House Republicans seek answers from SEC on non-security digital assets

A group of House Republicans are seeking a clarification from the Securities and Exchange Commission (SEC) on its position related to non-security digital assets.

The request follows an announcement by Prometheum that its subsidiary, Prometheum Capital, will provide custody services for the digital asset, Ether (ETH). The lawmakers want to know the SEC’s stance with respect to a Special Purpose Broker Dealer’s (SPBD) ability to custody non-security digital assets, the SEC’s willingness to address SPBD non-compliance, the regulatory classification of ETH, and the SEC’s position regarding Prometheum’s announcement.

The House Republicans said the SEC and the Commodity Futures Trading Commission (CFTC) have a record of identifying ETH as a non-security digital asset.

In the letter to SEC chair Gary Gensler, the lawmakers highlight that the SEC currently does not permit SPBD custody of non-security digital assets and warn that allowing Prometheum to proceed could have irreparable consequences for the digital asset markets.

“As you are aware, the agencies have an extensive public record identifying ETH as a non-security digital asset. There are multiple regulatory actions grounded in that position. Yet now, we are faced with an alarming scenario in which a SPBD has announced that it intends to offer custodial services for ETH under a regime that does not permit such activity. This action, if allowed to proceed, could have irreparable consequences for the digital asset markets,” the lawamkers wrote in a letter.

The letter was penned by Reps. Patrick McHenry (R-NC), chair of the House Financial Services Committee, Glenn Thompson (R-PA), French Hill (R-AR), Dusty Johnson (R-SD), Tom Emmer (R-MN), and Warren Davidson (R-OH).

“The negative repercussions of the SEC implicitly or directly classifying ETH as a digital asset security will cascade throughout the digital asset marketplace both in the short and long term. The immediate impact on the ETH commodity derivatives markets is apparent. However, the broader implications for the digital asset markets may be that absent legislation, there will never be regulatory certainty upon which one can offer digital asset derivatives in the United States. This would have a chilling effect on U.S. digital asset markets, to the detriment of Americans who benefit from the robust U.S. digital asset markets and federal regulation of those markets,” the added.

They are seeking answers to a series of related questions by April 9.

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