‘Lummis-Gillibrand Responsible Financial Innovation Act’ Unveiled, Tackling Oversight of Digital Assets

After much anticipation, a pair of Senators have finally released a Bill drafted as the first to attempt fully and thoughtfully addressing regulation of the digital asset sector.  This is a timely move, as digital assets becoming increasingly mainstream has resulted in various catastrophic events (i.e. the collapse of Luna & UST) which highlight the need for increased investor protections.

What Is It?

The Bill, which is titled the ‘Responsible Financial Innovation Act', was released in tandem by Senator Cynthia Lummis, and Senator Kirsten Gillibrand.  It was structured with the goal of providing the foundation for a comprehensive set of regulations for the sector, allowing for digital assets to one day see full integration within existing financial systems – a sentiment recently shared by Senator Lummis.

Source: Twitter @SenLummis

This Bill is noteworthy for a variety of reasons.  One of which is a longstanding history by Senator Lummis as being an advocate for digital assets.  The other being that the Bill is bipartisan in nature, meaning it was drafted by members of both the Republicans and Democrats.

What Will it Address?

This long awaited Bill looks to leave no stone unturned, addressing each of the following, along with a plethora of subpoints for each.

• Taxation of Digital Assets
• Securities Innovation
• Commodities Innovation
• Consumer Protection
• Payments Innovation
• Banking Innovation
• Interagency Coordination

In addition to addressing these various areas, the Bill has introduced a set of definitions for phrases commonly used phrases – an issue prevalent throughout the sector, with constant debates on what constitutes what.

What Major Changes Does it Propose?

While the changes made in this Bill are widespread, there are a few which stand out as being substantial upon comparison.

• The Commodities Futures Trading Commission (CFTC) would widely be responsible for overseeing the sector.  This is a major change, as the Securities and Exchange Commission (SEC) has largely assumed this role to date – bringing a ‘regulate through prosecution' approach with it.  Both Senator Lummis and Senator Gillibrand believe that, despite the SECs assertion that most digital assets are securities, most digital assets are actually commodities.  If true, this distinction should naturally result in oversight being shifted towards the most appropriate body.
• Purchases under $200 would be exempt from taxes, removing the unnecessary shackles which currently discourage assets like Bitcoin from actually being used as a currency.
• Digital asset providers will be required to greatly increase transparency on the risks associated with the services and products on offer.
• Stablecoins must be asset-backed, and not algorithmic, in nature.

To see a more thorough summary of all the proposed changes within the Bill, Senator Lummis and Senator Gillibrand have released a ‘section-by-section overview'.

At the Behest of Biden

Although this Bill is only now being released in June of 2022, the process to create it began long ago – no doubt partially fueled by an ‘Executive Order on Ensuring Responsible Development of Digital Assets', which was released by the Biden administration in early March.

In it, the Biden Administration made it clear that various fixes were needed to ensure digital assets thrive, the United States remain a financial leader well in to the future, and to protect both investors and the nation alike.

Regulatory Momentum

With the release of this most recent Bill, it is clear to see that momentum is starting to build behind the belief that digital assets need clear regulation.  Only days ago, we were discussing a different Bill passed in New York, which will see a multi-year moratorium imposed upon coal-based Proof-of-Work (PoW) mining within the State.  In doing so, New York continues to be one of the most stringent States surrounding the regulation of digital assets.  Time will tell if this is thoughtful regulation, or an unnecessary crackdown which will result in companies seeking out friendlier governments.