FOR IMMEDIATE RELEASE
September 14, 2022
Crypto Commodities Bill Falls Short of What’s Needed To Protect Investors from Crypto Scams and Manipulation
Advocates and Experts Fear Bill’s Limitations Could Also Hinder Broader Regulatory Oversight of Crypto Assets Writ Large, Call For A New Approach
WASHINGTON, D.C. – Americans for Financial Reform and two leading financial regulatory experts, sent a detailed letter to the US Senate Committee on Agriculture, Nutrition and Forestry, highlighting major shortcomings in a new bill, the Digital Commodities Consumer Protection Act of 2022 (S. 4760/H.R. 8730).
The bill would place regulatory oversight of a class of digital assets under the purview of the Commodities Futures Trading Commission, in part by classifying certain digital assets such as Bitcoin or Ether as digital commodities, rather than as securities or other financial instruments. The committee is holding a hearing today on the bill.
“This bill simply does not provide sufficient protections for retail investors and may create regulatory gaps that will legitimize existing harmful industry practices, leading to widespread harm for investors and consumers,” said Mark Hays, senior policy analyst at Americans for Financial Reform and Demand Progress. “The SEC, with its mandate for investor protection, should remain the primary agency regulating cryptocurrency, and Congress should resist the demands of this industry’s lobby for privileged treatment. Any role the CFTC has should be a narrow one.”
Additionally, the letter authors argued that aspects of the bill could preclude necessary regulatory oversight from securities regulators that would provide more robust investor protections and disclosures.
“The definition of ‘digital commodity’ in this bill could open a loophole that would shield the issuers of both crypto and non-crypto assets from securities laws designed to protect retail investors,” said Hilary Allen, co-author of the letter, professor of law at American University College of Law and a noted expert on the intersection between financial stability and technology.
The letter’s authors also criticized the bill’s reliance on a self-regulatory approval scheme that they fear would lead to a deluge of crypto products without meaningful oversight.
“By incorporating the self-certification regime from the Commodity Exchange Act, this bill provides cryptocurrency exchanges a fast lane to list any number of cryptocurrencies, regardless of utility,” said Lee Reiners, Policy Director for the Duke Financial Economics Center, a former regulator who has developed proposals on regulating crypto spot markets. “Given the CFTC’s checkered record of responding to evidence of fraud and manipulation in cryptocurrency spot markets, this approach does not bode well for consumer protection.”
The authors urged the committee to revisit fundamental assumptions underpinning the bill, such as the definitions of digital commodity or digital commodity platform; the preemption of state regulatory authority over assets deemed digital commodities, the over-reliance on rulemaking processes to spell out many necessary new investor protections, and more.
“The CFTC ultimately has a role in regulating digital assets, but we believe the bill as it currently stands would stretch the agency beyond its structural remit, undermine current and future methods to appropriately regulate digital assets across various asset classes, and provide much of the digital asset industry with what it truly desires: a safe spot to continue business as usual with lax accountability,” Hays of AFR added.