At long last, the Lummis-Gillibrand Responsible Financial Innovation Act (RFIA) has been re-introduced. RFIA is a comprehensive bill for digital assets that, at the very least, continues the digital assets conversation on the Senate side of Congress in the 118th Congress.
Senator Cynthia Lummis (R, WY) told CNBC’s Squawk Box (see the interview), “We need a regulatory framework that integrates crypto assets into our economy in a way that ensures consumer protection. This legislation is needed to protect consumers but also so there are rules for the road for companies.” In the interview, Lummis emphasized the need for consumer protections which is perhaps an effort to appeal to Democrats.
Senator Kirsten Gillibrand (D, NY) did not appear in the media other than the press release, but her co-sponsorship of the bill remains an important signal – a Democrat in the Democratically-controlled Senate – for the success of any crypto-related bills making it through the Senate. Gillibrand didn’t appear in the media when she co-sponsored Senator Tommy Tuberville’s (R, AL) “Prohibiting Foreign Adversary Interference in Cryptocurrency Markets Act” in early June, either. That bill addressed shortcomings which Senator Tuberville identified in the Prometheum license obtained through FINRA and the Securities and Exchange Commission (SEC).
Lummis-Gillibrand – what’s new
An 8-point “What’s New” document from the Senators sets the stage for what the 118th Congress version of RFIA entails. As discussed in Senator Lummis’ TV interview, consumer protection leads, “The customer protection title of the bill is nearly double the size of the 2022 version, with added requirements on enforcement, mandatory proof of reserves, advertising, plain language customer agreements and a role for the Federal Trade Commission.” Download “What’s New.”
Another highlight: in point 8, taxation pays for regulation. There is also a fee for crypto asset exchanges that would be imposed by the Commodity Futures Trading Commission.
Lummis-Gillibrand – section by section
The section-by-section appears to be a bulleted-list of many “hot button” issues in digital assets and a regulatory framework today – stablecoins to centralized exchanges are all addressed.
The agency in charge of spot market digital assets commodities addresses one of CFTC Chair Rostin Behnam’s oft-stated inadequacies with today’s regulation: “Sec. 403 (CFTC Jurisdiction) Grants the CFTC spot market jurisdiction over all fungible crypto assets which are not securities in addition to the agency’s current jurisdiction over leveraged transactions. Permits futures commission merchants to conduct crypto asset activities and provides strong custody and customer protection requirements.” Download the “Section-by-Section.”
Coordination between RFIA and other Congressional efforts in the House or Senate isn’t expressly stated other than the substance of the Keep Innovation In America Act from House Financial Services Committee Chair Rep. Patrick McHenry (R, NC) which addresses issues with the definition of “broker” in the Infrastructure Investment and Jobs Act in 2021.
Google goes digital assets
Google announced yesterday that it would allow “tokenized” digital assets (like NFTs) on its Android app platform, Play. A broadside against Apple and its AppStore? Both Google and Apple had previously prevented the use of blockchain-based elements such as NFTs in apps for their respective mobile phone operating systems. The legal efforts by Google that went into this decision are likely NOT miniscule.
A Google Android Developers blog post titled, “Enabling New Blockchain-Based Experiences on Google Play,” explained the news: “Today, we’re pleased to share that we’re updating our policy to open new ways to transact blockchain-based digital content within apps and games on Google Play. From reimagining traditional games with user-owned content to boosting user loyalty through unique NFT rewards, we’re excited to see creative in-app experiences flourish and help developers expand their businesses.” Read the blog post.
CoinDesk offers a summary of the news and points out some of the news’s nuance such as developers can’t promote “earning or trading” through tokens: “In effect, this means apps that haven’t met gambling eligibility requirements can’t promote buying an in-game item like a ‘loot box’ for a chance to win NFTs.” Read CoinDesk.
NFTs need a lobby
The Information looks at the steady attrition of policy executives at NFT (non-fungible token) startups such as, most recently, Dapper and notes that the NFT industry doesn’t have an industry association of its own. This forces companies to commingle their consumer message with the finance message of many of today’s industry orgs.
Former Sorare (sports NFTs) government relations executive Chris Hayes appears to see an opportunity and has launched RedLine Policy Strategies to advise across the spectrum of blockchain technology companies. He tells the Information, “You basically have everybody thinking about tokens sitting in a financial context rather than a consumer product context. And that’s the separation and education that needs to happen.” Read more.
today’s Prometheum update
Prometheum, who was approved for Special Purpose Broker Dealer license for digital assets back in May and appeared at a memorable House Financial Services Committee hearing thereafter, continues to track scrutiny.
Yesterday, Blockchain Association (BA) turned up the heat according to its senior counsel Marisa Tashman Coppel. She announced a new letter from BA to the SEC’s Inspector General requesting an investigation into Prometheum and cc’d a bipartisan list of members on the House Financial Services Committee. On Twitter, she said in part: “Although there may not be anything nefarious, suspicious circumstances beg someone to look under the hood…” See the letter and Tashman Coppel’s Twitter thread on questions to be answered.
This effort builds on a FOIA request in mid-June sent the SEC regarding Prometheum’s license approval.
EU implementing crypto
The digital assets regulation implementation plan is underway in the European Union. Yesterday, The European Securities and Markets Authority (ESMA) – the SEC’s EU doppelganger – used it’s new powers under The Markets in Crypto Assets (MiCA) to issue “a set of detailed proposals on how crypto companies within the European Union should be authorized,” reports CoinDesk. The proper application form for Crypto Asset Service Providers (CASPs) are among this tranche of proposals. Read it.
ESMA is asking stakeholders for their comments by September 20.
More proposals are on the way in October which includes a year-long comment window as ESMA pursues guidance on sustainability, trade transparency data and order book record-keeping and disclosures of inside information among other issues. See the calendar with milestones on ESMA’s MiCA website.
Consultation Paper on the Technical Standards specifying certain requirements of MiCA (160 pages) – esma.europa.eu
blockchain for small business
The U.S. Government Accountability Office (GAO) released a new report at the behest of the Small Business Administration examining the use of blockchain in the past, present and future for itself and for its small business constituency. For example, the GAO report suggests that the loan process for small businesses such as federal Disaster Loans could be expedited: “[A] blockchain-enabled dashboard might assist applicants during the application process. Blockchain allows for transaction transparency and immutability, thereby allowing applicants to view the real-time status of their application, including where in the process it is and where it goes next. This could reduce confusion about application requirements and require less communication between loan officers and applicants.” Download the GAO report (PDF). And, read a summary on Cointelegraph.
Federal Court Orders Digital Asset Derivatives Platform and Florida Resident to Pay More than $15 Million for Multiple Violations of the Commodity Exchange Act – CFTC.gov
New Hampshire Issuer of Crypto Asset Securities (LBRY, Inc.) That Violated Registration Requirements Enjoined and Ordered to Pay Penalty – SEC.gov
see more tips
“A coalition of progressive industry watchdogs have penned a letter to the House Financial Services and Agriculture Committees voicing their opposition to the McHenry/Thompson crypto market structure bill, calling it ‘potentially radical.'” – Eleanor Terrett on Twitter
Opinion: Comparing Crypto Exchanges is Similar to Apples vs. Oranges – Katherine Kirkpatrick on CBOE
Crypto Crime Mid-year Update: Crime Down 65% Overall, But Ransomware Headed for Huge Year Thanks to Return of Big Game Hunting – Chainalysis
South Korea to require firms to report crypto holdings from next year – The Block
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