U.S. Congress Unveils Sweeping Bipartisan Crypto Legislation - Fin Tech - bdsthanhhoavn.com

U.S. Congress Unveils Sweeping Bipartisan Crypto Legislation – Fin Tech



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On June 7, Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand
(D-NY) released their highly anticipated bill – the Responsible
Financial Innovation Act – that would create a legal framework to
govern digital assets. The bill represents one of the first
comprehensive, bipartisan bills introduced by the U.S. Congress
focused on digital assets and the technologies that underpin them
(i.e., blockchain technology).

As written, the bill would have far-reaching implications for
the digital asset industry. However, at this point, the chances of
the bill passing into law over the short term are slim. While the
recent meltdown in the cryptocurrency market has pushed regulating
digital assets higher on the agenda for governments everywhere,
lawmakers in the U.S. have several other priorities – like
inflation and the upcoming midterm elections – that will likely
take up much of their focus throughout the rest of the year. That
said, the bill is largely being positioned as a starting point for
lawmakers to frame their efforts in a push to pass legislation
sometime next year.

Key Provisions

  • Establishes the CFTC as the Primary Regulator of
    Digital Assets
    – Most notably, the bill would effectively
    establish the Commodity Futures Trading Commission (CFTC) as the
    primary regulator of digital assets by (a) providing the agency
    with “exclusive spot market jurisdiction” over digital
    assets, (b) codifying a crypto-specific interpretation of the Howey
    test that is used by the SEC to determine if an asset is a
    security, and (c) defining most digital assets as “ancillary
    assets” and treating them as commodities, thus putting them
    under the CFTC’s jurisdiction. 1

  • Stablecoin Reserve Requirements – Stablecoin
    issuers would be required to (a) maintain high-quality liquid
    assets valued at 100% of the face value of issued stablecoins, (b)
    provide monthly disclosures on such assets, and (c) guarantee the
    ability to redeem all stablecoins at par in legal tender.

  • Stablecoin Issuance Process for Banks and Credit Unions
    Establishes a procedure for banks and credit unions to
    issue stablecoins by establishing a separate depository institution
    affiliate and securing the necessary regulatory approvals.

  • Regulatory Reporting Requirements – Sets a
    number of reporting requirements for operators in the digital
    assets industry. In particular, issuers of digital assets that are
    considered “ancillary assets” would have to submit
    twice-annual disclosures to the SEC on the valuation and management
    of those assets. In addition, digital asset service providers would
    be required to provide clear consumer notices, and require
    acknowledgement of, on a number of matters ranging from material
    source code updates to how a bankruptcy or insolvency scenario
    would be handled.

  • Digital Asset Exchange Registration Requirements and
    Fees –
    Establishes a pathway for digital asset exchanges
    to register with the CFTC. In addition, the bill would permit the
    CFTC to impose user fees on digital asset exchanges to cover
    regulatory costs.

  • Crypto Broker Tax Reporting Requirements –
    Delays for two years (until 2025) and amends the mandatory yearly
    tax reporting requirements for crypto brokers that were passed last
    year as part of the Infrastructure Investment and Jobs Act.

  • Tax Exemption for Crypto Transactions Less than $200
    Provides a tax exemption for all
    transactions for goods and services under $200.

  • Tax Exemption for Digital Asset Lending Agreements
    Specifies that so-called digital asset lending
    agreements are not generally taxable events.

  • Tax Exemption for Crypto Mining and Staking –
    Establishes that digital assets
    obtained from mining or staking are not to be treated as taxable
    income until they are converted into fiat currency and gains or
    losses are realized.

  • Decentralized Autonomous Organization (DAO)
    Registration Requirements –
    Requires community-led
    decentralized autonomous organizations (DAOs) to classify as
    business entities that must be incorporated as an LLC, corporation,
    partnership, foundation, cooperative, or similar organization.

  • Government Studies on Key Issues – Directs a
    number of government agencies to conduct studies on key issues
    within the digital asset industry. For example, the bill directs
    the Treasury Department, the Federal Energy Regulatory Commission
    (FERC), the SEC, and the CFTC to conduct studies on (a)
    opportunities, benefits, and challenges associated with
    decentralized finance, (a) energy consumption related to digital
    assets, (b) how the digital assets industry self regulates and how
    registered digital asset associations should be established, and
    (c) cybersecurity standards for digital asset intermediaries.

  • Advisory Committee on Financial Innovation –
    Proposes an Advisory Committee on Financial Innovation that
    includes industry representatives, the SEC, CFTC, a Federal Reserve
    Board member, a state regulator, and consumer protection
    advocates.

What to Expect Moving Forward

So far, the bill has received widespread praise from the digital
assets industry and some pushback from consumer advocates. In
particular, Blockchain Association Executive Director Kristin Smith
noted in a statement that the bill, “represents a milestone
moment for crypto policy and a major step forward for the crypto
industry in Washington.” 2 Similarly, Perianne
Boring, chief executive of the Chamber for Digital Commerce, called
it a “foundational, comprehensive start.” 3
And Sheila Warren, chief executive of the Crypto Council for
Innovation, said the bill amounts to “a significant step
forward.” 4 Critics of the bill, however, have
argued that it would undermine securities law and open consumers
and investors to undue harm. For instance, Mark Hays, a senior
policy analyst on fintech for the Americans for Financial Reform
said the bill “would do quite a bit to undermine existing
securities laws by creating an alternative route that could bypass
the current, time-tested rules.” 5

While the bill marks a significant step forward for the U.S.
Congress in defining a legal framework for digital assets, the bill
is unlikely to pass this year. In fact, several reports suggest
that in a briefing with reporters before the bill was released, the
staff of both Sens. Lummis and Gillibrand suggested that the bill
would likely be advanced in a piecemeal fashion through various
committees in an effort to make it ready to pass sometime next
year. 6 That said, it should be noted that the lead
sponsors of the bill sit on key committees with jurisdiction over
its proposed provisions – Sen. Lummis serves on the Senate Banking
Committee that oversees the SEC and Sen. Gillibrand sits on the
Senate Agriculture Committee that oversees the CFTC – that may help
its chances.

Moving forward, the bill will likely be used to frame the
ongoing legislative and regulatory debate around digital assets
within the U.S. In addition, the strategy of passing the bill piece
by piece through Congress provides an opportunity for lawmakers to
fast-track high-priority provisions – like the stablecoin reserve
requirements. However, significant revisions to the bill should be
expected as it meanders through the legislative process.

Related Reading

The full text of the bill can be found here. A section-by-section overview can be
found here. The press release announcing the bill
can be found here. A joint blog from Sens. Lummis (R-WY)
and Gillibrand (D-NY) on the bill can be found here.

Footnotes

1 As defined by the bill, “ancillary assets”
would be an “intangible, fungible asset that is offered, sold,
or otherwise provided to a person in connection with the purchase
and sale of a security through an arrangement or scheme that
constitutes an investment contract.” According to reports, those close to the bill’s drafting
suggested that this definition would apply to the 200 most valuable
cryptocurrencies listed on CryptoMarketCap.

2 Newmyer, T. (2022, June 7). Crypto industry scores a
big win under long-anticipated Senate bill. The Washington Post.
Retrieved June 8, 2022, from https://www.washingtonpost.com/business/2022/06/07/crypto-lummis-gillibrand-regulation/

3 Ibid.

4 Ibid.

5 Kiernan, P. (2022, June 7). Senators propose
industry-friendly cryptocurrency Bill. The Wall Street Journal.
Retrieved June 8, 2022, from https://www.wsj.com/articles/senators-to-propose-industry-friendly-cryptocurrency-bill-11654592401

6 Davidson, K., & Weaver, A. (2022, June 7). The
Fed’s new framework ages fast. POLITICO. Retrieved June 8,
2022, from https://www.politico.com/newsletters/morning-money/2022/06/07/the-feds-new-framework-ages-fast-00037653

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