Rep. Patrick McHenry on crypto regulation: 'We have to legislate around stablecoins'

Rep. Patrick McHenry (R-NC) joins Yahoo Finance Live to discuss disclosure requirements for Congress members trading stocks as well as crypto regulation.

Video Transcript

BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. Members of Congress trading stocks has been a contentious issue, especially after four senators were found to have made significant exits from their holdings following intelligence briefings prior to COVID-19 being declared a pandemic. House Speaker Nancy Pelosi indicated today that she would be willing to move forward a ban on stock trading by members of Congress. Take a listen.

NANCY PELOSI: We have to tighten the fines on those who violate the Stock Act. It's recently not sufficient to deter behavior. And then a third is, really, it has to be government wide. We make a disclosure every year of our financial disclosure. That's what it is. And then in addition to that, on a regular basis, when there's a stock transaction, to report that. The court system, the third branch of government, the judiciary, has no reporting. The Supreme Court has no disclosure. It has no reporting of stock transactions. And it makes important decisions every day.

BRAD SMITH: And joining us now is Representative Patrick McHenry of North Carolina. Representative, thanks for joining us here today. We do know that the Stock Act specifies reporting requirements, but for congressional members privy to information surrounding upcoming legislation and much more information than that. Should portfolio holdings be frozen? Or given the different types of holdings that one could have, could they at least be put into some type of stop loss upon taking office to withstand any appearance of conflict of interest among the American people?

PATRICK MCHENRY: Well, the first thing we don't want to do is have our policymakers removed from the economic realities of average Americans. That's a huge mistake when we separate Congress from the rest of society. Congress should suffer under the same laws as every other American suffers under if they're bad or gets the benefit of if they're good.

So stepping back from that, the important subject here is that we update our financial disclosure statements. It has been many decades since they've been updated. We are a branch of government that discloses on an annual basis. We have additional requirements, the legislative branch does, under the Stock Act, which came out of my committee, which I voted for. We have to make sure that the financial disclosure statements that we file are actually in keeping with the nature of assets as they are today.

That means that when we file about our assets, we have broad ranges that we disclose under this financial disclosure regime. And that doesn't tell much of a story. So I think we have to update the financial disclosure statements. That's number two.

Number three, I concur, this has to be a whole of government approach and make sure the American people understand what their policymakers and what their government is doing in Washington around key decisions and whether or not they're personally benefiting from their decisions. The memes on Twitter around stock trading revolve around one person in the legislative branch, and that's Nancy Pelosi and her financial holdings. So the origin of this whole discussion is because of the Speaker of the House's substantial financial holdings in active stock trading.

And so let's focus on, really, what's happening here. 2/3 of members of Congress have less than 10 trades on an annual basis. And the disproportionate share of trading is done by a very small group of members of Congress. So let's be clear here. We need to make sure we get the conflicts and root out bad actors where they are. But frankly, if you look at Twitter, the disproportionate share of the debate is around one person in the legislative branch, and that is Speaker of the House Nancy Pelosi.

EMILY MCCORMICK: Congressman, in addition to existing rules on disclosure which you were describing, a number of proposals have been floated in both the House and Senate on stock trading in Congress. Some of these have also proposed banning stock trading extending to immediate family members. Is that something that you would support in any forthcoming legislation on this?

PATRICK MCHENRY: I think we can look at that. But there are consequences for that. If you have children that are in their 20s and they're doing things like day trading because they have a couple of bucks, or they're investing in GameStop, what the hell does that have to do with what their parents do? Not much. And so we have to look at the disclosure regime. Why would a parent have to disclose for their 25-year-old kid and their stock trading? That doesn't make any sense.

So we have to make sure that if you're doing financial holdings for somebody under 18, it's a very different regime than you're doing for adults. But again, let me bring you back to the point I made here. This debate is happening because of one person in the legislative branch, and that's Nancy Pelosi and her financial holdings actively traded in the middle of the COVID-19 crisis. So for average members of Congress, we don't have a whole staff managing our financial assets. We don't actively trade. And so let's focus on the actors as they are, where they are, and what they're doing.

BRAD SMITH: Additionally, here, given your stature on committees, and particularly the Financial Services Committee, with regard to some of the hearings that you've held most recently, there are also accelerating investments in decentralized finance and in cryptocurrency, which is also a major part of the meme stock or meme coin discussion, if you will. Most recently, you had a discussion about stablecoins particularly.

What came out of those discussions in that hearing to actually accelerate and move forward in a space that is looking for and asking for regulation so that they know how to conduct themselves and how they can actually operate within the borders and within the guidelines to continue to serve so many of their end users and customers?

PATRICK MCHENRY: Well, I think that's a good point. And what I'm saying is policymakers on Capitol Hill need to experience the products that average Americans use. And one in particular is digital assets and cryptocurrency. I think it would be more helpful if policymakers owned Bitcoin or owned digital assets so they could understand this product that almost a third of Americans own in some way, shape, or form.

The on-ramp to digital assets are things called stablecoins. And they're dollar denominated almost entirely. Globally, they're dollar denominated. And that's the on-ramp into digital assets such as Bitcoin, such as Solana, such as Eth. And so we have the on-ramp here is something that it's necessary for policymakers to get right.

We don't have a federal regulatory regime for stablecoins. We had a hearing yesterday in the Financial Services Committee. In a rare act of bipartisanship, we agree on Capitol Hill that it's the Financial Services Committee that will be leading the way on legislation. And we have to legislate around stablecoins. Those are the two things that we came away with that hearing having a good understanding of.

The Biden administration, their witness said that we can have safe stablecoins as long as we have good, safe assets underlying those stablecoins. I agree. And I think we can come to terms with this on-ramp to the digital ecosystem of the future.

EMILY MCCORMICK: And congressman, in terms of yesterday's hearing on stablecoins one area that you perhaps departed from the president's working group on is how stablecoins should actually be regulated. And you mentioned that you didn't necessarily see regulating stablecoin issuers like banks making sense. What framework would you want to see applied to stablecoin issuers instead? And how would you potentially want to see states perhaps take on a bigger role here?

PATRICK MCHENRY: Well, look, the states are the only ones who have come up with a regulatory regime that works here. And so I think we have to learn the lessons from the states. I think you have to have viable paths for stablecoin regulation at the state level. And we have to have federal options as well. What I think we have to have is a regime around disclosure. And high quality assets is a very high component of what underlies stablecoins.

What the president's working group wants to do is put this into insured depository institutions that have a federal backstop. I think that's a huge mistake. I think we have to have options just like we have with where we want to hold our cash, whether or not you want to put that in a bank account or savings account, or if you want to put it in a money market account. There's a choice around where you hold your cash. Both are safe. Both have been proven resilient over the last 40 years for money market accounts. And so I think that type of choice, we have to apply to the stablecoin regime.

BRAD SMITH: Representative Patrick McHenry of North Carolina joining us here today. Thanks so much for the time. We appreciate it, representative.