New Senate legislation unveiled today would retain at least for now the status quo on current Federal oversight of some cryptocurrency trading, but also would set the stage for a much broader examination of how and whether the Federal government should create regulatory structures for a wider range of digital assets that includes cryptocurrency.
The new bill – the Responsible Financial Innovation Act – introduced today by Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wy., has been in the works for months.
The senators said today that the legislation would “create a complete regulatory framework for digital assets that encourages responsible financial innovation, flexibility, transparency and robust consumer protections while integrating digital assets into existing law.” They also said the bill represents “the most substantial and comprehensive bipartisan effort to provide certainty and clarity to the growing digital asset and blockchain industries,” to date.
“The United States is the global financial leader, and to ensure the next generation of Americans enjoys greater opportunity, it is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk,” Sen. Lummis said. “As this industry continues to grow, it is critical that Congress carefully crafts legislation that promotes innovation while protecting the consumer against bad actors.”
“Digital assets, blockchain technology, and cryptocurrencies have experienced tremendous growth in the past few years and offer substantial potential benefits if harnessed correctly,” said Sen. Gillibrand. “It is critical that the United States play a leading role in developing policy to regulate new financial products, while also encouraging innovation and protecting consumers.”
The legislation creates an extensive task list for multiple Federal agencies for further policy-making in the digital assets arena.
Legislative Thumbnails
Here are some of the high points of the wide-ranging legislation:
- Current regulation – The bill would give regulatory oversight over “digital asset spot markets” to the Commodities Futures Trading Commission (CFTC). That agency already regulates such things as future contracts for bitcoin and Ethereum, which the senators said make up for about half of the cryptocurrency market. “Understanding that most digital assets are much more similar to commodities than securities, the bill gives the CFTC clear authority over applicable digital asset spot markets, which aligns well with their current purview over other commodity markets,” the senators said in a summary of the bill’s provisions.
- Creating “clear standards” for determining which digital assets are commodities and which are securities, and providing regulatory clarity on that basis. “The bill makes a clear distinction between digital assets that are securities and commodities by looking at the purpose of the asset and the rights or powers it conveys the consumer, giving digital asset companies the ability to determine what their regulatory obligations will be and giving regulators the clarity they need to enforce existing securities and commodities trading laws,” the senators’ summary says.
- Creating an advisory committee to develop “guiding principles, empower regulatory agencies and advise lawmakers on fast-developing technology,” to include industry, advocacy groups, Federal and state regulators, and experts in consumer protection, education, literacy, and inclusion. “The committee is key to flexibility and for responding to rapid developments in the industry,” the senators said, adding, “it will continuously study the quickly changing industry and make recommendations based on new developments so that regulations remain relevant and effective;
- Creating requirements for stablecoins that will protect consumers and markets and promote faster payments, including establishing a 100 percent reserve, asset type, and detailed disclosure requirements for stablecoin issuers.
- Requiring the CFTC and the Securities and Exchange Commission to propose creation of a self-regulatory organization – similar to the regulatory status of stock exchanges – for digital assets;
- Requiring the CFTC, SEC, Treasury Department, and the National Institute of Standards and Technology (NIST) to “develop comprehensive, principles-based guidance on cybersecurity for digital asset intermediaries;
- Providing a “regulatory sandbox” for state and Federal regulators “to collaborate on innovative technologies”;
- Creating a “workable structure” for the taxation of digital assets. “The bill creates a de minimis exemption so that people can make purchases with virtual currency without having to account for and report income,” the senators said. “The bill also clarifies the tax treatments of different actors and actions in the digital asset industry, including that miners and other validators are not “brokers” for income tax purposes and that their rewards shall not be income until redeemed for cash.
- Imposing disclosure requirements on digital asset service providers to explain their products;
- Requiring the Federal Energy Regulatory Commission to conduct a study on energy consumption involved in virtual currency mining;
- Directing the Government Accountability Office to analyze opportunities and risks of investing retirement savings in digital assets; and
- Directing the Office of Management and Budget, the Cybersecurity and Infrastructure Security Agency, the Director of National Intelligence, and the Defense Department to “conduct an information study around the digital yuan, China’s central bank digital currency,” and its national security implications.
Industry Reacts Favorably
“Senator Lummis’ and Senator Gillibrand’s proposal addresses a number of the critical principles required for the U.S. to realize the commercial and economic benefits of this technology and to retain American competitiveness in this market,” commented Perianne Boring, CEO at the Chamber of Digital Commerce trade group.
“The Responsible Innovation Act is a foundational, comprehensive start to setting a national regulatory framework for digital assets and addresses inter-agency cooperation, regulatory oversight and the consumer protections necessary for these types of innovative products and services,” she said.
“We applaud Senator Lummis for laying the groundwork for a holistic set of rules of the road that will add much needed clarity and certainty for both the industry and regulators, while encouraging ongoing innovation and U.S. leadership,” Boring said.
“The Responsible Financial Innovation Act focuses on flexibility, innovation, transparency, and consumer protections as agencies begin to integrate digital assets into existing law and provide certainty to the growing industry,” said Nathan Jones, SVP & GM of Worldwide Public Sector Sales, Government Affairs, at TaxBit.
“The Act is an important step in furthering the adoption of cryptocurrency for consumers, enterprises, and governments,” he said. “Its balanced whole-of-government approach sets the tone for the overall digital asset regulation strategy and establishes much-needed guidance that encourages innovation and fosters confidence that bolsters the worldwide crypto ecosystem.”
