In a recent move, the United States lawmakers have inched closer to clearing the air on the topic of crypto regulation. Reportedly, a Republican and Democrat lawmaker duo is behind the much awaited legislation that is to be introduced.
According to recent reports, Senators Cynthia Lummis (Republican, Wyoming) and Kirsten Gillibrand (Democrat, New York) are geared up to unveil their revamped crypto regulation proposal. Reportedly, the controversial bipartisan bill, known as the Lummis-Gillibrand Responsible Financial Innovation Act, aims to close the regulatory divide that underscores the crypto industry in the US.
As evident in the past weeks, the lack of clarity over the classification of cryptocurrencies have put crypto firms and the sector in large in a tight spot. This has also been accompanied by the intense feud between the two primary regulators- Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), each claiming its own jurisdiction over the sector.
That is where the lawmakers and their proposal comes to rescue. The Lummis-Gillibrand Act aims to “provide for responsible financial innovation and to digital assets within the regulatory perimeter.” It states that most cryptocurrencies are commodities under the CFTC’s purview. This implication stands in stark contrast to the SEC’s proposition and its reasons behind the ongoing enforcement actions.
Senator Lummis, who has been a major advocate of cryptocurrencies, has often vowed to sort the rising issues of the crypto sector. This legislation asserts a bid to prevent further turmoil in the crypto sector, which has witnessed a series of high-profile collapses leading to substantial investor losses in the past two years. About the legislation, Lummis said:
This legislation is the most comprehensive proposal to date that provides robust consumer protections and appropriately addresses the current landscape surrounding crypto assets.
The proposed act would mandate crypto exchanges to store customer assets securely in third-party trusts. Subsequently, it seeks to prohibit “proprietary trading” or trading with their own funds on their own platform.
Notably, the US crypto regulation bill could also mark a regulatory tightening on “material affiliates” of crypto exchanges. This follows the concerns which were highlighted following the collapse of FTX exchange and the association with Alameda Research, its sister company. Senator Lummis said:
It is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk. As this industry continues to grow, it is critical that Congress carefully crafts legislation that promotes innovation while protecting the consumer against bad actors.
Furthermore, the proposal seeks to suppress down on “rehypothecation” of crypto assets. It also prohibits high-risk, yet profitable crypto services such as staking. Simultaneously, it also imposes stricter guidelines on new tokens before they are listed on crypto exchanges.
Sources reveal that the proposal is set to unveil on Wednesday, July 12. Notably, the proposal on the Capitol Hill appears against the opposition to SEC Chair Gary Gensler and his antagonistic approach to crypto entities.
In the past weeks, crypto exchanges in the US have been under significant stress due to the lack of clarity in the classification. Being the primary stakeholders, the exchanges have been hit been hit by enforcement actions. In the past weeks, the SEC hit Binance and Coinbase with enforcement actions whereas the CFTC only charged Binance.
While the proposed regulation marks a significant step in US crypto regulation, there isn’t much guarantee that it would pass as a bipartisan law. Considering the imminent political divide in the US, both the parties have been on two extreme ends of the topic with Republicans being more crypto favouring and Democrats being the opposite.