In a significant development for the crypto industry, lawmakers from the United States House Financial Services Committee and House Agriculture Committee have released a draft discussion paper proposing a regulatory framework for certain crypto assets.
The draft offers these assets a pathway to be labeled as digital commodities, marking a potential turning point in the regulatory landscape.
The discussion draft, published on June 2, highlights the lawmakers’ concerns about the current regulatory framework for digital assets, which they believe hampers innovation and fails to provide sufficient consumer protection.
To address these shortcomings, the House committees aim to establish a functional framework that caters to both market participants and consumers, ensuring regulatory certainty for digital asset firms.
The proposed Digital Asset Market Structure Discussion Draft (Discussion Draft) would grant jurisdiction over digital commodities to CFTC and clarify SEC jurisdiction over digital assets offered as investment contracts.
The Act also establishes a process to allow secondary market trading of digital commodities if they were initially offered as part of an investment contract while imposing robust customer protections on SEC and CFTC-registered entities.
One crucial aspect of the Act focuses on differentiating between digital assets classified as securities and those considered commodities. The draft bill builds on the current exemption regime for digital assets operating on decentralized networks and meeting disclosure requirements.
To determine if a digital asset qualifies as a digital commodity, the Act outlines criteria related to network functionality and decentralization, with the issuer able to certify this to the SEC.
Regulation of Intermediaries in the Crypto Industry
The proposed legislation also addresses the regulation of intermediaries in the industry. It enables the registration of digital asset trading platforms as Alternative Trading Systems (ATS) and permits broker-dealers to the custody of digital assets under certain requirements.
The Act would create a Digital Commodity Exchange (DCE) framework that includes provisions for monitoring trading activity, capital requirements, public reporting, governance standards, and cybersecurity.
Recognizing the importance of innovation, the Act establishes the Strategic Hub for Innovation and Financial Technology (FinHub) at the SEC and LabCFTC at the CFTC. These offices will serve as resources and promote a better understanding of regulatory frameworks for FinTech innovators.
The draft bill also calls for regulatory coordination, allowing entities to obtain multiple licenses and enabling certain entities to dually register with the CFTC and SEC to facilitate transactions involving multiple digital asset types.
While this proposed legislation is still in the discussion draft stage, industry players are optimistic about its potential impact. Coinbase’s chief legal officer, Paul Grewal, praised the bill’s provisions related to regulatory jurisdiction, definitions, business conduct rules, and consumer protections.
However, the draft bill’s release marks an important step toward bringing comprehensive oversight to the cryptocurrency market and providing clarity for industry participants and consumers alike.
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