House Representative Patrick McHenry, the Ranking Republican on the House Financial Services Committee, introduced a new bill to provide a “safe harbor” for digital token innovation yesterday, which aims to embrace new technology while maintaining investor protections, according to a statement.
The Clarity for Digital Tokens Act of 2021 “will provide much-needed legal clarity and certainty for this rapidly growing industry,” according to the statement.
“The U.S. should be a global leader, not a global follower, when it comes to digital assets,” said Republican Leader McHenry. “Unfortunately, our current regulatory framework threatens to push this technology — and the jobs created by this rapidly growing industry — overseas. My bill, which builds on the great work of SEC Commissioner Hester Peirce, will help provide the necessary legal certainty to digital asset projects when they launch,” he said in the statement.
The bill establishes a novel regulatory sandbox concept initially proposed by SEC Commissioner Hester Peirce, according to the announcement. It will provide network developers with a “safe harbor” within which they can facilitate participation while allowing the development of a functional or decentralized network, under certain conditions, that is exempted from the registration provisions of the federal securities laws.
Ron Geffner, former SEC enforcement lawyer who now oversees the Financial Services Department at Sadis & Goldberg, told GOBankingRates that the proposed legislation is needed.
“There is significant confusion with emerging digital currency entrepreneurs as to what they can and cannot do and this serves to provide a framework for those persons. Unfortunately, at this time while there are many entrepreneurs seeking to follow federal guidelines, there are many people who invest little to no effort to comply,” he said.
“Thus, in addition to legislation, we require routine and consistent regulatory enforcement to motivate the market to follow the regulatory requirements being proposed. Otherwise it creates an unlevel playing field and results in misinformation, frustration and harms the digital asset community as a whole,” Geffner added.
In addition, the bill will allow entrepreneurs seeking to build decentralized networks in which a token serves as a means of exchange or provides access to a function of the network to get the tokens into the hands of other people.
“Simultaneously, this bill ensures that the transactions are conducted in a safe and responsible manner,” according to the announcement.
The bill was hailed by many experts. “This sound legislation, based on SEC Commissioner Hester Peirce’s Safe Harbor 2.0, seeks to clarify the opaque U.S. securities laws as they apply to cryptocurrencies,” Kristin Smith, Executive Director, the Blockchain Association, said in the statement. “This regulatory uncertainty has been stifling innovation for years and thereby resulting in an exodus of innovators from the U.S. to jurisdictions with a clear regulatory framework. We commend Rep. McHenry’s efforts to change this sentiment and make a clear safe harbor process for innovators to work with regulators to build the future of finance and protect consumers.”
Also yesterday, the House Financial Services Committee held a hearing with Securities and Exchange Commission (SEC) Chair Gary Gensler, during which McHenry scolded him on his stance on digital assets.
“You have made a number of concerning and contradictory public statements regarding crypto assets and other innovative technology. When you were here in May, you stated that there was a need for additional legislation to appropriately regulate digital asset exchanges. Then, just a few weeks ago, when you testified before the Senate Banking Committee, you stated that there was a ‘great deal’ of clarity in the law,” McHenry said, according to the transcript of the hearing.
“You implied that many digital asset exchanges are unregistered securities exchanges, and even threatened one digital asset exchange by name. So, which is it? Does the SEC want more legislative authority, or is it about to unleash a regulatory tsunami under existing laws?,” he added. Following the hearing, McHenry sent Gensler a letter, reiterating comments he made during the hearing.
“You have made a series of concerning and apparently self-contradicting public statements regarding crypto assets and other innovative technologies. I request that you clarify these comments promptly to avoid further confusion in the marketplace,” he wrote.
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Last updated: October 6, 2021