futures Trading Commission to jointly conduct a study to assess whether additional guidance or rules are necessary to facilitate the development of tokenized securities and derivatives products.  
  • H.R. ___, To codify the special purpose broker dealer 
    • Sponsor: TBD  
    • The bill would extend the SEC’s 2020 policy statement that created a framework for broker dealers to offer custody services for tokenized securities for an additional five years.  
  • H.R. ___, the “New Frontiers in Technology (NFT) Act” 
    • Sponsor: Rep. Timmons (R-SC)  
    • The bill would clarify that a covered non-fungible token (NFT) is not an investment contract or a transaction in a security.  
  • H.R. ___, To require the Securities and Exchange Commission, Commodity Futures Trading Commission, and the Secretary of the Treasury to jointly carry out a study on decentralized finance 
    • Sponsor: Rep. Davidson (R-OH) 
    • The bill would require the CFTC, the SEC, and the Secretary of the Treasury to conduct a joint study on DeFi, which would analyze the size, scope, role, nature, and use of DeFi protocols, the benefits and risks of DeFi, how DeFi has integrated into the traditional financial markets.  
  • H.R. ___, To amend the Securities Exchange Act of 1934 to exclude decentralized finance activities from that Act 
    • Sponsor: TBD  
    • The bill would exempt certain decentralized finance (DeFi) activities related to the operations and maintenance of blockchain networks from the Securities Exchange Act of 1934. Such exempt activities would include compiling network transactions, providing computational work, distributing software, distributing a blockchain system, and providing a user-interface, among others. 

If you have any questions, please reach out to Policy@digitalchamber.org