Lummis, Gillibrand Introduce Landmark Legislation To Create Regulatory Framework For Digital Assets…
When I say this is important and you should pay attention—that’s not me being overly dramatic because it really IS important. And after months of waiting we finally have a finished product
Bipartisan Bill to address cryptocurrency framework
While some portend to entice readers with a catchy clickbait style headline, I tend to focus on the meat and potatoes of why certain proposed legislation should be scrutinized. If you had the (misfortune) of following me on Twitter then you’d already know that cryptocurrency has always been a fascinating topic, at least for me.
About an hour ago Senators Gillibrand and Lummis announced their bipartisan legislation concerning cryptocurrency… to be clear I’m not an anti cryptocurrency person, my main concern has always been the “middle man”, questionable “ICOs” and the difficulty in tracing the origins/destination of various coins, and a lack luster regulatory statutes….
The newly released bipartisan bill seeks to ameliorate the aforementioned infinities
What does The Responsible Financial Innovation Act do?
Since the inception of virtual currency —this gave birth to a virtual a $1.2 trillion industry. And the reality is legislation tends to be “after the fact” meaning with respect to cryptocurrency Congress hasn’t fully tackled or offered a full or robust legislative framework, until now. And to help you understand why this legislative framework is important because this touches almost every single Financial Federal Agencies (to be clear, previously Congress has taken a piece meal approach —rather than a wholistic approach —thus unintentionally creating various loopholes and regulatory fragmentation —of which bad actors took advantage of) if this bill becomes law those loopholes will be closed and several Federal Financial Agencies will have more authority. I don’t think that’s a bad thing,
Addresses CFTC And SEC Jurisdictional issues
Creates Stablecoin Regulation (financial safety net)
Banking (strengthens AML/BSA & adds onto FY2022 NDAA)
Tax Treatment Of Digital Assets -with an exemption
Interagency Coordination (sweet baby Jesus about time)
Absent an actual legislative and legal framework as it relates to cryptocurrency —a pretty wide vacuum was created and that allowed for malign actors to exploit the lack of a robust legal framework. I’ve lost count of how many defendants have been charged with fraud, money laundering, ICO fraud etc —a cursory read of the proposed legislation appears to address the various concerns mentioned above. For Example:
As with any new technology, there are real risks to consumers, businesses, national security, and our financial system. These risks make sound regulation key. Furthermore, without a clear and defined regulatory framework to guide their businesses practices, digital asset companies could be compelled to take their operations overseas.
The bottom line is that it is absolutely critical that the U.S. plays a leading role in this new frontier.
The full text of the bill is available here and I encourage you to read the bipartisan Senate Bill. Below is a quick “cliff notes” version of what this bill contains herein:
Creates a clear standard for determining which digital assets are commodities and what types are securities, providing clarity and structure for businesses and regulators.
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.
Creates clear definitions.
Currently there is no common set of definitions for digital assets today. Lummis-Gillibrand creates definitions that will enable discussions about digital asset regulation to take place in a consistent way, and for all Americans to know the laws that affect them.
Assigns regulatory authority over digital asset spot markets to the CFTC1
…”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. Digital assets that meet the definition of a commodity, such as bitcoin and ether, which comprise more than half of digital asset market capitalization, will be regulated by the CFTC”
Defines and creates requirements for stablecoins that will protect consumers and markets and promote faster payments.
(This is one of the more critical components of the bill -so please pay attention -in layman’s terms hypothetically speaking if all the cryptocurrency coins were to crash the economic impact both domestic and foreign financial institutions would be catastrophic—that’s why I’m saying this subsection is critically important because to builds a much needed safety net both for consumers and investors…so please pay attention
Payment stablecoins are increasing in use and adoption and when structured appropriately, could provide consumers with faster, more secure means of payments. Lummis-Gillibrand establishes 100% reserve, asset type and detailed disclosure requirements for all payment stablecoin issuers.
This guarantees that a payment stablecoin holder can always redeem the stablecoin in exchange for the equivalent dollar value, which maintains its value and protects consumers from many of the potential risks associated with stablecoins.
The bill also sets forth a detailed, optional framework for all banks and credit unions to issue payment stablecoins. The bill also authorizes a special depository institution charter under both state law and the National Bank Act for payment stablecoin issuance, with tailored capital requirements and holding company supervision. The bill does not require all payment stablecoin issuers to become depository institutions.
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
Consumer education must remain a priority for digital asset service providers. The Lummis-Gillibrand disclosure requirements on digital asset service providers will ensure that consumers understand the products they’re purchasing, their rights, as well the associated risks of engaging in digital assets, including source code version changes and digital asset lending.
The proposed bill also provides direction to various Federal Financial Agencies and requires certain agencies to submit reports to Congress —but it also includes cybersecurity and that’s equally important because cryptocurrency is the preferred funding mechanism for malign actors to fund their elicit activities…
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.
SROs can play a complementary role, working with regulators to allow them to be more nimble and efficient, while maintaining strong supervision. However, the composition and scope of this kind of organization must be structured carefully in order to achieve the desired results.
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.
As more is learned about the ways in which countries like China and Russia are participating in cryptocurrency and other digital assets markets, we need to prioritize the development of robust cybersecurity standards.
It is important that the U.S. lead this regulatory effort so that businesses and innovation remain onshore, ensuring that the U.S. will determine the cybersecurity standards that govern the industry.
The bill directs the appropriate regulators to study the potential for sanctions avoidance, money laundering, and terrorist financing and to develop rules around appropriate cybersecurity standards, threat identification and mitigation, security operations, auditing and penetration testing.
Also anytime I read “sand box” in a proposed bill -it warms my tiny cold black heart because the invocation of “sand box” literally means “Federal State and Local”
Provides a regulatory sandbox for state and federal regulators to collaborate on innovative financial technologies.
Innovation must be able to flourish in its early stages. The Lummis-Gillibrand Act creates a joint structure in which federal and state regulators collaborate with financial technology companies to permit them to introduce innovative products into the market on a limited basis, allowing regulators to become more familiar with financial technology products in a controlled environment, and to participate in the consumer education and financial literacy work that is important to help them engage safely with the market.
In life there are literally only two guarantees, death and taxes and guess what the proposed new bill creates? T-A-X-E-S
Creates a workable structure for the taxation of digital assets.
As digital assets grow in use and legitimacy, it’s important to make it easier for people to use them in their everyday lives. The bill creates a de minimis exemption2 so that people can make purchases with virtual currency without having to account for and report income. 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.
Yes the entire Federal Financial Alphabet Soup -
As noted in the proposed bill —that’s a majority of the Fed Alphabet Soup but it’s important how the Senators aggregated the authority, reporting etc in short this bill has a lot of consumer protections built in and that’s a very good thing —also note the National Security component because that’s also critically important. In layman’s terms this bipartisan bill seeks to strengthen both AML/BSA and it builds on the FY2022/NDAA (damnit I wish I could simply place my previous twitter research but I can’t)
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.
Lummis-Gillibrand aims to avoid limiting consumers’ opportunities to benefit from this growing sector, while also ensuring that investments can be made safely, given that many Americans count on the benefits of retirement savings through 401k plans.
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.
Central bank digital currencies (CBDCs) are growing in prevalence, and it’s important that the U.S. understands the national security implications of the digital yuan and China’s intention to promote its adoption internationally.
You can read the section-by-section overview. and I would recommend you read the senators’ joint Medium post about their bill here. Because it’s far more robust than my article, which was created with lightening speed because I wanted my readers/followers to have near instantaneous access.
And for the record this was not a typo in my IG post…see I told you that my meta was super petty AF…
At any rate my lunch hour is almost over which means I need to get back to my bonbons. It’s not like they are going to eat themselves… snort…and in the past 40 minutes apparently a pyromaniac (a coworker) unintentionally set a bunch of fires and apparently today I’m responsible for extinguishing their follies.
I still laugh at Mr Blue QANON who didn’t even know what the CFTC was and what their responsibilities are. I had to explain it to him over the course of several hours only to then read a thread that he had created which was literally word for word my educational lesson on helping him understand. I wish I was joking but I’m not.
A de minimis exemption (look I’m not going to judge you if you don’t know what that means because unless you do a lot of financial work or are a serious investor most Americans don’t know what that exemption is —so let me explain it) “an investment adviser is exempt from registration if they have five or fewer clients over a 12-month period with a physical address”pursuant to Section 403 of the Uniform Securities Act which specifically states, "a person without a place of business in this state if the person has had, during the preceding 12 months, not more than five clients that are resident in this state". Also see the comments portion of the act, which also states, "Section 403(b)(2) is consistent with the National Securities Markets Improvement Act of 1996 which prohibits a state from regulating an investment adviser that does not have a place of business in this state and had fewer than six clients who were state residents during the preceding 12 months." Also see IRS definition
Sounds comprehensive and beats what we have today...plus, taxes, eh?