Regulation
The House will vote on who will regulate cryptocurrencies
getty
The House of Representatives plans to adopt a I count tomorrow this would divide responsibility for regulating cryptocurrencies between the Securities and Exchange Commission and the Commodities Futures Trading Commission, depending on the degree of centralized control of the associated blockchains.
The Financial Innovation and Technology for the 21st Century Act, known as FIT21, would give the SEC power over cryptocurrencies that remain tightly controlled by their developers or small groups of owners. More widely decentralized tokens, which would include bitcoin and possibly ether, will be placed under the CFTC, which is more geared towards serving informed institutional investors than the SEC, which aims to protect retail investors.
If the bill becomes law, it would end a perceived turf war between the two agencies and give the judicial system a specific framework for deciding cryptocurrency regulatory disputes for the first time.
The legislation also advanced out of the House Financial Services Committee in July near strengthen transparency and accountability of cryptocurrency exchanges, brokers and dealers, and provide blockchain developers with a compliant way to raise funds.
The CFTC would regulate a cryptocurrency as a commodity “if the blockchain, or digital ledger, on which it runs is functional and decentralized, according to the Congressional Research Service. In contrast, the SEC would regulate a digital asset as a security “if its associated blockchain is functional but not decentralized.” The bill classifies a blockchain as decentralized if, “among other requirements, no individual has unilateral authority to control the blockchain or its use, and no issuer or affiliated person controls 20% or more of the digital asset or his voting power”.
However, the distinction would also depend on the status of the owner (e.g., an issuer versus an unaffiliated third party) and how the digital asset is acquired (e.g., as part of a primary capital raising offering, an airdrop or a transaction on a CFTC regulated platform).
“FIT21 may be the most substantial piece of digital asset legislation in the history of Congress. In my opinion, the best way to spur continued investment and innovation for financial services and beyond is to sign it into law,” says Rep. French Hill (R-Ark.), who chairs the Subcommittee on Digital Assets. Hill is a potential successor to House Financial Services Committee Chairman Patrick McHenry (R-N.C.), who plans to retire at the end of this term.
According to Hill, the bill has garnered support from former President Donald Trump and many of his advisers. “They think this is an important part of America’s innovative leadership in the world,” he says.
Sixty digital asset organizations and companies, including cryptocurrency exchanges Coinbase and Kraken and venture capital firm Andreessen Horowitz, also expressed their support. “While FIT21 is not a perfect bill (no bill is!), this is a critical and historic step toward creating a federal regulatory framework for digital assets in the United States,” said Sheila Warren, CEO of the Crypto Council for Innovation, in the comments shared with Forbes.
While FIT21 is likely to pass the House, its prospects in the Senate remain uncertain. However, Rep. McHenry reportedly suggested last week that the level of Democratic support during the House vote could significantly influence the Senate’s decision.
“This bill is very reflective of many Democratic priorities in the House Financial Services Committee, so I think you will find support on both sides of the aisle for a digital asset market structure bill. And with the year-end packages, the reauthorization of the Farm Bill, there are a number of legislative alternatives beyond simply passing the bill through the House and Senate,” adds Hill.
The House’s early vote comes just six days after that of the US Senate inverted an SEC crypto accounting policy, Staff Accounting Bulletin (SAB) 121, that requires companies that hold clients’ cryptocurrencies to record them on their balance sheets. This mandate could have significant capital implications for banks and financial institutions working with crypto clients. President Joe Biden did She said he would veto the effort.