US House Committee requests extended comment period on CFPB’s proposed digital asset rule

In a letter addressed to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, leaders of the United States House Financial Services Committee and Subcommittee on Digital Assets, Financial Technology, and Inclusion have called for an extended comment period on the proposed rule from the CFPB. 

The lawmakers expressed concerns regarding the rule’s potential impact on the digital asset space, specifically focusing on its clarity and implications for crypto exchanges.

Unclear implications for the digital asset space

Representatives Patrick McHenry, Mike Flood, and French Hill have questioned how the CFPB’s November 2023 proposal would apply to entities within the digital asset ecosystem. The CFPB’s rule seeks to expand its supervisory authority over depository institutions, including including digital assets within the definition of “funds” and targeting digital wallets.

In their letter, the lawmakers emphasized the lack of clarity surrounding how the proposed rule would affect crypto exchanges. They expressed concerns that the uncertainty could discourage firms from facilitating peer-to-peer transactions through wallets hosted on their platforms. The letter called for an additional 60-day comment period to allow for feedback on the regulation’s potential impact on the digital asset industry.

The representatives stressed the importance of peer-to-peer transactions through “self-hosted wallets” in the digital asset ecosystem, as it eliminates third-party risk. They argued that capturing digital asset wallet providers who do not maintain ongoing relationships with consumers could introduce regulatory risks that may hinder innovation and development within the industry.

The letter concluded with a plea to the CFPB to avoid pursuing such a broad definition of the rule’s scope, highlighting the potential consequences it could have on the digital asset space.

Concerns echoed by crypto advocacy group

The Crypto Council for Innovation, a prominent advocacy group in the digital asset industry, voiced its “deep concerns” regarding the impact of the proposed rule earlier this year. The group argued that the regulation could increase regulatory fragmentation within the crypto space.

Furthermore, the Crypto Council for Innovation hinted that waiting for Congress to establish an appropriate regulatory framework might be a more prudent approach than extending the CFPB’s authority over digital assets.

The timing of these developments is noteworthy, given the current political landscape in the United States. Representative Patrick McHenry, who chairs the House Financial Services Committee, announced in December 2023 that he would not seek reelection for a new term starting in January 2025.

Additionally, many political analysts suggest that the control of the U.S. House of Representatives could be up for grabs in the upcoming 2024 elections, with all 435 seats in the House set to be contested. The outcome of these elections may significantly impact the regulatory environment for digital assets and financial technology.