Bill would offer safe harbor for crypto exchanges
A new proposal would offer cryptocurrency exchanges a safe haven for listing tokens that could be securities.
The bill by Senate Banking Committee member Bill Haggerty (R-Tenn.) would complement other proposals for a regulatory sandbox intended to allow blockchain and cryptocurrency developers to experiment with building tokens that might otherwise be securities.
It will create a two-year safe harbor for exchanges that list tokens at the time they are deemed by the Securities and Exchange Commission (SEC) to be unregistered securities, following The Block, which saw an advance copy of the bill that was released soon. Nor will the exchanges face legal action for failing to register as broker-dealers or national security exchanges during this period.
It is not a theoretical problem. The SEC is reportedly investigating top U.S. crypto exchange Coinbase for listing unregistered securities — a revelation that came as the SEC and Justice Department filed an insider trading complaint against a former Coinbase executive.
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Haggerty’s bill would effectively cover all exchanges, as SEC Chairman Gary Gensler has repeatedly said that virtually every cryptocurrency other than bitcoin is a security. Although he hasn’t said it explicitly, it likely includes the No. 2 cryptocurrency, smart contract platform Ethereum, on which the majority of decentralized apps and blockchain programs are built.
Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam has said that Ethereum – and possibly other tokens – is not a security, as its main use and value is for making transactions rather than speculation. That means, in industry terminology, ether is a utility token rather than a security token.
Haggerty’s bill would not prevent the SEC from calling tokens securities or taking enforcement actions against their developers, but it would give the CFTC the ability to object. And coin issuers will also be able to sue to block the SEC’s action, as cross-border payments company Ripple is doing.
Also read: SEC setback in Ripple Suit adds pressure to define cryptoassets
Working together
Haggery’s bill would essentially complement other proposals to create such temporary exemptions for cryptocurrency developers, making it easier for them to sell tokens issued in their own safe harbor. Chief among these is SEC Commissioner Hester Peirces 2020 suggestion for a three-year safe harbor that would give blockchain developers time to build their projects to the point that they would no longer qualify as securities.
See more: CFTC Chairman: Crypto and DeFi have grown out of the sandbox
This has seen strong support from some members of Congress who want to make it easier for digital asset developers to innovate.
These include Patrick McHenry (RN.C.), the ranking minority member of the House Financial Services Committee, who has engaged heavily in the topic, most recently by working with Chairwoman Maxine Waters (D-Calif.) on a bill to regulate stablecoins . .
Peirce’s bill, he said last year, “will allow entrepreneurs who want to build decentralized networks where a token acts as a medium of exchange or provides access to a function of the network to get the tokens into the hands of other people.”
The point of Sen. Haggery’s bill is that it would be difficult if exchanges fear selling these tokens.
Two other bills that will affect this issue crypto regulatory proposals in the Senate: Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand’s (D-NY) Responsible Financial Innovation Act, and another coming out of the Senate Agriculture Committee that both would give the CFTC more authority over cryptocurrencies.
Related: Crypto battle on Capitol Hill increasingly favors the CFTC
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