Senators Lummis and Gillibrand Introduce the Responsible Financial Innovation Act to Regulate Crypto

Senators Cynthia M. Lummis (R – WY) and Kirsten Gillibrand (D – NY) have introduced the Responsible Financial Innovation Act, a bipartisan bill that would create a framework for regulating crypto assets and ensure consumer protections.

https://twitter.com/senlummis/status/1534152709862989827

U.S. legislators have already put effort into regulating crypto, particularly in Colorado and New Jersey, and President Biden had signed an executive order in March, titled Ensuring Responsible Development of Digital Assets, that called on federal agencies to explore how to create unified policies regarding digital assets.  

However, the Lummis-Gillibrand bill appears to be the most comprehensive piece of legislation that deals with crypto to date.

“The Responsible Financial Innovation Act, a bipartisan framework that I crafted in conjunction with Senator Kirsten Gillibrand, creates regulatory clarity for agencies charged with supervising digital asset markets, provides a strong, tailored regulatory framework for stablecoins, and integrates digital assets into our existing tax and banking laws,” Senator Lummis stated in a press release.

“The bipartisan Responsible Financial Innovation Act is a landmark bill that will establish a regulatory framework that spurs innovation, develops clear standards, defines appropriate jurisdictional boundaries and protects consumers. Importantly, the Lummis-Gillibrand framework will provide clarity to both industry and regulators, while also maintaining the flexibility to account for the ongoing evolution of the digital assets market,” Senator Lummis added.

One of the key points of the bill is that the Commodity Futures Trading Commission (CFTC) would have primary oversight over the crypto industry, instead of the Securities and Exchange Commission (SEC). Many crypto lobbying groups have shown a strong preference for the CFTC as the primary regulator over the SEC. You can find statements of support regarding the overall bill from crypto lobbyists here.

Gary Gesler, chair of the SEC, has argued that his agency should be the one to police digital assets and their issuers because most cryptos qualify as securities. However, the sponsors of the bill are clearly at odds with Gesler’s position, as their joint statement reads “most digital assets are much more similar to commodities than securities.”

The CFTC already has some regulatory power over crypto – it regulates the futures for Ethereum and Bitcoin. The Responsible Financial Innovation Act would expand that regulatory power, and give the CFTC oversight over the crypto spot market. Senator Lummis was set to have a meeting with Gesler yesterday, on Tuesday 7

• Besides assigning regulatory authority over the spot market to the CFTC, the bill would also:
• Create a clear distinction between digital assets that are securities and commodities
• Create clear requirements for stablecoins
• Create an advisory committee for crypto-related legislation
• Impose a disclosure obligation on digital asset service providers
• Order the Federal Energy Regulatory Commission to study energy consumption in the crypto industry
• Enable the creation of cybersecurity guidelines for digital asset intermediaries
• Create a workable tax structure (i.e. miners will not be considered to have income for tax purposes until their rewards are redeemed for cash; crypto holders are exempt from paying the capital gains tax when making purchases under $200)

By all accounts, this bill is more comprehensive than any previous drafts or propositions and regulates large parts of the crypto industry. Now we need to wait and see how it will look in practice.

You can view the full text of the Responsible Financial Innovation Act here.