U.S. Senate Introduces Long-Awaited Bill on Cryptocurrency Regulation
New proposal aims to plug gaps and clarify market oversight rules for digital assets.
On June 7, a new framework for regulating cryptocurrencies entered the U.S. Senate amid ongoing uncertainty about the rapidly growing market’s future oversight.
The bill, titled the Responsible Financial Innovation Act (RFIA), also dubbed the ‘Lummis-Gillibrand bill’ after Senators Cynthia Lummis, R-Wyo, and Kirsten Gillibrand, D-N.Y. who introduced it – comes on the back of calls for clearer rules to protect investors.
The bill sets out proposed future legislation to uphold investor and consumer interests while also clarifying the roles and responsibilities of specific regulators, namely the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
As more lawmakers review the legislation and provide input, here are some key takeaways from the initial bill:
Tighter restrictions around exchanges
Crypto exchanges will need to register with the CFTC. According to the Washington Post, “The CFTC already regulates futures contracts for bitcoin and ethereum, the two most popular cryptocurrencies. But the new proposal gives the agency broad new power by handing it oversight of the crypto spot market as well.”
Issuers of digital assets would also have to disclose risks of losses, and how assets are treated in the event of bankruptcy, while consumers are guaranteed the right to keep and control digital assets they own.
Clearer jurisdictional accountabilities
Under the proposal, the CFTC (as the regulator of commodities trading) will replace the SEC as the prime regulator of crypto markets.
This is based on the ‘digital assets’ being classified differently between those that are deemed commodities and those that are defined as securities, with the bill’s sponsors stating that “most digital assets are much more similar to commodities than securities,” in a joint news release.
This effectively would put an end to SEC oversight of crypto markets and provoked counter arguments from the SEC and its proponents who disagree with the definition of what a security is and have questioned if, as a much smaller organization, the CFTC has the capacity to properly regulate such an extensive addition to the financial markets.
Changing compliance requirements and potential penalties on the horizon
In the words of Senator Lummis in a video interview, “It’s about balancing innovation with regulation” as well as seeking to “integrate digital assets into our existing tax and banking laws.”
Whether these measures can achieve both of these aims, or whether it will result in crypto being regulated as strictly – or perhaps even more so – than banks and other financial instruments remains to be seen. However, what is clear is that this is still a milestone move in terms of legislative intent for crypto regulation, and will require firms to think about future compliance protocols, and the prospects of regulatory action for non-compliance.