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Senate Bill Would Give CFTC, Not SEC, Authority to Regulate Crypto, in Win for Industry

By:
Ruth Singleton
Published Date:
Jun 7, 2022

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A bill sponsored by Sens. Cynthia M. Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y) would give regulatory authority over cryptocurrency to the Commodity Futures Trading Commission (CFTC)—the industry’s preference—rather than the Securities and Exchange Commission (SEC), the Washington Post reported.  

The industry views the CFTC—a smaller agency that regulates a variety of  financial markets, from grain futures to more complex products—as  friendlier than the SEC, whose chair, Gary Gensler, has taken an aggressive stance toward crypto products. Gensler has argued that most digital assets in the roughly $1.2 trillion market qualify as securities, similar to stock in publicly traded companies, giving his agency the responsibility to police them and their issuers. 

But the sponsors of the bill, known as the Responsible Financial Innovation Act, or Lummis-Gillibrand, contend in a joint news release that “most digital assets are much more similar to commodities than securities.” 

According to the Post, the CFTC already regulates futures contracts for bitcoin and ethereum, the two most popular cryptocurrencies. But the new proposal would hand over to the CFTC broad new power by giving  it oversight of the crypto spot market as well. It also envisions that market to include a wide array of digital coins. The bill would create a process for crypto trading platforms such as Coinbase to register with the CFTC. 

In a statement, Sen. Gillibrand said, “Digital assets, blockchain technology and cryptocurrencies have experienced tremendous growth in the past few years and offer substantial potential benefits if harnessed correctly. 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 bipartisan Responsible Financial Innovation Act is a landmark bill that will establish a regulatory framework that spurs innovation, develops clear standards, defines appropriate jurisdictional boundaries and protects consumers. Importantly, the Lummis-Gillibrand framework will provide clarity to both industry and regulators, while also maintaining the flexibility to account for the ongoing evolution of the digital assets market.”  

Opponents of the bill argue that the SEC would better protect investors in the crypto market. The Post quoted Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress, who said, “The status quo would be better than this bill. So many of these tokens are securities and need to comply with the regular, usual securities laws, and this bill tries to create a special crypto-specific disclosure regime that I don’t think discloses all the information investors need to fully evaluate whether to purchase a security.” 

The press release includes a link to the full text of the bill, provides a section-by-section overview, and lists the following provisions: 

• Creates a clear standard for determining which digital assets are commodities and what types are securities, providing clarity and structure for businesses and regulators.  

• Creates clear definitions.  

• Assigns regulatory authority over digital asset spot markets to the CFTC.  

• Defines and creates requirements for stablecoins that will protect consumers and markets and promote faster payments.  

• Creates an advisory committee to develop guiding principles, empower regulatory agencies and advise lawmakers on fast-developing technology.  

• Imposes disclosure requirements on digital asset service providers to ensure that consumers understand the product and can make informed decisions when engaging with digital assets. .   

• Requires a study on digital asset energy consumption.  

• Directs the CFTC and the SEC to study and report on the development of a self-regulatory organization (SRO) and develop a proposal for its creation.  

• Directs the CFTC and SEC to consult with Treasury and the National Institute of Standards and Technology to develop comprehensive, principles-based guidance relating to cybersecurity for digital asset intermediaries.  

• Provides a regulatory sandbox for state and federal regulators to collaborate on innovative financial technologies.  

• Creates a workable structure for the taxation of digital assets.  

• Directs the Government Accountability Office (GAO) to conduct an analysis of the potential opportunities and risks associated with investing retirement savings in digital assets and to report its findings to Congress, Treasury, and the Department of Labor.  

• Directs the Office of Management and Budget, along with the Cybersecurity and Infrastructure Security Agency, the Director of National Intelligence, and the Defense Department, to conduct an information security study around the digital yuan, China’s central bank digital currency.  

 

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