Responsible Financial Innovation Act: Senator Lummis’ Draft Digital Assets Bill is Now Available

“To provide for responsible financial innovation and to bring digital assets fully within the regulatory perimeter.”

The long-anticipated legislation crypto regulation proposal emanating from US Senator Cynthia Lummis has now been posted online. First revealed by the Block, the draft legislation aims at clarifying the somewhat opaque regulatory environment for digital assets.

Senator Lummis, a Republican from Wyoming, has long been one of the most vocal champions of the emerging digital asset ecosystem.

Currently, the Securities and Exchange Commission (SEC) sees digital assets as mostly securities – Bitcoin being a big exception. The bill as it stands now is 70 pages long addressing a broad range of issues impacting digital assets today – including stablecoins.

Regarding securities, the legislation differentiates securities that include “ancillary assets” or assets that do not include:

  • (i) Voting rights with respect to that entity.
  • (ii) Rights to interest, dividend payments, or profits with respect to that entity.
  • (iii) A debt or equity interest in that entity.
  • (iv) Liquidation rights with respect to that entity.

This ancillary digital asset could be used to “facilitate the governance of a distributed ledger technology network or decentralized autonomous organization.”  This ancillary asset may not be deemed a security.

Under the section that addresses the jurisdiction of digital assets that fall under the Commodity Futures Trading Commission (CFTC) the legislation states:

“Except as otherwise provided by this section, the Commission shall have exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset that is offered, solicited, traded, executed, or otherwise dealt in interstate commerce, including market activities relating to ancillary assets (as defined in section 41(a) of the Securities Exchange Act of 1934), except that specified periodic reporting requirements made by an issuer pursuant to that section and the underlying security with respect to the ancillary asset that constitutes an investment contract…”

There are a lot of moving parts to this draft legislation that we are still reviwing but it the language aims to sort out jurisdictional quesrions between the SEC and CFTC.

Under the section addresssing stablecoins, the legislation compells issuers to hold “high-quality liquid assets.” Approval from a state or federal banking agency is required.

Expectations are for an official release of the legislation later this month. You can expect more commentary as insiders have a chance to review the language in depth.

Developing…

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