Regulation
A comprehensive regulatory framework for digital assets
On May 16th, at letter was signed by over 50 participants and groups from the digital assets industry. They sent it to the president and minority leader of the U.S. House of Representatives, urging them to support a bill (HR 4763, Financial Innovation and Technology for the 21st Century Act or “FIT 21”). FIT 21 is expected to be debated and voted on this week.
The letter calls on both major parties in the House to recognize that FIT 21 “establishes a comprehensive regulatory framework to protect consumers while addressing the unique structure of the U.S. digital assets market” and that the U.S. “falls behind other major jurisdictions” in creating regulation for digital assets.
Part of the challenge for lawmakers in the United States is the bifurcated nature of regulation in the United States. Nominally, the Securities and Exchange Commission (SEC) regulates and supervises stock markets, while the Commodities and Futures Trading Commission (CFTC) regulates and supervises derivatives. (including futures, swaps and some options). Both the SEC and the CFTC (or neither) have claimed jurisdiction over the digital asset market, which has sparked a number of concerns among US market participants, not least SEC Chairman Gary Gensler’s attempt to try to classify most (if not all) digital assets as “securities” in order to bring them squarely within the purview of the SEC. This strategy has not been entirely successful – as demonstrated by the court-ordered acceptance to launch spot BTC exchange-traded products – but it has blown a cold wind on US markets and their participants.
Among other things, FIT 21 should make the jurisdictions of the CFTC and SEC clearer.
As an English lawyer, it is not within my remit to comment on US laws or their effectiveness in relation to domestic matters. All I’ll say is:
- It is good to have clear boundaries between the jurisdictions of the SEC and CFTC;
- The draft sections 108 and 109 are about international cooperation and harmonisation: it is good to consult, coordinate and share information (but the deadline for adopting rules and regulations in section 109 (360 days) is not very long if want to achieve or experience international “harmonization”); AND
- Some exemptions from the rules based on transaction size and other signs of a transaction between “parties who can manage the risk” are fair in principle; AND
- Some requirements of FIT 21 are similar to those of the EU MiCA.
Regarding the last point, my opinion on FIT 21 is that it is more similar to MiCA in approach (digital assets (and their derivatives) are a distinct category of financial instruments, with separate treatment) than to the UK regulations (which I prefer more).