The proposal seeks to set clear roles for the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Republican House lawmakers released a draft bill on June 2 that seeks to provide a clear role for regulators in the cryptocurrency industry.

SEC's Capabilities

The draft bill specifically seeks to separate the regulation of cryptocurrencies as securities from the regulation of cryptocurrencies as commodities.

The proposed rules would prevent the U.S. Securities and Exchange Commission (SEC) from treating payment stablecoins and digital commodities as securities.

The rules would prevent the SEC from denying exemptions to certain trading platforms simply because they offer digital assets, and “ancillary activities” such as wallet provision, software distribution, and node operations would not be subject to SEC regulation.

The SEC will also be required to change and update general rules regarding customer protection, recordkeeping, and digital assets.

Still, the rules will give the SEC anti-fraud authority over certain transactions involving crypto-commodities. Parties registered with the SEC but offering cash and spot markets will need to register with both the CFTC and the SEC.

CFTC Authority

Instead, the proposed rules would give the Commodity Futures Trading Commission (CFTC) new authority over cash and spot markets for digital commodities.

The CFTC will be authorized to conduct transactions involving payment stablecoins and digital commodities on its registered platforms. However, the CFTC will not be able to control the design and operation of these stablecoins.

The bill establishes requirements for digital commodity exchanges to register with the CFTC, as well as a process by which services can determine which assets are eligible to be traded on registered platforms. It also allows the CFTC to set requirements for digital asset custodians, but does not allow the CFTC to directly regulate these custodians.

The proposal would also establish a joint advisory body between the CFTC and the SEC, establish other regulatory panels, and conduct initiatives and research.

Encryption Innovation

Rep. Patrick McHenry, D-Calif., who introduced the bill, said the draft is "a step toward ... clarifying the rules of the road." He added that the bill aims to find a balance between "protecting consumers and encouraging responsible innovation."

The bill represents a joint effort between the House Financial Services Committee, chaired by McHenry himself, and the House Agriculture Committee, chaired by Rep. Glenn Thompson, R-Calif. Reps. French Hill and Dusty Johnson also sponsored the bill.

The bill is relevant to several regulatory debates that have taken place in recent months, including the expansion of exchange rules to non-exchange services, changes to custody requirements, and the differing regulatory roles of the CFTC and SEC.

The bill is in its early stages and has yet to receive feedback from Democratic lawmakers.