Last month, a bipartisan pair of senators released the first comprehensive cryptocurrency bill that, though it is unlikely to become law, will frame how Congress discusses future legislation. The sweeping draft from Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY), viewed as friendly to the crypto industry, defines digital assets and proposes a lighter-touch regulatory architecture, among the provisions that address current core cryptocurrency policy debates in Washington.
The Responsible Financial Innovation Act would settle jurisdictional battles among executive branch agencies by giving the Commodities Futures Trading Commission (CFTC) oversight over most digital assets and constraining the authority of the Securities and Exchange Commission (SEC), whose chairman, Gary Gensler, has taken a more combative stance toward the crypto industry. The CFTC would not have authority over digital collectibles or non-fungible digital assets, including NFTs. While NFTs are outside the scope of the current draft, a future proposal could alter the status quo.
Under the Lummis-Gillibrand draft, stablecoins would be defined as neither securities nor commodities, and the tokens must be fully backed by publicly disclosed high-quality liquid assets, according to the draft. Even as the proposal outlines a more mature regulatory framework and oversight by existing federal agencies—and clarifies issues from the tax treatment of crypto transactions to the reporting requirements for crypto firms—it would allow some new products to be introduced and reviewed outside existing rules in a “regulatory sandbox.” This process would spur innovation and increase regulators’ understanding of the new technology, according to the bill’s sponsors. Moreover, regulated crypto companies could gain access to the Federal Reserve’s payment and settlement system, potentially increasing competition with traditional financial firms.
The Responsible Financial Innovation Act is unlikely to be considered this year by any of the several Senate committees that have jurisdiction over its different provisions, and it has been met with a mixed reception by regulators; yet the bill’s components could act as a starting point for legislative negotiations next year when a new Congress convenes.