- L Misthos and M Bacina
Proposed 'Crypto Bill' aims to shake up US regulatory landscape
The Digital Asset Market Structure and Investor Protection Act (Bill), introduced by Rep. Don Beyer, proposes sweeping reforms to digital assets in the US, representing a big jump from an already progressive approach we have seen to US digital asset regulation.
Stablecoins set for a shake up
A key feature of the new Bill is a strong position on Stablecoins (digital assets pegged to a fiat currency such as the AUD or USD). The Bill would give the US Treasury Department not only with oversight over the development of stablecoins but also a veto power to coins that do not fall within their requirements, which could see many stablecoins effectively banned.
Interestingly, there also appears to be an authorisation within the Bill allowing the Federal Reserve to create a central bank digital currency (CBDC). A CBDC has been under discussion for some time in the US but the combination of legislation authorising the creation of a US CBDC and a veto power over any other US CBDCs may suggest that the US is seeking to entrench its place as the sole issuer of a US CBDC.
Companies seeking to issue a stablecoin in the US, or companies that already operate an existing stablecoin will have to apply to the Treasury Department for approval of the use of stablecoins. The Treasury will then have to consult with the Securities and Exchange Commission (SEC), the Commodity Future Trading Commission (CFTC), the Federal Reserve and/or foreign entities before approving the proposal. This should be a key consideration for entities developing, and those who are already circulating, US denominated stablecoins.
Security vs Commodity?
The Bill is also making a big move towards regulatory clarity by moving towards defining digital asset terminology and also demarcating certain digital asset attributes under the purview of either the SEC or the CFTC.
If passed, a “digital asset securities” definition will be created to fall under the SEC’s control. Tokens that entitle holders to equity, profits, dividend payments, interest or voting rights, or tokens issued via an Initial Coin Offering (ICO) will fall under this definition and thus the SEC’s jurisdiction.
Under the Bill, tokens required to register with the SEC control may file a 'desecuritisation certificate' certifying that a digital asset does not contain the features of a security which would have the effect of requiring the SEC to review the token and, if no objection is raised, the tokens would be deemed not to be securities. This is a rather elegant solution to the problem of regulators declining to confirm where certain assets are not securities.
The bill would require that cryptocurrencies outside of the SEC’s jurisdiction fall under the CFTC jurisdiction along with Bitcoin, Ether and their hardforks already considered as commodities.
This is a slightly nuanced position when compared to the common law position, which is increasingly following the UK's
More to come
Finally the Bill seeks to address longstanding privacy concerns surrounding Decentralised Finance (DeFi) by compelling various US agencies to submit recommendations to Congress regarding anonymity. The Financial Crimes Enforcement Network (FinCEN) shall issue rules that govern: anonymising services, money rules and anonymity-enhanced convertible currency transactions.
While DeFi is not explicitly regulated by the bill, it imposes obligations on the SEC, CTFC, Federal Reserve and the Treasury to consider potential regulatory guidelines and provide recommendations.
This Bill should be considered by any digital asset operators in the US. The sweeping changes, and in some cases retrospective changes, could very well change existing practice and the regulation of projects already in place.