House Digital Asset Legislation, the Financial Innovation and Technology for the 21st Century Act, Takes Another Step Forward

The Financial Innovation and Technology for the 21st Century (FIT21) Act is taking another step forward in a process to provide new rules to oversee the emerging digital asset ecosystem. The House Rules Committee has agreed to a floor vote, which is expected to take place later in May.

FIT21 was introduced into the House Financial Services Committee and the Committee on Agriculture in June 2023.  The legislation has bipartisan support with both Democrats and Republicans sponsoring the bill. The legislation is extensive and is over 250 pages long.

The legislation defines which agency will have oversight over different digital assets. In brief, it is outlined as follows:

  • The Commodity Futures Trading Commission (CFTC) must regulate a digital asset as a commodity if the blockchain, or digital ledger, on which it runs is functional and decentralized. The bill classifies a blockchain as decentralized if, among other requirements, no person has unilateral authority to control the blockchain or its usage, and no issuer or affiliated person has control of 20% or more of the digital asset or the voting power of the digital asset. In addition, the bill provides the CFTC with exclusive regulatory authority over cash or spot markets for digital commodities.
  • The Securities and Exchange Commission (SEC) must regulate a digital asset as a security if its associated blockchain is functional but not decentralized. However, the bill establishes certain exceptions to SEC regulation for digital assets that limit annual sales, restrict nonaccredited investor access, and satisfy disclosure and compliance requirements. The bill also sets forth requirements for primary and secondary market transactions.

The legislation excludes certain stablecoins from CFTC and SEC regulation, except for fraud and certain activities by registered firms.

In a public statement, Representative Patrick McHenry, Chairman of the House Financial Services Committee and a long-time supporter of Fintech innovation, stated:

“For far too long, the U.S. digital asset ecosystem has been plagued by regulatory uncertainty that has stifled innovation and left consumers unprotected. This comprehensive market structure legislation- the Financial Innovation and Technology for the 21st Century Act – is the culmination of years of bipartisan efforts to finally provide clarity. This includes an unprecedented joint effort by the House Financial Services and Agriculture Committees, numerous hearings, and feedback from members and stakeholders alike. With the floor vote announced today, Congress will take a historic step to provide a clear regulatory framework for digital asset markets. This legislation will cement American leadership of the global financial system for decades to come and bolster our role as an international hub for innovation. I thank Speaker Johnson, Leader Scalise, and Whip Emmer for giving this much-needed legislation the floor time it deserves. I look forward to taking a monumental step to finally deliver the transparency, accountability, and consumer protections that the digital asset ecosystem desperately needs.”

Glenn “GT” Thompson, Chairman of the House Committee on Agriculture, voiced a need to safeguard consumers and investors while positioning the US for leadership in digital assets.

“Our collaborative effort establishes the essential clarity and security needed to foster innovation and ensure our nation’s prominence in the global technological revolution. This is the product of extensive feedback from stakeholder and market participants and historic coordination with the Financial Services Committee. This legislation is desperately needed, and I am excited to be able to advance that effort today.”

Representative French Hill, House Whip, pointed to the failure of FTX as emblematic of the need for rew rules.

Sheila Warren, CEO of the Crypto Council for Innovation, said FIT21 would provide much-needed clarity for digital asset firms and developers while safeguarding customer funds.

Warren said:

“Members of Congress now have until 12:00 PM on Thursday, May 16 before the Rules Committee plans to meet the week of May 20 to submit amendments to the bill.  FIT21 is likely to be considered under a “structured rule,” which sets strict parameters around which amendments will be considered and how much debate time there will be for both sides. While FIT21 is not a perfect bill (no bill is), this is a critical and historic step toward establishing a federal regulatory framework for digital assets in the US. At the Crypto Council, we stand ready to work with members of Congress from both parties (and both chambers) on the next stage of this journey.”

While there is a good chance the legislation will be approved in the House, it may not fare so well in the Senate. The legislation would have to make it through the Senate Banking Committee, Chaired by Senator Sherrod Brown, who has been vocally anti-digital asset innovation. At the same time, Brown is up for election and faces a tough fight in his home state of Ohio. He could view the legislation as an opportunity to highlight support for digital asset entrepreneurs to counter the inevitable criticism from his opponent, Bernie Moreno, who has been a champion of blockchain technology.

 



 


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