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Last week, Senator Lummis (R-WY) and Senator Gillibrand (D-NY) unveiled their long-awaited proposal for a new regulatory framework for cryptoassets after first announcing their partnership back in March. The bipartisan bill is called the Responsible Financial Innovation (RFI) Act.
Importantly, both of its co-sponsors also sit on two very influential boards when it comes to cryptocurrency oversight. Senator Lummis is a member of the Senate Banking Committee, which is responsible for overseeing the Securities and Exchange Commission (SEC). Meanwhile, Senator Gillibrand is a member of the Senate Agriculture Committee, which oversees the Commodity Futures Trading Commission (CFTC).
Senator Gillibrand – who has not been as crypto-friendly in the past as her co-sponsor Senator Lummis – said in a press release: “The bipartisan Responsible Financial Innovation Act is a landmark piece of legislation that will establish a regulatory framework that encourages innovation, develops clear standards, defines appropriate limits of jurisdiction and protects consumers.
“The Lummis-Gillibrand framework will provide clarity to both industry and regulators while maintaining the flexibility to account for the ongoing evolution of digital asset markets.” I am proud to introduce this bipartisan legislation with Senator Cynthia Lummis, who has been a passionate and engaged partner, and I look forward to working alongside her to build support.”
The nearly 70-page bill lays out several specifics for the regulation of cryptoassets, most of which focus on the SEC and CFTC’s responsibilities when it comes to cryptocurrency oversight.
First, the Responsible Financial Innovation Act establishes a defined framework for determining which cryptoassets are securities and regulated by the SEC, and which are commodities and subsequently regulated by the CFTC. The bill makes this important decision by looking at the intended purpose of the digital asset, as well as the powers or privileges granted to consumers.
Gillibrand’s official press release (but not the text of the RFI bill) specifically lists both Bitcoin and Ether — which together account for more than half of the total market capitalization of cryptocurrencies — as commodities within the law and therefore subject to the CFTC’s jurisdiction. .
The bill also lists definitions of key terms including digital asset, digital asset intermediary, stable payment coins (not to be confused with algorithmically pegged stable coins such as UST) and others.
Although the definitions are not usually the most interesting or interesting part of the law, many of these terms are still not legally defined. Offering formal definitions is a key building block for implementing a clear and accountable regulatory framework for cryptoassets.
Subsequent sections of the bill address the more substantive and impactful aspects of the Lummis-Gillibrand framework for crypto regulation. In particular, the bill gives the CFTC regulatory oversight of the crypto spot market. The RFI Act also sets out the regulatory framework for stable coke payments. As stated in the press release, the law mandates “100% reserve, asset type and detailed disclosure requirements for all stable payment coin issuers.
This ensures that the owner of the stablecoin for payment can always redeem the stablecoin in exchange for an equivalent dollar value, which maintains its value and protects consumers from the many potential risks associated with stablecoins.
The bill also sets out a detailed, optional framework for all banks and credit unions to issue stablecoins for payment. The bill also authorizes a special depository institution charter under state law and the National Bank Act to issue stablecoins for payment, with adjusted capital requirements and holding company oversight. The bill does not require all issuers of stable payment coins to become depository institutions.”
Like stablecoin issuers, digital asset service providers are also mandated to follow disclosure requirements related to educating consumers about the nature of the product, the risks involved, and what rights they have as consumers.
Among other things, the draft lists several key studies to be done, including a study on the energy consumption of digital assets — an action that seems very timely given the recent two-year moratorium on proof-of-work (PoW) mining in Gillibrand’s home state of New York. The bill also calls for a study on a potential self-regulatory organization (SRO) and cybersecurity considerations for digital asset intermediaries.
Furthermore, the bill touches on taxation, as well as a sandbox for cooperation between state and federal regulators on innovative financial products.
If passed, the Responsible Financial Innovation Act could offer broad clarity and a guardrail for the crypto-asset industry. This clarification is something crypto industry leaders have long sought from Congress and agencies.
Establishing clear rules of the road will help keep entrepreneurs and businesses in the US. The ongoing regulatory arbitrage has created a ripple effect with consequences that often drive competition and innovation towards jurisdictions with friendly regulatory guidelines for crypto businesses.
The Ministry of Justice publishes a report on the international use of cryptocurrencies
Last week, the Department of Justice (DOJ) released a 60-page report on “How to Strengthen International Law Enforcement Cooperation to Detect, Investigate, and Prosecute Criminal Activities Related to Digital Assets.” The report comes in line with information requested by the Department of Justice in the President’s Executive Order on Ensuring the Responsible Development of Digital Assets from March.
The DOJ report opens with a letter from Attorney General Merrick Garland to the EO. It states: “As this report explains in more detail, the Department of Justice and our law enforcement partners and regulators have already taken steps to combat the illicit use of digital assets, but efforts must evolve to meet the challenge.
“The report recommends expanding our operational and capacity-building efforts with international partners; increasing information exchange, coordination and deconfliction; and closing regulatory gaps in all jurisdictions.”
The report outlines several challenges in international criminal investigations involving digital assets. Many of these challenges come down to more anonymous forms of cryptoasset transactions, including those involving mixers, unhosted wallets, privacy coins, and other obfuscation methods. They also cite the following challenges:
- The speed and cross-border nature of digital asset transactions present challenges to the timely collection of evidence and enforcement of restrictions and asset seizures.
- The ability and willingness of foreign law enforcement partners to assist U.S. investigations of crimes involving digital assets may depend on the foreign jurisdiction’s authorities and how they categorize digital asset issuers, trading platforms, and other VASPs.
- Some foreign partners are still developing the tools and training needed to effectively investigate crimes involving digital assets.
- Effective information sharing related to investigations involving digital assets is critical to deconflict efforts and resource conservation.
The report offers the following recommendations in addition to the steps already taken to address the previous challenges:
- Strengthen and expand U.S. law enforcement operational efforts and build capacity with foreign law enforcement partners.
- Deepen information sharing, early coordination and conflict resolution efforts.
- Addressing arbitration jurisdiction through closing gaps in anti-money laundering and terrorist financing regulation and oversight.
Crypto.com secures exchange approval in Dubai
As the UAE continues to prove itself as a global hub for cryptocurrencies, Crypto.com has received approval from the Dubai Virtual Asset Regulatory Authority (VARA) to expand its offering in the region.
Part of Crypto.com’s plans includes opening a regional office in Dubai, a requirement for operation set out in Dubai’s regulatory framework for digital assets established earlier this year.
Crypto.com has received a conditional license, which will not be formalized until other requirements are met. Crypto.com Co-Founder and CEO Kris Marszalek commented on the Dubai expansion saying they are “excited to provide more of our products and services to a market that is critical to our business and equally committed to regulation and compliance”.
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