WASHINGTON, D.C. – U.S. Senator Cynthia Lummis (R-WY) today highlighted the need for comprehensive, strong regulation in the digital asset industry following the recent FTX bankruptcy, the tenth largest bankruptcy in U.S. history, and discussed how the Lummis-Gillibrand Responsible Financial Innovation Act would have prevented this insolvency during a Senate Banking Committee hearing.
“FTX is a failure of people, and not technology. This committee needs to be focused on putting legislative solutions in place that would have prevented the FTX collapse and provided customers with protections,” said Senator Lummis. “This should include regulation of digital asset trading, adequate consumer bankruptcy protection, disclosure requirements, and stablecoin regulation.”
In June, Sen. Lummis introduced The Responsible Financial Innovation Act, alongside Sen. Kirsten Gillibrand (D-NY). This comprehensive digital asset legislation would provide commonsense regulation to the digital asset industry.
Under Lummis-Gillibrand, the FTX bankruptcy would not have occurred because of five core provisions in the proposed legislation:
- Clear Property Rights: The bill clearly defines digital assets, establishes which are securities and commodities, and provides for the enforceability of contracts between an exchange and its customer.
- Custody and Segregation: The bill requires that an exchange not use customer assets for proprietary trading, and maintains 100% of customer assets for withdrawal at all times. Lummis-Gillibrand also requires the use of an independent bank or trust company as custodian, similar to the SEC Custody Rule and CFTC custody provisions.
- Lending Activities: The bill places tight limits on digital asset lending activities and leverage, requires customer disclosures and requires affirmative customer consent and full assumption of risk for lending activities.
- Bankruptcy: The bill provides that customer assets are not part of the bankruptcy estate, provides protection from creditors, and ensures that customers get their assets back if an exchange fails (similar to CFTC provisions for commodities intermediaries).
- Transparency into Affiliates: The bill requires transparency into affiliate relationships between exchanges and other commonly-held businesses, limits affiliate business transactions, and requires an independent custodian for digital assets.
For video of Sen. Lummis’s questions during the hearing, click here.
Press release from the office of Senator Cynthia Lummis (R, WY) on Wednesday, December 14, 2022