US Congress Inches Forward on Laws for Cryptocurrencies

February 20

House bills with bipartisan support would direct regulators to examine new ways to oversee digital assets and protect them from manipulation, as some lawmakers strive to make financial technologies more mainstream.  One bill, the “U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2019” (H.R. 923), would direct the Commodity Futures Trading Commission (“CFTC”), consulting with the Securities and Exchange Commission and other agencies, to report to committees including Senate Banking and House Financial Services on how cryptocurrencies are regulated in the U.S. and other countries and detail the benefits of cryptocurrency and blockchain technology.  That bill and a second, the “Virtual Currency Consumer Protection Act” (H.R. 922), were introduced by Rep. Darren Soto (D-FL) on January 30, 2019.  Reps. Ted Budd (R-NC) and Warren Davidson (R-OH) are cosponsors of the two measures.

Soto’s regulation bill (H.R. 923) would seek to clarify which virtual currencies qualify as commodities and provide an optional regulatory structure for virtual currency spot markets that includes federal licensing, market supervision, and other protections.  Virtual currency, according to the bills, is defined as a digital representation of value that doesn’t have legal tender status and functions as a medium of exchange, a unit of account or a store of value.  If the bills become law, the approach would be similar to what EU regulators are considering.  Two leading financial regulatory authorities in Europe recommended that the bloc study whether to create a separate bespoke regime for cryptoassets that are not currently subject to regulation.  Reports by the European Securities Markets Authority and the European Banking Authority do not tout the potential benefits of fintech, instead concentrating on the potential pitfalls.  In the U.S., a group known as the Virtual Commodity Association has been working to establish an industry-sponsored regulator tasked with governing digital assets.  If the idea moves forward, it would function in a similar manner to stock markets, where conduct is partly policed by the industry itself.

The second bill (H.R. 922) would require the CFTC to study how digital assets are being manipulated and which currencies are more susceptible to manipulation.  It calls for an analysis on the extent of the CFTC’s ability to conduct surveillance of these markets and the enforcement actions against those who are involved in manipulation.  “Virtual currencies and the underlying blockchain technology has a profound potential to be a driver of economic growth,” Soto said in a statement.  “That’s why we must ensure that the United States is at the forefront of protecting consumers and the financial well-being of virtual currency investors, while also promoting an environment of innovation to maximize the potential of these technological advances.”

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Patrick Dennien is an associate in the Firm’s Washington, DC office. He practices in white collar crime and corporate investigations, sanction systems of international organizations, money laundering risk and AML regulation, cryptocurrency risk and regulation, and corporate compliance programs. Prior to joining the Firm, Patrick worked for the World Bank’s anti-corruption arm, where he assessed the compliance programs of multinational companies, and advised on the development and implementation of effective compliance programs.

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