December 15: This week in digital asset federal policy
DC Decentralized: A weekly newsletter on developments in blockchain and digital asset federal policy
This week decoded
As Congress enters its final week of the legislative year, market structure negotiations continue in the Senate. Most recently, Republicans provided a compromise offer making changes to the previous discussion draft. Democratic negotiators responded to Republicans with a counteroffer on outstanding policy issues, including token classification, ethics, quorum, illicit finance, and stablecoin yield. Negotiators call for patience as tricky issues are fully deliberated and provide assurances negotiations proceed in good faith, but frustrations are mounting, especially in the House.
The OCC issued guidance clarifying that a national bank may engage in principal crypto transactions as part of the business of banking. It also published preliminary findings from its supervisory review of debanking and announced conditional approval of applications for de novo national trust bank charters and national trusts.
The CFTC announced the withdrawal of guidance considered outdated related to the delivery of virtual currencies and announced its first round of CEO Innovation Council participants, as well as the launch of a digital assets pilot program. It also issued guidance on the use of tokenized assets as collateral in the trading of futures and swaps.
The SEC issued educational guidance for retail investors about the ways investors can hold crypto assets.
This week, the SEC’s Crypto Task Force is hosting a roundtable on financial surveillance and privacy.
Read more below
Congress
Hearings
Last week
On December 10, the House Agriculture Committee held its annual Member Day.
On December 11, the House Agriculture Committee held a hearing on CFTC (Commodity Futures Trading Commission) Reauthorization: Stakeholder Perspectives.
This week
On December 16, the Senate Banking, Housing and Urban Affairs Financial Institutions and Consumer Protection Subcommittee holds a hearing on Ensuring Fair Access to Banking: Policy Levers and Legislative Solutions.
Legislation
Sens. Jerry Moran (R-KS) and Elissa Slotkin (D-MI) introduced the Strengthening Agency Frameworks for Enforcement of Cryptocurrency (SAFE Crypto) Act to establish an inter-governmental task force between federal agencies and the private sector to coordinate identifying and combating cryptocurrency fraud. (Text)
Correspondence
Sens. John Kennedy (R-LA) and Jack Reed (D-RI) sent a letter to Senate Banking Committee Chair Tim Scott (R-SC) and Ranking Member Elizabeth Warren (D-MA) requesting the committee hold a hearing on market structure legislation before a markup on the legislation. (Letter)
Reports, Meetings, and Events
Republicans negotiating on market structure legislation provided Democratic negotiators an offer in compromise making changes to the previous discussion draft. (Offer published by Politico)
Senate Democratic negotiators responded with a counteroffer to Republicans on token classification, terrorist and illicit finance, ethics, quorum, and stablecoin yield issues. The counteroffer summary document opens with, “In an attempt to reach an agreement and proceed towards a mark-up on a bipartisan market structure bill within the Senate Banking Committee, Senate Democrats have put forth an offer to close out negotiations in a fair and equitable manner. We have accepted significant portions of RFIA – including meaningful concessions on major elements like token classification – in an effort to meet Republicans where they are. However, despite these substantial compromises, the offer Republicans sent on December 4th still fails to meet the core principles Democrats released in September. In response, Democrats transmitted a counteroffer on December 8th that would accept the vast majority of RFIA, either wholesale or with targeted edits, in exchange for a limited set of good-governance, consumer protection, and anti-terrorist financing safeguards. This document summarizes that counteroffer and explains key principles Democrats are fighting to preserve.” (Counteroffer published by Politico)
Trump Administration
Office of the Comptroller of the Currency (OCC)
The OCC issued Interpretive Letter 1188 clarifying that a national bank may engage in principal crypto-asset transactions as part of the business of banking. (Letter)
The OCC released preliminary findings from its supervisory review of debanking activities at the nine largest national banks it supervises, finding “between 2020 and 2023, these nine banks made inappropriate distinctions among customers in the provision of financial services on the basis of their lawful business activities by maintaining policies restricting access to banking services or requiring escalated reviews and approvals before providing certain customers access to financial services.” (Press release)
The OCC announced conditional approval of applications for de novo national trust bank charters for First National Digital Currency Bank and Ripple National Trust Bank. The OCC also conditionally approved applications to convert from a state trust company to a national trust bank for BitGo Bank & Trust, National Association, Fidelity Digital Assets, National Association and Paxos Trust Company, National Association. (Press release)
Securities and Exchange Commission (SEC)
The SEC’s Office of Investor Education and Assistance issued an Investor Bulletin to help educate retail investors about the ways investors can hold crypto assets, providing an overview of types of crypto asset custody and providing tips and questions to help investors decide how to best hold crypto assets. (Bulletin)
On December 15, the SEC’s Crypto Task Force is hosting a roundtable on financial surveillance and privacy. (Press release)
Commodity Futures Trading Commission (CFTC)
The CFTC announced the withdrawal of guidance considered outdated related to the delivery of virtual currencies. (Press release)
The CFTC announced its first round of CEO Innovation Council participants. (Press release)
The CFTC announced the launch of a digital assets pilot program for certain digital assets, including BTC, ETH, and USDC, to be used as collateral in derivatives markets. The CFTC’s Market Participants Division, Division of Market Oversight, and Division of Clearing and Risk also issued guidance on the use of tokenized assets as collateral in the trading of futures and swaps. In addition, MPD issued a no-action position with respect to certain requirements applicable to Futures Commission Merchants (FCMs) that accept non-securities digital assets, including payment stablecoins, as customer margin collateral or hold certain proprietary payment stablecoins in segregated customer accounts. (Press release)
Noteworthy Quotes and Events
ADMINISTRATION
Office of the Comptroller of the Currency (OCC)
In remarks at the Blockchain Association Policy Summit, Comptroller of the Currency Jonathan Gould said, “It is important that we do not confine banks, including current national trust banks, to the technologies or businesses of the past. That’s a recipe for irrelevance.” (Remarks)
The OCC posted “OCC Interpretive Letter 1188 confirms that a national bank may engage in riskless principal crypto-asset transactions as part of the business of banking.”
Securities and Exchange Commission (SEC)
SEC Commissioner Caroline Crenshaw delivered remarks on The Rubble and the Rebuild: The Future of Financial Regulation Series at The Brookings Institute, saying, “We need to promote policies that encourage trading based on actual fundamentals: issuer operations, cash flows and real financial metrics of companies, not on tweets. Policies should favor long-term buy-and-hold investing. People invest in crypto because they see (some) others get rich overnight. Less visible are the more common stories of people losing their shirts. One thing that has consistently puzzled me about crypto is – what are cryptocurrency prices based on? Many (but not all) crypto purchasers are not trading based on economic fundamentals. I think it’s safe to say they’re speculating, reacting to hysteria from promoters, feeding a desire to gamble, wash trading to push up prices, or as one Nobel laureate has posited – betting on the popularity of the politicians who support, or stand to benefit personally from, the success of crypto. Regardless of asset class, our legal framework – including our tax framework (I’m looking at you, Congress) – must promote long-term investing based on sound economic principles.” (Remarks)
The SEC posted “Curious about crypto wallets and how to store and access crypto assets? Check out our Crypto Asset Custody Basics Investor Bulletin.”
CONGRESS
House Financial Services Financial Institutions Subcommittee Hearing on Competitive Bank Capital
Subcommittee on Digital Assets, Financial Technology, and Artificial intelligence Ranking Member Stephen Lynch (D-MA) asked, “So with all of that, let me also add Vice Chair Bowman also gave a speech in Madrid last month where she said that banks should be able to compete with non-banks in crypto currencies and digital assets, which introduces a whole pile of risk into the into the banking industry, and if we’re and I think we’re all in agreement that, as others have stated, capital requirements should, should reflect the risk that’s being engaged in. So, with all of that, aren’t we? Aren’t we heading back towards 2008?”
Simon Johnson, Professor of entrepreneurship in the MIT Sloan School of Management: “Well, we’re heading back towards the financial crisis of the magnitude or bigger than 2008 absolutely congressman. So, you’re right…. you’re right to it to emphasize crypto. Whatever you think about the future of crypto, whether it’s bright or not, it’s certainly highly volatile. And if the regulators are allowing the banks to become more intertwined, either directly with a crypto currency or with an entity that is itself speculating on crypto currencies, then that’s a lot more risk. The only way to handle risk from a financial system stability point of view, is to have more capital.”
Rep. Stephen Lynch (D-MA): “So with all these added elements, especially with the crypto piece of this and the president, certainly the White House is inducing banks to get more involved with crypto. Wouldn’t it make sense to increase the capital requirements for those firms that are engaging in crypto activities?”
Simon Johnson: “Yes, absolutely. Crypto is dangerous, and I would point out that the leverage is going down in community banks and regional banks. It’s the too big to fail banks that are leveraging up, and they’re the ones that want to pile into crypto. It makes no sense.”
Rep. Stephen Lynch (D-MA): “It’s super dangerous. Thank you, Mr. Chairman. I yield back.”
Central Bank Digital Currencies (CBDC)
Rep. Keith Self (R-TX) posted “UPDATE: Regretfully, my amendment to include language banning Central Bank Digital Currencies (CBDCs) in the National Defense Authorization Act (NDAA) was not advanced and will not come to the House floor for a vote. Conservatives were assured that anti-CBDC language would be included. Instead, we have been forced into a take-it-or-leave-it bill that breaks that promise. Without that language, I’m inclined to leave it.”
Self also posted “On President Trump’s third day in office, he signed an Executive Order banning Central Bank Digital Currencies (CBDCs). Republicans need to hold the line and codify this critical EO. We cannot let America become China!”
Self also posted “A government programmable dollar is a surveillance and control tool—we cannot let it happen. I was one of only 18 conservative Republicans who voted NO on the NDAA. Enough Democrats crossed over to ram it through—without a single line banning a Central Bank Digital Currency (CBDC). I will keep fighting to force a CBDC ban into the next must-pass bill. Financial freedom is non-negotiable.”
Self also posted “Conservatives were promised—explicitly—that strong anti-Central Bank Digital Currency (CBDC) language would be included in the National Defense Authorization Act (NDAA). That promise was broken. A CBDC is the ultimate tool for government surveillance and control over every American’s finances. It would hand the federal government unprecedented power to track, restrict, and even freeze transactions. Leaving out protections for the financial privacy of Americans is unacceptable. Due to this, I voted NO on the NDAA. We must demand better—and fight on in the next must-pass bill to ensure a CBDC never sees the light of day. Financial freedom isn’t negotiable.”
Rep. Warren Davidson (R-OH) posted “He’s an unlikely Bond villain, but here we are. Congress just reneged on the promise to ban Central Bank Digital Currency. Meanwhile, the central banks are building it. Ban CBDC!”
OCC Guidance
Financial Services GOP posted “NEW: The Committee welcomes USOCC’s newly issued guidance allowing banks to conduct principal transactions with digital assets. This is a positive step for banks and the digital asset ecosystem as the OCC’s guidance supports broader market participation as our regulators continue their work implementing the GENIUS Act.”
Rep. Vern Buchanan (R-FL) posted “Thanks to POTUS’ America First agenda, U.S. banks can now serve as intermediaries for crypto transactions under clear rules. This keeps financial innovation here at home, strengthens consumer trust and ensures the future of finance is led by America, not foreign adversaries.”
Market Structure Negotiations
House Financial Services Chair French Hill said about Senate negotiations on market structure, “They have to go through that process of member education, member debate, member discussion. But in my view, it’s also time to vote.” He added, “I still recommend that the Senate use the HR, CLARITY Act, as their base text from which to derive amendments… But that’s a decision they have to make. As I’ve said since the very beginning, they are two sides of the same coin… We need them both on the track, regulatorily, in order to have America be innovative… I think it’s important that members of the Senate really think through each section and understand it in order to support the need for market structure.” (Punchbowl)
Sen. Elizabeth Warren (D-MA) posted “Any crypto regulatory framework coming out of Congress must have real safeguards to fight crime and protect our national security.”
Rep. Sam Liccardo (D-CA) said, “It’s important to get this right. The risk to our entire financial system is too great to shoot from the hip. That being said, there should be enough overlap in the Venn Diagram of what Democrats and Republicans want to get this done. With a few tweaks from the House bill, I think we could get there.” (Punchbowl)
Rep. Brittany Pettersen (D-CO) said, “The chairman worked really hard on this, and it seems like a big slap in the face that they’re going in a lot of different directions.” (Punchbowl)
Rep. Dan Meuser (R-PA) said, “Yeah, a bit of frustration… Faith in [Senate Majority Leader] John Thune. They need to get it done. There’s really no excuse not to proceed.” (Punchbowl)
Rep. Mike Lawler (R-NY) said, “The Senate obviously likes to have its imprimatur…I think they’re quickly getting their way back to basically where CLARITY is. They have to go through their five stages of grief.” (Punchbowl)
Rep. Sean Casten (D-IL) said, “I feel like this is gonna be like the Iraq war vote where, in hindsight, everybody wishes they were Barbara Lee. There is going to be so much stink that’s gonna come out of this. And we’re either going to have a massive crisis that’s gonna make a lot of people, on a bipartisan basis, look really foolish, or we’re going to have a massive crisis before the Senate votes, and the Senate’s gonna say, oh shit, I have to act like an adult.” (Punchbowl)
Rep. Barry Moore (R-AL) posted “’The marketplace is DESPERATE to have their product regulated.’ Crypto is a key industry that needs guidelines to operate. HouseGOP passed the CLARITY Act to accomplish this goal.”
Rep. Young Kim (R-CA) posted “Crypto has countless applications from wealth creation to secure payments. Americans deserve the market certainty and consumer protections that the CLARITY Act provides. The Senate needs to pass CLARITY now.”
Potential Campaign Influence on Market Structure Negotiations
Sen. Cynthia Lummis (R-WY) said, “Fortunately, no one has raised those issues in our meetings – and I hope it stays that way… We’ve just busted our britches to try to keep this bipartisan… No one can disagree that that’s a big bazooka. In some ways, I wonder whether it’s being misused — not by the industry, but by the politicians.” (Semafor)
Lummis also said, “Sen. Scott and Sen. Gillibrand are in counterbalancing positions. I think that considering their dual challenges, they’re doing a very good job.” (Politico)
Sen. Andy Kim (D-NJ) said, “I hope that we are going to approach this with the seriousness that it requires, and not be swayed by or pressured by the politics of this. There’s a lot to handle, and I hope it’s not being looked at or used as this political cudgel as we get into the midterm year.” (Semafor)
Sen. Kirsten Gillibrand (D-NY) said, “The Democratic Party has and should continue to be the party of opportunity and innovation…our current bipartisan effort around market structure is around shared, universal goals…both parties are working in good faith right now.” (Semafor)
Senate Banking Committee Chair Tim Scott (R-SC) said, “What I’m looking for are enough votes to get to ‘yes.’ The truth of the matter is, the less you think about the money, the better off we all are. And I think we do that by focusing on the key components of the legislation that get members on the Banking Committee to a big ‘yes’ sooner rather than later. If you do that with blinders, you do the right thing for the American people.” (Politico)
Scott also said, “We looked at CLARITY and celebrated some of the success of CLARITY and embed their philosophy in the market structure that we have. I find it to be a strong product. And we are going to make sure that we embed the priorities on both sides of our aisle so that we have a bicameral legislative process that produces a presidential signature at the end.” (Politico)
Scott also said, “Any time you’re doing something that’s never been done in the history of the country, it might be kind of challenging to get everybody on the same page.” (Politico)
On Sen. Tim Scott’s role as a market structure negotiator and chair of the NRSC, an anonymous House Financial Services Republican said, “His political role has caused probably more speedbumps in all of this than anything. I need to work with you, but I’m trying to beat the shit out of you — that just structurally creates problems.” (Politico)
Sen. Kevin Cramer (R-ND) said, “The chairman of the NRSC and the chairman of the [Democratic Senatorial Campaign Committee] are senators — every time, every cycle. There’s probably always some potential perceived challenge to that. But we’re all adults. Tim’s just one of the nicest people in the Senate. So I don’t think that’s a problem. It certainly hasn’t been to this point.” (Politico)
What I’m Reading This Week
The S.E.C. Was Tough on Crypto. It Pulled Back After Trump Returned to Office., Ben Protess, Andrea Fuller, Sharon LaFraniere and Seamus Hughes, The New York Times.
Treasury’s Bank Regulation Takeover Has a New Goal: Anti-Money-Laundering Rules, Dylan Tokar, The Wall Street Journal.
About Zero One Strategies
Zero One Strategies is a boutique government relations practice dedicated to navigating the complex landscape of U.S. federal policy in emerging technologies. As advancements in technology continue to outpace regulatory frameworks, Zero One Strategies aims to provide strategic guidance and bipartisan advocacy for innovators and businesses operating at the forefront of technological development.
The practice focuses on key areas such as artificial intelligence, digital assets, blockchain, decentralized technologies, cybersecurity, data, and digital infrastructure, as well as the multiple policy issues impacting these sectors, including tax and financial services.
Contact us at Stacey@ZeroOneStrategies.com
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