Landmark crypto legislation defines SEC, CFTC jurisdiction on digital assets, commodities
A new and significant set of laws in the crypto industry have been established to outline the authority of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over digital assets and commodities. These regulations are a landmark development that will shape the future of the digital currency market.
The House Financial Services Committee has approved the groundbreaking 'FIT for the 21st Century Act', which will have a significant impact on the digital assets industry moving forward.
Last modified: July 27, 2023 at 11:02 in the morning
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In a notable development for the world of digital assets, the House Financial Services Committee approved the 'FIT for the 21st Century Act,' also known as the "Financial Innovation and Technology for the 21st Century Act," on July 26th.
21st Century Act: Be FIT
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The aim of this legislation is to ensure a sense of legal clarity for digital goods, shed light on the handling of digital possessions, discourage any unlawful behavior, and foster progress in the field of innovation.
The 'FIT' Act is distinctive because of its all-inclusive regulatory strategy towards digital assets, with the goal of encompassing this rapidly growing field within regulatory boundaries.
Moreover, the approval of the bill signifies a significant achievement in terms of American advancement and safeguarding the interests of individuals utilizing digital resources, according to the report by the House Financial Services Committee.
Sponsored by Representative French Hill, this legislation essentially establishes a comprehensive legal structure for the issuance and trading of digital assets. These activities will be overseen by two regulatory agencies, namely the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
Understanding Digital Assets
An important aspect of the legislation is its attempt to elucidate concepts like "virtual asset," "virtual commodity," "chain of blocks," and "distributed system," among various others.
Fascinatingly, the legislation categorizes a 'digital asset' as
"any interchangeable virtual manifestation of worth that can be personally owned and transmitted, individual to individual, without obligatory dependence on a middleman, and is documented on a securely coded open decentralized record."
This explanation suggests a wide and all-encompassing comprehension of virtual possessions, establishing the foundation for more comprehensive control in the forthcoming times.
What Are Digital Commodities?
Furthermore, the legislation categorizes a 'digital commodity' as "any individual unit of a digital possession owned by an individual, excluding a digital possession issuer, a connected individual, or a affiliated individual" based on the subsequent circumstances:
However, it is important to note that the term 'digital commodity' does not encompass an authorized payment stablecoin.
The legislation explicitly states that the CFTC has authority over digital commodities. Additionally, the SEC has the power to regulate digital assets such as approved payment stablecoins when they are traded by entities registered with the SEC.
In particular, the CFTC will have sole authority over any digital commodity traded on a registered exchange, which includes options and futures contracts. On the other hand, the SEC will oversee stablecoins and any digital asset, whether it is registered or not.
Moreover, the legislation stipulates that any entity issuing digital assets and is officially recognized by the Securities and Exchange Commission (SEC) must also be subject to scrutiny and review by the Commodity Futures Trading Commission (CFTC).
Changes To SEC & CFTC Regulations
The legislation takes additional steps by broadening the scope of the SEC's Strategic Hub for Innovation and Financial Technology (FinHub) and the CFTC's LabCFTC.
Changes to Section 4 of the Securities Exchange Act of 1934 introduce FinHub as part of the SEC, focusing on encouraging responsible technological progress and ensuring fair competition. FinHub plays a crucial part in shaping the SEC's stance on advancements in the finance sector and examining fintech innovations in capital markets.
At the same time, changes to Section 18 of the Commodity Exchange Act result in the creation of LabCFTC within the CFTC. LabCFTC's main objective is to encourage responsible innovation in financial technology and ensure fair competition.
LabCFTC is responsible for offering guidance and recommendations to the CFTC in relation to the formulation of rules and other activities undertaken by the agency or its staff in the realm of financial technology. It also takes charge of providing the Commission with internal instruction and training pertaining to financial technology.
The enhancements made to FinHub and LabCFTC aim to offer a holistic regulatory strategy for embracing technological advancements in the financial sector.
The proposed legislation aims to formalize and expand the roles of these innovation departments within the legal framework. Its goal is to foster innovation and ensure fair competition in the realm of financial technology, specifically in the field of digital assets.
The legislation also focuses on the registration obligations for brokers, dealers, and platforms involved in digital assets and commodities. It demands examinations on emerging subjects such as decentralized finance, non-fungible tokens, and improvements to the infrastructure of the financial market.
Moreover, it suggests collaborative efforts between SEC and CFTC to establish regulations pertaining to the classification of digital assets and overseeing transactions involving a combination of different digital assets.
The decision of the House Committee is a groundbreaking action towards establishing a legislative atmosphere that effectively combines the encouragement of creativity in virtual assets with strong precautions to protect consumers.
Once the United States House Financial Services Committee approves it, the following stage involves securing a vote in the entire House of Representatives.
In the event that the bill successfully clears the House, it would subsequently proceed to the Senate, where it will undergo deliberation within a committee. Should it obtain approval at this stage, it will be subjected to a vote by the complete Senate assembly.
Should this legislation gain the support of most senators, it will subsequently be submitted to the President of the United States for endorsement. Once the President puts their signature on the bill, it officially transforms into a law. However, if the President decides to veto it, there is still a chance for the bill to become law if both the House and the Senate vote in favor of overriding the veto by a two-thirds majority in each respective chamber.
As the legislation progresses, its impact on the world of digital assets, which involves ongoing legal conflicts between crypto providers and the SEC, will be carefully observed by stakeholders representing a wide range of backgrounds and interests.
