UPDATE: June 9, 2022:
Support for the Responsible Financial Innovation Act, sponsored by Sens. Kirsten Gillibrand and Cynthia Lummis, was offered this week by the Stellar Development Foundation, which promotes the use of blockchain technology to address cross-border payments problems.
“To date, various proposals, some targeting narrow aspects of the industry and others taking a more comprehensive approach, have not gained the bipartisan traction needed to move us forward,” from Stellar Chief Legal Officer Candace Kelly said in a post on the non-profit organization’s blog. “Today, Senators Lummis and Gillibrand have bridged the aisle and released an omnibus approach to a framework for regulating this industry.“
In an analysis of the bill, the senators said this: “For the first time, this bill makes a clear distinction between digital assets that are commodities or securities by examining the rights or powers conveyed to 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 commodities and securities laws, bringing digital assets into the regulatory perimeter from the current vacuum.”
The bill allows for “responsible securities innovation” that protects consumers and companies in the cryptocurrency market by providing “information to the marketplace and legal certainty for innovators,” the analysis said.
- Sens. Kirsten Gillibrand, D-NY, and Cynthia Lummis, R-WY, unveiled a bipartisan crypto bill Tuesday that aims to give the space a comprehensive regulatory framework.
- The Responsible Financial Innovation Act touches on regulatory requirements for stablecoin issuers and taxes on crypto transactions. It also offers clarity regarding which digital assets would be considered commodities versus securities.
- If passed, the legislation would expand the role of the Commodity Futures Trading Commission (CFTC) to regulate spot markets for digital assets, and restrict the Securities and Exchange Commission (SEC) to overseeing crypto it classifies as securities.
Crypto oversight has been a focus for lawmakers, regulators and digital-asset professionals for months. Several crypto executives who testified on Capitol Hill in December said the U.S. approach to regulating the space will determine the nation's status as a leader in the field.
CFTC Chair Rostin Behnam urged lawmakers at a February hearing to grant the agency an expanded role in regulating the cryptocurrency market, and give the regulator an extra $100 million to do so.
Meanwhile, crypto exchanges Coinbase and Ripple Labs proposed their own preferred frameworks for crypto regulation — with Ripple, for one, leaning toward the CFTC, and Coinbase seeking the establishment of a new regulator altogether.
The regulation of stablecoins, which are cryptocurrencies pegged to a fiat currency or other asset, has become a hot-button issue more recently, after the collapse in price of TerraUSD made headlines in early May. Treasury Secretary Janet Yellen later that month called for stricter stablecoin oversight during a hearing before the Senate Banking Committee, on which Lummis serves.
Lummis and Gillibrand's bill intends to boost innovation and transparency while promoting consumer protections in the digital assets space, the senators said Tuesday in a Medium post.
The bill also “creates regulatory clarity for agencies charged with supervising digital asset markets, provides a strong, tailored regulatory framework for stablecoins, and integrates digital assets into our existing tax and banking laws,” Lummis said in a press release.
The bill would require that stablecoin issuers maintain 100% dollar reserves, and that the Treasury Department implement final guidance on stablecoins no more than 120 days after the legislation is passed.
The framework would also save investors from having to pay capital gains taxes when using digital assets in transactions of up to $200, furthering the use case of crypto as a medium of exchange.
The bill would also save money for crypto miners, who would not be required to pay income tax until they exchange their newly mined assets for cash.
Perhaps the greatest impact of the bill would be overhauling the government’s treatment of digital assets as either securities or assets. The bill would treat Bitcoin, Ethereum and several other popular cryptocurrencies as commodities under the purview of the CFTC rather than securities regulated by the SEC.
“Digital assets, blockchain technology and cryptocurrencies have experienced tremendous growth in the past few years and offer substantial potential benefits if harnessed correctly," said Gillibrand, who serves on the Senate Agriculture Committee that oversees the CFTC. "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."
Lummis and Gillibrand have been planning to create a regulatory framework for crypto as far back as March 2020. Prospects for its passage through the Senate, especially ahead of midterm elections in November, are fairly low, congressional aides have said. But it could spur conversations and compromises.
It's not the only bill attempting to define regulation in crypto. The leaders of the Senate Agriculture Committee are also working on a framework that would give the CFTC oversight of digital assets that aren’t securities, The Wall Street Journal reported.
Correction: This story has been corrected to note that the analysis referenced in the update was produced by the authors of the legislation.