US Senators Cynthia Lummis and Kirsten Gillibrand are set to unveil proposed legislation today that aims to classify most crypto assets as commodities. The bill, known as the “Responsible Financial Innovation Act,” seeks to bring crypto assets under the purview of the Commodities Futures Trading Commission (CFTC) rather than the Securities and Exchange Commission (SEC). The Senators argue that the SEC’s regulatory approach has stifled innovation in financial technologies.
Addressing Crypto Assets Regulatory Challenges
The proposed legislation addresses the ongoing confusion surrounding the classification of cryptocurrencies. While the SEC, under the leadership of Gary Gensler, considers them securities, the CFTC views them as commodities. This discrepancy has created an identity crisis for the crypto industry, with companies facing uncalled-for lawsuits and regulatory challenges.
However, the new bill aims to protect investors and prevent major industry collapses, similar to those witnessed in 2022 in the cases of the likes of FTX, Three Arrows Capital, and the Terra Luna ecosystem. Meanwhile, it takes a different approach from the SEC by avoiding enforcement actions, lawsuits, or asset freezes that could harm investors and the entire trillion-dollar market. Instead, the legislation proposes measures to enhance oversight and transparency in the crypto market.
The Responsible Financial Innovation Act introduces several provisions to regulate the crypto industry effectively. If passed, the bill would require crypto exchanges to store customer funds in third-party trusts, reducing the risk of mismanagement or misappropriation. Additionally, it would prohibit exchanges from engaging in internal trading using their own funds or tokens. The CFTC would also have the authority to supervise exchange affiliates for any potential misconduct.
Promoting Clarity and Consistency
Furthermore, the proposed legislation also seeks to establish clear standards and definitions for digital assets. Currently, there is no consistent set of definitions for cryptocurrencies, causing confusion and hindering effective regulation. The bill aims to rectify this by creating definitive definitions that will enable consistent discussions and ensure that all users are aware of the laws governing digital assets.
While the bill has been submitted to both the CFTC and the SEC for review, there are concerns that it may face resistance or delays. Senator Lummis expressed worries that the regulators may attempt to obstruct the bill despite their involvement in its development.
It’s worth noting that the US crypto industry has lagged behind other countries in terms of regulatory clarity. The proposed legislation represents a crucial step toward creating a more supportive environment for cryptocurrencies in the United States. It is hoped that clear regulations will attract talent, innovation, and institutions and further boost the growth and adoption of crypto assets.
