Congressman Pushes Legislation to Require SEC and CFTC to Regulate Digital Assets

At the end of last week, Representative Don Beyer presented legislation that would create definitions for digital assets and digital asset securities and provide the Securities and Exchange Commission (SEC) with statutory authority over digital asset securities and the Commodity Futures Trading Commission (CFTC) with statutory authority over digital assets.

The legislation labeled the Digital Asset Market Structure and Investor Protection Act of 2021, seeks to help create the legal framework to regulate the digital asset sector. The Act  aims to provide “legal and regulatory certainty for digital assets, provide fundamental investor protections to U.S. retail investors and other consumers, improve trade reporting and transparency, strengthen the Bank Secrecy Act requirements related to the treatment of digital assets, and protect U.S. investors in the digital asset sector.”

In a release, Congressman Beyer (D-VA) stated:

“Innovation in the digital asset sector is creating new goods and services every day as well as many new, high-quality jobs. The United States should provide a legal and regulatory environment which promotes this type of innovation and growth. Digital assets and blockchain technology hold great promise, and it is clear that assets like Bitcoin and Ether are here to stay. Unfortunately, the current digital asset market structure and regulatory framework is ambiguous and dangerous for investors and consumers. Digital asset holders have been subjected to rampant fraud, theft, and market manipulation for years, yet Congress has hitherto ignored the entreaties of industry experts and federal regulators to create a comprehensive legal framework. Our laws are behind the times, and my bill would start the long-overdue process of updating them to give digital asset holders and investors basic protections.”

As it stands today, cryptocurrencies like Bitcoin and Ether fall under the bailiwick of the CFTC while digital assets that have characteristics of a security are regulated by the SEC. Some digital assets combine various characteristics that overlap the traditional definitions of currency and securities.

The current language of the bill addresses the following items:

  • Provide legal certainty as to the regulatory status for the top 90% of the digital asset market (by market capitalization and trading volume) through a joint SEC/CFTC rulemaking.
  • Require digital asset transactions that are not recorded on the publicly distributed ledger to be reported to a registered Digital Asset Trade Repository within 24 hours to minimize the potential for fraud and promote transparency;
  • Explicitly add digital assets and digital asset securities to the statutory definition of “monetary instruments,” under the Bank Secrecy Act (BSA), formalizing the regulatory requirements for digital assets and digital asset securities to comply with anti-money laundering, recordkeeping, and reporting requirements;
  • Provide the Federal Reserve with explicit authority to issue a digital version of the U.S. Dollar, clarify that digital assets, digital asset securities and fiat based stablecoins are not U.S. legal tender, and provide the U.S. Treasury Secretary with authority to permit or prohibit US Dollar and other fiat-based stablecoins;
  • Direct the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Securities Investor Protection Corporation (SIPC) to issue consumer advisories on “non coverage” of digital assets or digital asset securities to ensure that consumers are aware that they are not insured or protected in the same way as bank deposits or securities; and,
  • Require legislative recommendations from FinCEN, SEC, and CFTC to provide clarity on dividing lines between who must register as a money services business versus who must register as a securities or commodities exchange.

The statement by the Congressman’s office added that an estimated 20-46 million Americans owning digital assets with a portion of this group having been “victims of theft during trading platform hacks, or been exposed to significant market manipulation or frauds such as ponzi schemes.”

The digital asset industry has long desired bright-line rules but it was not immediately clear if the Congressman worked with industry leaders to craft the language of the bill.



 



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