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Ep 32: Congressman French Hill (R-AR 2nd District)
86 Plays5 months ago
Congressman French Hill (R-AR 2nd District), Chairman of the Subcommittee on Digital Assets, discusses the groundbreaking H.R. 4763 bill and its impact on the future of blockchain regulation. Tune in to understand how this bipartisan effort aims to balance innovation and consumer protection in the digital asset space.
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Transcript
Podcast Introduction and Sponsor
00:00:06
Speaker
Hello and welcome to this Owl Explains Hootenanny, our podcast series where you can wise up on blockchain and web3 as we talk to the people seeking to build a better internet. Owl Explains is powered by Avalabs, a blockchain software company and participant in the avalanche ecosystem. My name is Silvia Sanchez, project manager of Owl Explains and with that I'll hand it over to today's amazing speakers.
00:00:34
Speaker
another edition of the OWL Explains podcast.
Introduction of Congressman French Hill
00:00:38
Speaker
Our guest today is United States Congressman French Hill, a Republican from Arkansas. He's a senior member of the House Financial Services Committee and chairman of the subcommittee on digital assets, financial technology, and inclusion. Congressman Hill, thank you very much for joining us. Fantastic to be with you. Thanks for the invitation.
What is the FIT21 Act and its Benefits?
00:00:58
Speaker
It has been an incredible few weeks for crypto and digital assets in Congress. The Financial Innovation and Technology for the 21st Century Act passed the House overwhelmingly with 71 votes from the Democrat side of the aisle. Could you quickly summarize, and I know that's hard, but summarize, let fit 21 the benefits for the digital asset industry.
00:01:23
Speaker
You bet. Well, I think it's very, very straightforward. You know, we have no regulatory clarity when it comes to digital asset companies and digital asset projects. So people have heard of the Howie test, the famous Security and Exchange Commission test, determining whether or not something's a security. So what we do in FIT21 is we lay out the rules of the rug. We essentially caught eye and right how we test to determine if a digital asset ah project is on a decentralized functioning blockchain. And if so, it could be regulated. Those tokens could be regulated by the CFTC, the Commodity Future Trading Commission.
How does FIT21 Address SEC's Regulation Approach?
00:02:08
Speaker
If it's not decentralized, if it's not on a functional blockchain yet, it's an emerging use of digital assets, it would be regulated by the SEC. So we create that test. We also bring clarity. for bankers, for trust companies on whether or not you can have digital assets as in a custodial account. And then we set the rules for being a dealer in digital assets and a broker and exchanges on how you're going to sell and make a market in digital assets, either securities or commodities. So it basically creates a robust
00:02:46
Speaker
regulatory framework for both under the commodity statutes and under the security statutes for the future of digital asset projects on a blockchain. Congressman, I think ah a lot has been said and there's been a lot of frustration across the industry over the SEC's sort of approach to enforcement or or excuse me, approach to regulation by enforcement. Does FIC-21 go some distance towards addressing that issue? I sure think it does because it directs the commission, it directs the CFTC, how to go about doing their work. We give statutory authority for the CFTC to regulate the the cash market for Bitcoin, for example.
00:03:28
Speaker
We give the SEC the rules of the road of how to regulate something that's a security on its way to not being a security. I know that sounds confusing, but on a blockchain and the use of tokens, ah that's the way we designed it. We think we do them a big favor on that and we give them a direction to reduce that regulation by enforcement.
Bipartisan Support and FIT21's Impact on Innovation
00:03:51
Speaker
and give them rules on things like custody, dealing, brokering, and exchanges, which I think will stop ah some confusion around could you have a Bitcoin ah exchange traded product, which drug on for years until the court said
00:04:08
Speaker
make a decision. And now we have exchange traded products for Bitcoin and we have ah one on the way for Ethereum. The Ripple case was very confusing. It's sort of like protected institutional investors and did not protect consumers. It was it was backwards. That would be the 2021 regulatory regime. ah So those are just a couple of, I think, examples where ah we clear up. Well, another one would be promethium. Come in, be a special purpose broker dealer for digital assets. Oh, but you can't do anything. So this idea, come in and register, we clear up a lot of that concern, I believe, with this text.
00:04:52
Speaker
So, 71 Democrat votes is a pretty big number. um what What message does that send to the Democrat-led Senate about trying to take up pick 21 on that side of the hill? Right. Such an important point. All along the way, I think Chairman Patrick McHenry of North Carolina, Chairman G.T. Thompson over at the House Act Committee, and I've taken the point of view as We're trying to preserve American innovation, consumer protection, entrepreneurship, and Web3, blockchain use, digital asset creation. We think that's important. It should be a nonpartisan issue, not bipartisan or partisan, literally nonpartisan.
00:05:35
Speaker
We're doing things on behalf of the whole country. We're taking the same open attitude that former member of Congress, Chris Cox, also a former SEC chairman, took back in the 1990s for the internet itself. So we're taking that same approach for Web 3. And I think it's the right way to go. And that's why we got 71 Democrats on
White House's Stance on Blockchain
00:05:56
Speaker
this bill. That's why we got 21 Democrats to override the that idea on custody called Staff Accounting Bolton 121. And when that went to the Senate, Chuck Schumer voted with them. So these big numbers say it should be nonpartisan. And we want democratic leadership and democratic collaboration with us to create this
Addressing Blockchain Misconceptions
00:06:20
Speaker
framework. and
00:06:22
Speaker
We're sending to the Senate. Yeah, that's a great leap to to staff a accounting bill in 121. The House and the Senate obviously passed can congressional review act bills to to to to force the SEC to reverse that decision. The White House on Friday vetoed that legislation. um The White House issued a statement of administration policy against the 21 that fell short of a veto threat. and I think there's a lot of people in the industry certainly understand that there are those in the world that think blockchain and Bitcoin still exists for illicit finance and terrorist purposes. and How do we address that and how do we convince the administration that these are nonpartisan issues and that they're a benefit to the United States economy and job market?
Importance of Compliance in Digital Asset Regulation
00:07:22
Speaker
Great positioning, that question. So first, in financial, whether we're talking about wire transfers, cash in our hands, checking accounts, or Hawala in the Middle East, criminals are going to abuse the financial system every second of every day to get an advantage, to create commit a fraud, to grab money, to be a criminal. That's what happens. And look, ah blockchain technology, cryptocurrencies are no different in that regard. But what's on a blockchain?
00:08:01
Speaker
The FBI reported to Congress in many testimony much a lot of testimony. that Look, it's easier to find out where that criminal is by tracking on a blockchain than it is cash that's delivered to some airport in the Middle East somewhere. so We're going to have that. And we in our bill, FIT21, and our stablecoin legislation and everything we've done, we've said strict KYC, know your customer, AML and BSA compliance, and the companies who want to innovate in America want to have strong KYC, BSA, and AML
International Collaboration in Digital Asset Regulation
00:08:36
Speaker
compliance. So that's number one.
00:08:38
Speaker
um ah Number two, this is good for innovation in New York and California. Those are two big democratic states. And I think those delegation members understand that it should be nonpartisan and that we can do it right. We can catch criminals. We can boost innovation. We can protect consumers. We can have that business highlighted right here in America and and continue our technological advance. What will that do, in my opinion? Some of these ah third jurisdictions, fly-by-night organizations outside the U.S. will fall by the wayside because the real business will come to the United States. Secondly, countries outside the U.S. will adopt high standards like the U.S. They'll be more eager to collaborate as we do over in the cash system and banking system on catching criminals. So that's that's why I think we can
00:09:35
Speaker
um And then one other point, one other the key point. Biden's own executive order says this needs to have a regulatory and legislative collaborative solution. FIT21 is that. Our stablecoin legislation ably worked on by Patrick McHenry and Maxine Waters is a legislative solution. And we solve these problems and we can do that in a nonpartisan
Collaboration with the Senate on FIT21
00:10:02
Speaker
way. And I really look forward to working with the Senate as the next step on these projects.
00:10:07
Speaker
Given that the 2020 run came out of not only the Financial and Services Committee, but also the House Ad Committee, ah have have you and and Chairman McHenry and Chairman Thompson a had some ongoing conversations with your counterparts in the Senate about trying to move it in the Senate? Such a good question. We have had consistent staff interaction and discussions over the past year. They've followed our work in a very intimate way. ah Senators Liz and and all have been focused on this. Their staffs have been following our work. I think our good bipartisan vote over here in the House will help
00:10:50
Speaker
on that subject. And then I have to say that our leadership, ah Speaker Johnson, Minority Leader Jeffries, ah Majority Leader Schumer, have all followed and been supportive of the work we're doing. I think that'll help when it comes to seeing what that final Senate product is. And we're we're standing by to be of assistance to the Senate as we need it.
Debate on Central Bank Digital Currency in the U.S.
00:11:13
Speaker
Well, I know a lot of our listeners are excited about that, so let us know what we can do from the outside to help. um In addition to fit 21, the House also passed, unfortunately on a much more partisan lines, legislation prohibiting the Federal Reserve from developing or instituting a central bank digital currency. That issue also came up this morning in your hearing on tokenization from ranking member Lynch.
00:11:42
Speaker
um thoughts and comments on on on the on the committee and the congressional attitude towards the CBPC?
00:11:51
Speaker
Well there is in my judgment bipartisan support that says quite succinctly the treasury the federal reserve meaning the U.S. government may not uh a central bank digital currency without authorization of congress if the bill had just said that in my judgment you would add a lot of other democratic
Stablecoin Legislation and Private Sector Solutions
00:12:18
Speaker
support but we went beyond it we said that
00:12:22
Speaker
You could not have a pilot program or or test CBDC. um and we And there were some other aspects of the bill that I think made it, as you pointed out, a little less bipartisan. I think we got three Democrats on the House floor there. But the bottom line is, in my view, we need a central bank digital currency at retail in the United States. We don't need to emulate ah China or some of these other authoritarian governments. We already have a rich, robust payment system in this country.
00:12:56
Speaker
And as we move to blockchain ah distributed ledger ideas for payments, I think private sector issue dollar back stablecoins as considered by McHenry Waters bill is a very good substitute for testing how are we going to do tokenized dollar back payments inside distributed ledger technology ideas. So let's start with the private sector and then we'll see what see what happens in the years ahead but
00:13:33
Speaker
It is an exaggerated claim to say that hundreds of kind countries are on the precipice of setting up their own central bank digital currency. That's an exaggerated claim. People are researching it, they're looking about how they might do it, ah but generally they're not successful and I don't know that in ah in a country like ours that it it even adds any any value. I think since you mentioned stablecoins, let's pursue that for a second. um There was a lot of talk and a lot of momentum, really, I think for the stablecoin legislation in the House, a lot of folks expected that to move first, quite frankly. um Chairman McHenry and ranking member Waters, I think, continue to negotiate. and You want to update us on sort of the status and and what the benefits of that legislation and where on the regulation regulation of stablecoins would be?
00:14:24
Speaker
You're really happy to. It's a really good piece of work Patrick McHenry and Maxine Waters have collaborated on. And by the way, it goes back to the summer of 2022. So it's been worked on a long time during 2022 and 2023.
00:14:45
Speaker
Here's the benefit. You have a dollar backed stable coin that has strict auditing standards, strict backing standards like insured deposits, short-term treasuries, and the like. There's a reporting standard. There are protections on consumer protection, disclosure, auditing, AML, BSA, KYC for bank and non-bank issuers.
00:15:17
Speaker
And bank and non-bank issuers have the same the same burden, if you want to think of it that way, same regulatory supervisory process. And if we have that, then we can extend the reserve currency brand of the United States through a dollar back stable coin, but one that actually has open transparent regulatory standards.
FIT21 as a Legislative Priority
00:15:38
Speaker
We don't have that now. We have dollar back stablecoins, some outside the United States, incorporated outside the United States. And we have some that have been authorized under state law here. But I think this gives us a strong, robust dollar back stablecoin that will be good for the ecosystem and will have high standards. And that's what I would argue that we don't have today. And that's the benefits. Now, where are we?
00:16:06
Speaker
I think Waters and McHenry are in a good place on it. We've got some final issues we need to work through. We have collaborated with our friends in the Senate on this matter. And so at some point, Chairman McHenry and Ranking Member Waters will work on what's the right legislative vehicle to move the payment stable coin legislation. But I'm optimistic and I think it is an important ecosystem step. I do believe Fit 21 is bigger, ah more important, and more necessary as a legislative action, so I'm glad it moved first. I think that that was a positive.
00:16:45
Speaker
How do you, um we talked a little bit about the 71 votes for from Democrats and 521. Can you speak a little bit about bipartisanship necessarily and in Congress these days? And I think that crypto issues, the digital asset issues have given folks that opportunity to work across the aisle towards common goals. um Can you talk a little bit about that and and sort of challenges and how do we how do we keep that momentum going forward? I think it's very important for people interested in Web3, distributed ledger technology, um in other words, writing new and innovative applications on a blockchain operating system for use in financial services or not, to bring those ideas to Capitol Hill and talk about the use case and the application and what people are up to time and time again.
00:17:45
Speaker
I've heard from members of Congress and senators, oh, hey, explain this to me, Congressman. I don't really even know what you're talking about. This is all about Bitcoin and cryptocurrencies, right? Well, sure, partially. And that's why we did the hearing today on organization of real assets, including a private Stocks or bonds.
Tokenization and Securities Laws Clarification
00:18:11
Speaker
People are confusing that somehow we're going around the securities laws. No, we're saying that. A distributed ledger that contains the buys and sales and settlement process for something like a 144A bond ah private placement. All we're saying is that we want that to be permitted to be used just like they use custodial and transactional software today to do it, right?
00:18:38
Speaker
So we've got to separate, and I think the best way to do that is separate from just cryptocurrency to blockchain more generally, distributed led ledger more generally, is for people to come to the Hill and pitch their use cases. Yeah, I think yeah you referenced Harry earlier. The orange is not the security. And a ticket to a Arkansas Razorback football game is not a security. but It may have a digital representation. It may be tokenized, but that does not make it a security. Any other takeaways from your hearing on tokenization this morning? I thought it was real useful. I think we we had members challenge the idea for
00:19:19
Speaker
ah really to the Depository Trust Company. um Well, this is just a way around the securities laws. There's no AML or KYC protections around somebody who might tokenize an activity like a stock or a bond. And I think the hearing was very good. It was very clear that that's not the case at all, that it's just the the reverse. And we've seen some successes in the money market fund industry now that are very good live action tests of how the benefits of cost and consumer protection
00:19:54
Speaker
accuracy and sharing those benefits with consumers, we've seen that in the money market fund space at Franklin, at BlackRock, and I think you'll see more
Advocacy and Innovation on Capitol Hill
00:20:05
Speaker
of that. And that's what we need to do is talk about how this is working for the benefit of consumers, but also how it produces innovation and advances the technology here at home in the U.S. Congressman, I cannot thank you enough for your service. I will tell you that your staff is extraordinary. We truly enjoy working with them and have over the past several years. Wish you all the best in your future pursuit. I know you're running for chairman of the committee and in the wake of Congressman McHenry's retire upcoming retirement. and Any parting, encouraging words for those in the digital asset industry that are listening?
00:20:43
Speaker
Well, we're making progress, your advocacy matters on college campuses and in corporate boardrooms and in shared workspace of people who are writing applications and creating new ways to serve customers at lower cost with this exciting new technology. So come share those stories with us on Capitol Hill. Help us be successful over in the Senate. And thanks for the opportunity to be with you today. Congressman Hill, thank you very much.
Podcast Conclusion and Resources
00:21:14
Speaker
We hope you enjoyed our Hootenanny. Thank you for listening. For more Hootful and hype-free resources, visit www.owlexplanes.com. There, you will find articles, quizzes, practical explainers, suggested reading materials, and lots more. Also, follow us on Twitter and LinkedIn to continue wising up on blockchain and Web3. That's all for now on Owl Explains. Until next time!