Key Highlights:
- The Banking Committee is close to releasing a draft of the crypto market structure bill.
- September 30 serves as a crucial deadline in the process.
- However, amid this development, the crypto market felt the ripples as former SEC Chair Gary Gensler’s texts came to light.
Capitol Hill lawmakers are gearing up for what might prove to be a watershed week in crypto policy in Washington. A new draft of the long-awaited market structure bill, by the Senate Banking Committee, led by Chair Tim Scott (R-SC), is expected to circulate as early as Friday, the result of months of hearings with stakeholders throughout the financial sector.
Banking Committee Speeds Up Drafting Process for Crypto Bill
According to Republican aides, the drafting process sped up during the summer, and committee staff spent much of their time in consultation with lobbyists, trade associations, and market participants. Sources knowledgeable of the process said that the goal of the committee has been to make the bill more refined in a way that would appeal to industry concerns and yet still have a regulatory framework that can command bipartisan approval.
The timeframe of the congressional process is subject to change, but those briefed on the process said there is a possibility that the draft could be made available to the offices of members by the end of the week. The focus is currently shifting to whether the text will contain provisions that are desired by market players and whether democrats will be ready to sign the framework after having looked at it.
Sen. Cynthia Lummis (R-WY), one of the most vocal Republican advocates of digital assets, told CNBC this week that the proposal is expected to pass through a markup in the Banking Committee before the end of September. The Agriculture Committee will review in October, and hopefully be considered on the floor later in the fall, perhaps in November or December.
The big question is the response of the democrats. The effort has so far been led by Republicans, but the Democratic buy-in will be crucial to the success of the proposal going through the Senate without facing serious roadblocks. There are already Republicans who have approached Democratic colleagues in the hope of attracting a lawmaker like Sen. Kirsten Gillibrand (D-NY), who has already co-sponsored crypto bills.
Sen. Mark Warner (D-VA), one of the most powerful Democrats in the panel, cautioned on Thursday that attempting to proceed with a markup before the September 30 deadline would reduce the chances of bipartisan compromise. Warner informed Punchbowl News that pushing the timeline in a dramatic and dramatic manner reduces the chances of cross party cooperation.
SEC Faces the Fallout of Deleted Messages
As legislators consider the outlines of emerging regulations governing online assets, the Securities and Exchange Commission are facing a scandal of their own. An internal audit has found that a technical glitch wiped about a year of text messages off the government phone of former Chair Gary Gensler.
A report published by the Office of Inspector General at the SEC indicated that messages between October 2022 and September 2023 were lost permanently due to an inappropriate device reset. The audit found the causes to be mistakes in record-keeping processes and IT management.
The lost texts were part of an especially active period of the SEC, including the downfall of FTX, a barrage of enforcement actions against crypto companies, and debates about whether digital-asset companies could gain access to banking under what critics called Operation Chokepoint 2.0.
About 38% of the deleted communications were allegedly about high-level regulatory or enforcement issues, such as settlement discussions with a financial institution and communications related to a White House appointment of a commissioner. Since then, the agency has been trying to block texting on most official phones and has provided new training about federal records requirements to senior leadership.
In the case of the crypto world, the disclosure has been particularly scandalous. Caitlin Long, chief executive of Custodia Bank, made the episode public, reminiscing about how her company and others were rejected because of the provision of banking services during the 2022-2023 crackdown. According to industry representatives, the deletion has destroyed one of the most important records of regulatory intent in one of the most turbulent periods in the history of crypto-related interactions.
It is unclear whether Congress, the administration or oversight committees will conduct further investigation. Until further notice, the incident highlights how precarious the preservation of records within one of the most monitored government regulatory institutions is. Nonetheless, the crypto industry is expected to remain unaffected by this.
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