WASHINGTON — The top Republican on the House Financial Services Committee sparred with the head of the Securities and Exchange Commission over the regulation of digital assets, saying Congress should establish a framework for certain types of cryptocurrencies instead of the SEC.
Under the Biden administration, financial regulators have sounded the alarm about stablecoins, a type of cryptocurrency pegged to the value of real currency. But Republicans worry that regulators will overreach.
Rep. Patrick McHenry, R-N.C., the panel’s ranking member, accused SEC Chair Gary Gensler at a hearing Tuesday of making “contradictory public statements,” suggesting on one hand that Congress should write new laws for the crypto sector while on the other signaling that the SEC will act on its own.
“Which is it? Does the SEC want more legislative authority, or is it about to release a regulatory tsunami under existing laws?” McHenry said. “To be frank, I have strong concerns about how you’ll regulate in the digital-asset space, and whether the law is on your side.”
Gensler defended his prior remarks that the agency would welcome clarity from Congress on how it should share certain oversight responsibilities with other financial regulators but that “the SEC’s authorities in this space are clear.”
Last week, several media outlets reported that the Biden administration was weighing bank-like regulations for stablecoins and may even ask Congress to pass new laws to address the sector, including to create a special-purpose bank charter for stablecoin issuers.
At the hearing Tuesday, Gensler highlighted regulatory gaps around stablecoins specifically as a place where the SEC would need to work with bank regulators, and where congressional clarity would help that effort.
“I think that coordination, in working through Congress, we can fill some gaps around stablecoins in the banking regulatory regime,” Gensler said.
For now, it appears unlikely that most Republicans on Capitol Hill will welcome legislation that significantly bolsters the government’s authority over such firms.
McHenry used his exchange on Tuesday with Gensler to promote a law introduced by his office before the hearing. The “Clarity in Digital Tokens Act of 2021” would provide a legal safe harbor from SEC enforcement for certain cryptocurrency token issuers.
The law, according to its text, would amend securities laws and give crypto firms developing new tokens three years to raise funds for their projects without needing to comply with the full brunt of U.S. securities laws.
McHenry pitched the law as a way of limiting the SEC’s ability to prematurely squash the nascent sector.
“I believe it’s time for Congress to step up and provide clear guidelines that will not allow an SEC chair to change the law by interview or statement posted on the commission’s website,” he said during the hearing Tuesday.
Gensler opted not to comment on the new legislation or the general idea behind it — attributed to a Trump-era proposal from SEC Commissioner Hester Peirce — but he cautioned that investor protection should remain paramount as policymakers weigh any approach to stablecoins.
“I think the challenge for the American public is, if we don’t oversee this and bring in investor protection, people are going to get hurt,” Gensler said.