Senators Lummis and Gillibrand Announce Responsible Financial Innovation Act Re-Introduction

At the Milken Institute’s The Future of Digital Assets Symposium yesterday, Senator Cynthia Lummis (R, WY) and Senator Kirsten Gillibrand (D, NY) made their first appearance together in the new Congress touting the re-introduction of their digital assets regulation bill, the Responsible Financial Innovation Act (RFIA), in mid-April.

Below is an edited transcript of the interview conducted on-stage by Michael Piwowar, Executive Vice President at the Milken Institute.

On the re-introduction of the Responsible Financial Innovation Act in the 118th Congress:

SENATOR LUMMIS: We’re looking at mid-April to reintroduce the bill. And the changes that we’re making would be a slimmed down, better looking [version] adjusting some of the definitions. We’ve been working with the SEC staff to address some of their concerns that there might be some unintended consequences to some of the definitions, but we’ve been meeting with them and taking care of that.

SENATOR GILLIBRAND: We’re also trying to address some of the concerns that we heard through regulators and the industry to clarify different areas. So we’re going to have an ambition to try to build out some of the regulatory framework that we left for studies in the first version.

It might also be a more thorough bill than the first version because the first version was just an introduction of what a baseline framework could look like in the industry, and how you would assess what are digital securities, what are digital commodities, and how you would regulate stablecoins. We had a lot of studies [,too].

Now, we’re going to actually try to do a deep dive on stablecoin regulations. We’re going to refine a lot about digital securities based on conversations we had with Chairman Gensler and the SEC staff. And we’re also going to even broaden out DeFi because [with] DeFi we punted it to the regulators in our first draft. Because of the climate we’re in right now, we think it would be better for us to give our best assessment of what that regulatory framework might look like, as opposed to waiting on regulators since regulators seem to have their own unique opinions. And there doesn’t seem to be any certainty with given regulators. So we thought it’d be better to maybe do our own parameters.

And so those are some of the things we’re working on now. The bill is going to be stronger. It’s also going to address some of the things that happened with FTX. So that it’s very clear if [FTX] was registered as a US company, what it would have had to do and why consumers would not have been so harmed.

SENATOR GILLIBRAND: I don’t think people should be defined as pro-crypto or anti-crypto. I think that Cynthia and I could best be defined as a pro-consumer protection and pro-marketplace. We want to see a market that’s regulated in the United States so that this industry stays in the United States. I think putting your head in the sand and saying, “Oh, no, we just have to ban all cryptocurrency by over-regulating or make any of these types of innovations impossible in The United States” is not pro-consumer. It’s just “leave it to other countries,” “leave it to other regulators,” “leave it to the world economy,” and the United States not taking responsibility for protecting our own consumers.

And so I am very concerned that the debate has become one where we are not focused on consumers appropriately because not regulating this market or making it so impossible to participate in this market, means it just goes abroad. That is a head-in-the-sand approach that I think is highly irresponsible, and really doesn’t protect U.S. consumers.

The way I would categorize it: either you’re going to regulate this industry properly, and have the right types of measures for safety and soundness, for consumer protection for certainty, clarity, usability, so the industry can actually thrive and continue to innovate and protect consumers or you’re not. And then that means US consumers will be constantly harmed.

The FTX example is the perfect example. It was registered in the Bahamas for a reason – because they didn’t want to follow practices that US regulators would have required. And as a consequence, the 2% of consumers who are Americans who were not disclosed, but existed, got screwed. So you’re either regulated properly in the US with the benefits of very robust regulatory frameworks – we have the SEC, CFTC and OCC – all of these regulators should be used appropriately. And if you do anything less than that, then you are literally disregarding US consumers who will participate in this industry, whether they have to go abroad or not.

On how Members of Congress’ support of crypto legislation shakes out currently….

SENATOR LUMMIS: The group that’s hard to define right now are the ones who are in the middle – they’re kind of undecided. Because when they see things like FTX happen, they’re associating the fraud with the cryptocurrency, with the asset – and they’re two different things. So the problem we’re having is the conflating of fraudulent behavior with the underlying asset.

One advantage is just the advantage of time – the separation of time between the FTX bankruptcy as well as others that happened last year. And we are looking to introduce a bill that is focused on the asset and laying that asset over an existing regulatory framework that is protective of consumers when faced with fraudulent behavior. That middle group is really hard to scope out right now because there’s been a chilling effect I believe in people’s willingness to be thoughtful and you know, pursue this subject.

SENATOR GILLIBRAND: I think when we reintroduce our bill, it’ll create a place for people to analyze, to land, to say, “Oh, there is a regulatory framework that could work.” I think it’s necessary for Cynthia and I to provide leadership on this because we’re the only ones who are really working on a full scale bill. Most of the other senators are sticking to their jurisdiction of the committees they are on and the committees they chair. So we want to address the industry holistically because that’s what this moment in time needs. It needs a full analysis of how to create commonsense regulation that can be utilized effectively.


On working across jurisdictions (such as committees), both houses of Congress and regulators…

SENATOR LUMMIS: Our staffs worked very closely together and attempt to spend time every single week with different staffs, different committees, different members in both houses. You’ve got Rep. Patrick McHenry (R, NC) chairing House Financial Services. He is someone who is thoughtful. And if you were saying pro-crypto, I think he is one of those that is in the pro-American-based regulation and consumer protection category as is French Hill (R, AR).

We’re working closely with the House and some of our Senate colleagues. You look at the fact that the Lummis-Gillibrand bill last year went to Finance. It’s because it crosses the jurisdiction of so many committees that finance became the right initial silo for it to be in.

I think if we file it again as a comprehensive bill, chances are it will once again end up at [Senate] Finance and then we’ll begin working with the Chair and ranking members about – strategically – how to move the subjects through the Senate -or whether we want to defer to the House and see if they’re better positioned to move up a bill more quickly. It’s a little three dimensional chess in terms of strategy right now. And we don’t know quite how all that’s going to play out but we are working with both houses and both parties to pursue a strategy a path forward.

SENATOR GILLIBRAND: If I could get my wish on this issue, I would have our finance committee do a hearing because the jurisdiction of the overall bill is Finance to Ron Wyden because it has tax provisions. And our tax provisions we wrote in in coordination with Senator Wyden and his staff. So we would love that committee to actually have a hearing on our bill and mark it up because that would be the committee that could have jurisdiction over the whole thing. The Ag Committee tried to do their piece, the commodities piece, but without the definitions for what would go to the SEC, it kind of fell on its weight because nobody could imagine how it would fit into the whole industry.

It’s one of the challenges with letting each committee do their own little piece. So I would love it if Wyden would actually let me reintroduce this, have a hearing on it and maybe mark it up. And then pieces could go to committees after that so that people can have a sense of what it looks like overall.

I think [Senate] Banking could easily take up the stablecoin portions and just do a stablecoin bill and be very discreet, very direct – especially since the White House has really been very vague here and seems to be closing out industry possibilities. So I’d really love to see the Banking Committee take that up as a as a first step. Or our whole section on securities. So – these are wish lists.

And the other good piece of news is that Congressman McHenry is working with our staff as well and our staffs are breaking briefing him on our bill, so that when our bill comes out, it won’t be a surprise to that committee. So they can work off some of the breakthroughs we’re gonna put into this legislation. So they have a place to start from, and I think that would be very collaborative if that’s how it goes.

On CBDCs and stablecoins

SENATOR GILLIBRAND: Committees should start doing hearings on it so that members of Congress can get more knowledgeable on what the questions are, what the administration is wrestling with. I’m hopefully going to be meeting with Lael Brainard in the next few weeks. [Senator Lummis] and I are going to ask for that meeting, to talk to her specifically about what her goals are and what the administration is looking at. But I think time is of the essence and I think getting our colleagues up to speed on the questions and what are the decision points that need to be made is essential. And that’s the kind of work the Banking committee is really good at so I’d love them to start working on it.

SENATOR LUMMIS: On to my way of thinking, Stablecoins are the direct-to-consumer component, and a CDBC is central bank to central bank. So among the things that I’m going to be curious about is learning whether the Administration is approaching the relationship between stablecoins and CBDCs differently than I am thinking about it.

I am actually opposed to direct-to-retail CBDC because of the potential for government surveillance, following what we’ve seen with the Digital Yuan. But perhaps the Administration is thinking about it in a way that differs from what I view as the relationship between the two.

We did come pretty close – I thought – in December to wrapping up a stablecoin bill. But, we couldn’t quite get it over the finish line with the rush of years-end. Senator Toomey who is a very thoughtful on these subjects and whose expertise we lost when he didn’t run again, was also taking a slightly different approach than Senator Gillibrand and I have taken with regard to stablecoins.

Our bill provides no room for an algorithmic stablecoin that is not 100% hard asset-backed whereas I think Senator to me was interested in seeing whether there is some runway somewhere for an algorithmic stablecoin. So these are some of the issues that we expect to be reconsidered. There hasn’t been a mark up in the Banking committee since I’ve been on it. And so it would require sort of a change in approach for the Banking Committee to move forward with a markup on on a stablecoin bill.

SENATOR GILLIBRAND: Our effort with Senator Toomey was very productive because we really honed-in on the areas where we disagreed, but also the areas where we did agree. Senator Lummis and I have a nearly-complete bill on stablecoins that will be part of broader bill. It’s very well developed, and so it would be a great place for even just the Senate to start discussing stablecoins because we weighed all those challenges. We still believe that algorithmic stablecoins should not be used, at least not in the first iteration. And we almost had a compromise that we could look at it in the future. But the other compromise was who can can issue a stablecoin and that’s an issue that we are wrestling with. Specifically, you know, can Amazon issue a stablecoin?

Where we do agree is we want to make sure there’s a dual banking system so states can charter stablecoins but also the federal government. We like the OCC as the source for that instead of the Fed. But the Fed would have a role.

And so we really are in a good place on this issue that we’re excited to move forward on as part of our legislation, which I think is helpful. At the end of the day, this is Congress’s job. It’s not the regulator’s job. It’s our job to write the laws so that the regulators can follow the laws. By not acting we’re abdicating our fundamental constitutional responsibilities. And so doing nothing or just running the industry overseas, I think is so irresponsible and so that’s why I’m so grateful for Senator Lummis’ partnership. Because she has such a depth of knowledge in these issues, and she really wants to get to a place where we can offer solutions to the country to look at.

SENATOR LUMMIS: Vice versa. I think the fact that we both have a concern that the European Union is ahead of us. Australia is ahead of us. Certainly Switzerland’s had a regulatory framework in place for quite some time. The UK, I think it’s fair to say is farther along than we are.

We’re not used to being followers. We’re used to being the leaders and quite frankly, they’re hoping we will lead on this subject. So we need to step up.

The great thing about partnering with Sen. Gillibrand is that she’s a powerhouse. She has great energy and she is able to be extremely persuasive and knowledgeable in these areas with her colleagues. And so it’s just been a very productive working relationship. And we’re hopeful that April will launch the beginning of that framework that’s both respectful of consumer protection and American innovation.

On what they’re hearing from constituents on digital assets

SENATOR GILLIBRAND: For industry participants, they are exasperated because we have dozens of businesses that have been waiting for oversight by the SEC, waiting to be regulated, and they do not get responses. We have participants that want to create new businesses that can’t because the regulators are willing to help them do the work that they need to do.

So the current status is unacceptable on every level. And then for consumer protection, they have no clue what’s safe, what’s not safe, what happened with FTX, how they should be assessing their own participation. We have industries that want to use digital assets and want to offer digital assets that are Fortune 500 companies that are just waiting, waiting, waiting, and it’s very frustrating. I think nothing is is against our best interest and against consumers protection.

SENATOR LUMMIS: There does seem to be a disconnect between the SEC and the industry…. that was one of those Captain Obvious statements.

And that’s why the legislation is so necessary. We need to step in there. Regulation by enforcement action is not the way to go. And so that, too, I believe, creates a sense of urgency.

One of the things that we will want to do after our bill is filed is once again get the participants and the digital asset world to communicate with their Senators and members of the House about how important this is, about how regulation by enforcement action doesn’t work, how it’s not clear in spite of what the SEC says publicly – they say we have all the tools to regulate this, but the industry doesn’t see it that way.

And so we have ships passing in the night. We think we have a light that is necessary for these ships to communicate with each other.

Rep. French Hill (R, AR), chair of the Digital Assets and Inclusion Subcommittee within the House Financial Services Committee, discussed his priorities earlier in the day. Read more.