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Category Archives: Blockchain, Crypto, Digital Assets Regulations

SEC Approves 19b-4 Forms of First Batch Ethereum ETFs

Regulation | May 23, 2024

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Regulatory Milestone:  SEC Approves the first batch of 19b-4 Forms of Ethereum ETFs

On May 23, 2024, the U.S. Securities and Exchange Commission (SEC) cleared a major hurdle in approving 8 Ethereum Exchange-Traded Funds (ETFs), which would allow investors to gain exposure to Ethereum through a regulated financial product.

The ETPs include:

  1. Grayscale Ethereum Trust
  2. Bitwise Ethereum ETF
  3. iShares Ethereum Trust
  4. VanEck Ethereum Trust
  5. ARK 21Shares Ethereum ETF
  6. Invesco Galaxy Ethereum ETF
  7. Fidelity Ethereum Fund
  8. Franklin Ethereum ETF

As reported by Reuters, although the applications for a rule change to list new products has been approved by the SEC, still need the SEC's approval of ETF registration statement details and S-1 filings related to investor disclosures before they are able to begin trading. Unlike the exchange filings, there is no set time frame in which the SEC needs to decide on those statements. Two sources familiar with the process said that "...many issuers are ready to launch but the corporate finance division of the SEC has indicated that it is likely to request changes and updates in coming days and weeks."

The SECs order basically states that they are comfortable that the proposed ETPs can legally and competently operate in a regulated environment while protecting investors and the integrity of the marketplace.

See:  Ether Jumps on Increased Odds of Spot ETF Approval

This approval of these ETFs are expected to boost the credibility and adoption of cryptocurrencies while providing a safer, more convenient investment avenue for both institutional and retail investors. Ethereum, currently trading around $3,700, could see substantial price increases. Analysts suggest that the approval could nearly double Ethereum's price​.  Grayscale Investments, one of the key players, plans to convert its Ethereum Trust into an ETF, which currently holds 2.5% of all circulating Ether, amounting to $5 billion in assets​.

Outlook

With the U.S. presidential election on the horizon, cryptocurrency regulation is becoming a key issue, which might influence further positive regulatory changes.


NCFA Jan 2018 resize - SEC Approves 19b-4 Forms of First Batch Ethereum ETFsThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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EU: MiCA, DORA, Open Finance Framework, and Digital Euro

Regulation | May 23, 2024

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Key Digital Finance Legislation in the European Union

Digital finance in the EU refers to all financial services and instruments that rely on new Information and Communications Technology (ICT) from digital payment services and instruments to new market infrastructure for crypto assets using distributed ledger technologies. Below is an overview based on the European Parliament's briefing update on 'Digital Finance Legislation:  Overview and State of Play".  It is quite essential for the regulation and framework set upon by the EU to find a balance between innovation and digitization that will in turn provide an environment that is safe both for risk management and the consumers' protection.

2020 Digital Finance Package

Collectively, the digital finance regulations are called, "The 2020 package" and they are a foundational regulatory framework focusing on:

  1. Tackling market fragmentation
  2. Facilitating digital innovation
  3. Promoting a financial data space
  4. Addressing new digital finance challenges

See:  EU Lawmakers Approve Historic AI Regulation Act

Overall, the package aims to improve market efficiency, strengthen consumer protection and support innovation by:

  • Streamlining digital finance regulations
  • Providing clear regulatory frameworks for digital finance innovations
  • Providing a supportive regulatory environment, fostering new financial technologies

Four (4) Key Digital Finance Regulations

1. Markets in Crypto-assets Regulation (MiCA)

MiCA regulation is set out in such a way that it safeguards consumers and firms using crypto-assets and facilitates innovation.  The regulation will secure a sound and transparent legal basis for crypto-assets market, harnessing the potential of innovation while ensuring financial stability.

The above regulation is going to achieve such factors:

  • A clear and robust legal framework of DLT-based crypto-assets.
  • Enhanced protections of consumers and investors' interests, and finally
  • Ensuring market integrity and promoting innovation

Status: Enforcement since June 2023

Key Dates: Measures under Level 2 should be applicable by December 2024

2. Digital Operational Resilience Act (DORA)

DORA regulation is designed to ensure the financial sector is resilient to ICT-induced disruptions and cyber-attacks.  It enhances operational resilience and cybersecurity in financial operations by requiring detailed documentation and management of risks.

DORA has the following objectives:

  • Effective ICT operation
  • Governance and control framework for ICT
  • Effective third-party risk management

Status: Enforcement by January 2023

Key Dates: The law will be applicable by 17 January 2025

3. Open Finance Framework

This is a framing of infrastructures that allow for access to financial data.  This will allow consumers and small and medium enterprises to share data securely with third-party service providers.  The legislation gives consumers control and access to their financial data, thereby enabling innovation in competitive financial services.

See:  Small Step Forward As Canada Publishs Straw-man Open Banking Framework

This framework has the following objectives:

  • Access to data for businesses and consumers from institutions without any hindrance
  • A visionary protection of data under GDPR

Status: The legislative proposal for the same was put forth in June 2021.

Key Dates: The process is at the state of being in the legislative process.

4. Digital Euro

Digital Euro is a project through which ECB seeks to acquire a form of the digital euro which they seek to supplement with what is already physical currency.  This will pave the way for modernizing the EU payment infrastructure to allow secure and efficient digital transactions.

As per the ECB, Digital Euro would serve the following purposes:

  • Reduce dependency on non-EU payment service providers
  • Adapt to the growth in digital payment trends
  • Strengthen strategic autonomy of the European Union in the financial sector

See:  Open Banking: Revolutionizing Financial Data Sharing

Status: It has the same status—legislative proposals introduced in June 2021.

Key Dates: The adoption of the legislative mandates is pending.

Conclusion

EU digital finance legislation will be a foundational building block for a secure, innovative, and competitive financial ecosystem. The regulations will enhance market efficiency, ensure consumer protection, and foster technological advancements in the financial sector.


NCFA Jan 2018 resize - EU:  MiCA, DORA, Open Finance Framework, and Digital EuroThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Uniswap’s Ready For SEC Battle. Responds to Wells Notice

DeFi Legal Battle | May 23, 2024

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Uniswap Legal War with the SEC: A DeFi Test Case

Concurrent to the recent passing of the FIT21 bill by the U.S. House, the ongoing legal battle between Uniswap and the U.S. Securities and Exchange Commission (SEC) is a monumental test case for decentralized finance (DeFi) with regulatory implications and challenges facing open-source financial systems globally.  The SEC has accused Uniswap of operating an unregistered securities exchange and claims that its UNI token constitutes an investment contract. On the other hand, Uniswap counters these allegations by emphasizing the decentralized nature of their protocol.

Uniswap argues that its software is autonomous, enabling peer-to-peer transactions without the need for intermediaries. This, they claim, exempts them from the definition of a securities exchange.  Uniswap’s protocol has demonstrated remarkable efficiency and security, facilitating over $2 trillion in trading volume without significant security breaches. This achievement highlights the potential for DeFi platforms to provide efficient, secure, and transparent financial services, potentially surpassing the capabilities of traditional financial systems.

Legal Precedents and Weak SEC Case

Uniswap’s legal team, which includes former high-profile SEC officials, is focused on the perceived weaknesses in the SEC’s case. They argue that historical court decisions have often favored technological innovation over restrictive regulations. This precedent suggests that the courts may lean towards supporting Uniswap’s position, recognizing the transformative potential of decentralized technologies.

See:  SEC Issues Wells Notice to Uniswap. Another Legal Showdown

Uniswap asserts on their most recent blog post 'the fight for DeFi continues' that the SEC accusations are weak:

"These assertions assume that value represented in a specific digital file format is a security – and that the SEC can unilaterally extend the definitions of exchanges, brokers and contracts to the point of meaninglessness. A token is a file format, like a PDF. The Protocol is a general purpose computer program that anyone can use and integrate, like TCP/IP. And the hundreds of thousands of users who received UNI tokens for their participation in the protocol’s early days received the token for free, with no contract, and without expectations of profit solely from the efforts of Uniswap Labs."

Response to SECs Wells Notice

Uniswap made several key arguments in their 43 page wells notice response defense against the SEC's allegations.

  • Uniswap argued that their protocol is decentralized, autonomous software enabling peer-to-peer transactions without intermediaries, which means it does not fit the definition of a securities exchange.
  • The UNI token is primarily a governance token that allows holders to vote on protocol changes, not an investment contract.

See:  Avi Eisenberg Trial: DeFi’s Legal Boundaries Tested

  • Uniswap Labs does not control or maintain the protocol, akin to how no single entity controls Bitcoin.
  • Uniswap does not solicit users to engage in trading activities or provide investment advice.
  • Uniswap does not take custody of user funds, which negates the claim of it being a clearing agency.
  • Citing previous court decisions that favored technological innovation, Uniswap argued that their protocol does not meet the statutory definitions of an exchange, broker, or clearing agency under the SEC's current regulations.
  • Uniswap asserted that the SEC lacks the congressional authority to regulate the protocol as an exchange under the major questions doctrine, which requires clear authorization from Congress for such significant regulatory actions.
  • They claimed the SEC failed to provide fair notice that their conduct could be considered unlawful, as required under due process principles.
  • Uniswap emphasized that an enforcement action would harm the public interest by stifling innovation, forcing companies offshore, and depriving U.S. investors of the benefits of decentralized finance.
  • They highlighted the economic impact and the protocol’s efficiency and cost-saving benefits for users, arguing that these innovations should be encouraged rather than penalized.

These arguments collectively aim to demonstrate that Uniswap's operations are fundamentally different from traditional financial intermediaries and should not be subject to the same regulatory framework.

Impact of FIT21 on Uniswap vs. SEC Case

The recently passed Financial Innovation and Technology for the 21st Century Act (FIT21) does have implications for the Uniswap vs. SEC case. Here’s how it might impact the case.

See:  SEC Issues Wells Notice to Robinhood Over Crypto

  • The FIT21 Act includes establishing criteria to determine the level of decentralization for blockchain networks and clarifying that an asset delivered pursuant to an investment contract is not necessarily a security itself​
  • There's also a provision for certifying the decentralization of blockchain networks, which involves public comments and SEC review.  The act’s emphasis on decentralization might favor Uniswap's stance that their operations do not fit traditional definitions requiring SEC registration.
  • Joint SEC and CFTC oversight could introduce a more balanced regulatory approach, potentially reducing the SEC’s unilateral enforcement power. Uniswap could benefit from this dual-agency oversight, leveraging CFTC’s more commodity-focused perspective on digital assets.
  • Additionally, the Blockchain Regulatory Certainty Act (BRCA), provides legal certainty for non-custodial entities so developers and infrastructure providers that do not custody or control user funds, ensuring they are not considered money transmitters​.

Conclusion

The Uniswap vs SEC battle is one for the ages that tests the application of traditional securities regulations to new and innovative technologies like DeFi.  The crypto world is watching and the outcome along with the potential enactment of FIT21 will establish significant precedents for the future of DeFi regulation and influence compliance strategies globally.


NCFA Jan 2018 resize - Uniswap's Ready For SEC Battle. Responds to Wells NoticeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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U.S. House passes FIT21 with Bipartisan Support

Crypto | May 23, 2024

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The U.S. House of Representatives has officially passed the Financial Innovation and Technology for the 21st Century Act (FIT21)

Now, crypto in America is one step closer to getting the bill that will regulate digital assets in the country. That passage of FIT21 with bipartisan support shows growing consensus of the need for clear regulatory frameworks that foster crypto innovation while protecting consumers.

Vote Stats

FIT21 passed with a notable majority with bipartisan collaboration:

  • Total Votes in Favor: 279
  • Democratic Support: 71 Democrats voted in favor
  • Republican Support: 208 Republicans voted in favor
  • Votes Against: 136, most by the Democrats due to some reservations that they hold about some of the bill's regulatory provisions

Key Features of the FIT21 Bill

  • Remove the confusion between the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) regarding which regulator is actually in charge. The current confusion leaves users vulnerable to fraud and stifles innovation in the sector.

See:  Responsible Development of Digital Assets (Crypto): Decoding Biden’s Executive Order

  • It ensures the appropriate consumer protections are in place to help prevent scenarios like the collapse of FTX, safeguarding customer funds.
  • With a clear regulatory framework, it will make the U.S. more attractive for digital asset innovation and stop the exodus of talent and firms to other, more cryptocurrency-friendly, jurisdictions.

Next Steps

The passing of the FIT21 in the House is a significant milestone, but it is not the end of the road. It will now go to the Senate for further consideration. Meanwhile, President Joe Biden has earlier expressed doubts regarding the enactment of pro-crypto legislation, constituting a possible challenge​.


NCFA Jan 2018 resize - U.S. House passes FIT21 with Bipartisan SupportThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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UK Digital Securities Sandbox to Drive Fintech Innovation

Digital Securities Sandbox | May 21, 2024

BoE Sasha Mills Executive Director Financial Market Infrastructure - UK Digital Securities Sandbox to Drive Fintech Innovation

Image: BoE Sasha Mills, Executive Director, Financial Market Infrastructure

Insights from a Speech about the UK's Digital Securities Sandbox

Today at City Week 2024, Sasha Mills, Executive Director, Financial Market Infrastructure at the BoE delivered a speech about the new Digital Securities Sandbox (DSS) and support for innovation. The UK's financial regulatory landscape is agile and embracing fintech innovation while ensuring market stability. Launched by the Bank of England (BoE) and the Financial Conduct Authority (FCA), the DSS aims to integrate cutting-edge technologies into the financial market infrastructure in the UK.

For fintech founders, the DSS offers a unique opportunity to test and scale new technologies within a supportive regulatory framework. This reduces the risks associated with innovation and accelerates the development and deployment of cutting-edge financial solutions. By participating in the DSS, fintech companies can gain valuable insights into regulatory expectations and build more resilient, efficient, and scalable business models.

See:  FCA/BoE: Digital Securities Sandbox-Consult on Final Rules

For regulators, the DSS allows firms to test regulatory changes in real-world scenarios. This helps in refining the regulatory framework to accommodate innovative technologies safely.

Key Quotes and Insights from Sasha Mills Speech

1. Leveraging Blockchain for Securities

"The Digital Securities Sandbox is designed to leverage blockchain technology to revolutionize the issuance, trading, and settlement of securities. This approach not only enhances efficiency but also significantly improves transparency and security."

The implementation of blockchain technology in securities could streamline operations, reduce costs, and enhance the transparency and security of transactions, fostering greater trust among investors and regulators.

See:  UK Digital Securities Sandbox: A Guide and Implications

2. A Space for Responsible Innovation

"We are not just opening the doors to innovation; we are creating a space where it can thrive responsibly. The DSS will enable firms to experiment under real-world conditions with regulatory oversight, ensuring that new financial products are both innovative and safe."

This creates an environment where fintech firms can develop and test new products with the assurance that they are compliant with regulatory standards, thereby balancing innovation with consumer protection.

3. Level Playing Field for Startups

"The sandbox provides a flexible regulatory environment that is particularly advantageous for startups and smaller firms. It lowers the barriers to entry, allowing new market participants to compete on a level playing field."

See:  BlackRock Launches New Fund on Ethereum, Bullish on Tokenization

By reducing regulatory barriers, the DSS encourages competition and innovation, potentially leading to a more diverse range of financial products and services.

4. Improving Market Liquidity

"One of the key objectives of the DSS is to improve market liquidity through the integration of digital securities with traditional financial systems. This will facilitate easier buying and selling of assets, ultimately benefiting investors and market participants."

Enhanced liquidity can lead to more dynamic and efficient markets, offering benefits such as lower transaction costs and increased market participation.

5. Continuous Regulatory Learning

"Through the sandbox, we aim to learn from the market and adapt our regulations accordingly. This iterative process will help us stay ahead of technological advancements and ensure that our regulatory framework remains relevant and effective."

See:  Balancing Fintech Innovation and Regulation

This adaptive approach ensures that the UK's regulatory framework evolves in line with technological advancements, maintaining its relevance and effectiveness in a rapidly changing financial landscape.

Provide Feedback on DSS Consultation

Firms can apply to join the DSS, with detailed guidance provided by the BoE and FCA. The first cohort of participants is expected to be accepted by autumn 2024.  The BoE and FCA have published a consultation paper inviting feedback on the DSS's operational details. Interested parties can review and respond to the consultation until May 29, 2024.

Outlook

By embracing innovative technologies and adopting a flexible regulatory approach, the Digital Securities Sandbox initiative not only strengthens the UK's financial infrastructure but also provides fintech firms with a platform to drive technological advancements, shape future regulations and global competitiveness.


NCFA Jan 2018 resize - UK Digital Securities Sandbox to Drive Fintech InnovationThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Ether Jumps on Increased Odds of Spot ETF Approval

ETF News | May 21, 2024

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Ether Jumps 20% on the Implications of a Spot Ether ETF Approval

As reported on Coindesk, on Monday Bloomberg Intelligence ETF analysts Eric Balchunas and James Seyffart have raised the approval odds for a spot Ether ETF from 25% to 75% after indications that the SEC might be adopting a more favorable stance towards these applications. They later clarified that their revised odds pertain to 19b-4 filings specifically. The SEC's decision on the VanEck spot Ether ETF is expected on May 23rd.  The price of ETH jumped 10% on the news since it was previously largely assumed that approval of a spot ETF was an uphill battle, with the price of ethereum currently trading at a 20% premium in the $3,800 range compared to yesterday.

Also worthy of noting is that according to an on-chain analyst, Ethereum's market capitalization of $440 billion just surpassed Mastercard's market cap of $427 billion.

The Potential Impact

The approval of a spot Ether ETF could be a game-changer for the broader cryptocurrency market. Unlike futures ETFs, a spot ETF holds actual Ether, making it more attractive to institutional investors seeking secure and regulated exposure to digital assets. The ease of access and regulatory compliance of a spot ETF are likely to attract substantial institutional funds. With Ether's market cap approaching $400 billion, a spot ETF could add billions in value.

See:  Consensys Sues the SEC Over Ethereum’s Status

Approval of a spot Ether ETF would be an 'eye opening' change in regulatory attitudes towards Ethereum digital currency. The SEC's cautious stance and efforts to classify ETH as a security has been a barrier, while also often citing concerns over market manipulation and investor protection. A successful ETF could demonstrate that these risks are manageable reflecting a growing confidence in regulatory frameworks adapting to include digital assets.

The introduction of a spot Ether ETF is expected to significantly enhance market liquidity. By providing a regulated and easily accessible investment vehicle, the ETF would attract a broader range of investors, from retail to institutional. Increased liquidity generally leads to reduced price volatility, making Ether a more stable investment.

Technical and Security Considerations

A spot Ether ETF must address several technical and security concerns to gain regulatory approval and investor confidence. Key considerations include secure custody of Ether, typically utilizing cold storage solutions to prevent hacking, and transparent price tracking with robust auditing mechanisms. Approximately 95% of the ETF’s Ether could be held in cold storage, minimizing hacking risks. Regular audits by third-party firms would ensure the integrity of the holdings.

See:  BlackRock Launches New Fund on Ethereum, Bullish on Tokenization

Prometheum has launched a timely Ether custody service, treating ETH as a security in compliance with existing financial regulations. This move aligns with the company's commitment to regulatory adherence and aims to provide a secure custody solution for institutional investors.

Conclusion

Institutional investors and market participants are closely watching the developments surrounding a potential spot Ether ETF.  Hedge funds, asset managers, and other institutional players are likely positioning themselves by increasing their exposure to Ether in anticipation of the ETF’s approval.


NCFA Jan 2018 resize - Ether Jumps on Increased Odds of Spot ETF ApprovalThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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US Lawmakers to Vote on FIT21 Crypto Regulation

Digital Asset Regulation | May 20, 2024

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US lawmakers to vote by end of month on The FIT21 Act to establish a clear regulatory framework for digital assets

The Financial Innovation and Technology for the 21st Century Act (FIT21) is a crucial legislative effort to regulate the burgeoning digital asset industry in the United States. Passed out of committee in July 2023, the bill, known as (HR 4763), is now approaching a full floor vote in the House expected by the end of this month.

The FIT21 Act has garnered substantial bipartisan support, reflecting a broad consensus on the need for a structured regulatory framework for the crypto industry. However, the bill still faces significant hurdles, including passing the Senate and securing presidential approval. The current administration's cautious stance on crypto adds a layer of complexity, but the broad support suggests a reasonable chance of success.

See:  Canada’s Proposed Mutual Fund Crypto Regulations 2024

On May 16, the Crypto Council for Innovation (CCI), representing major crypto industry groups and public companies like Coinbase (COIN) and Block (SQ), urged lawmakers in a letter of support to provide regulatory clarity and support the bill.

Why the FIT21 Act Matters

Regulatory Clarity

The FIT21 Act seeks to resolve the ambiguity surrounding the roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in regulating digital assets. By clearly defining the regulatory responsibilities, the bill aims to create a stable environment conducive to business operations and innovation.

See:  Balancing Fintech Innovation and Regulation

The FIT21 Act is part of a broader legislative effort to regulate digital assets. For instance, Chairman McHenry’s Clarity for Payment Stablecoins Act also seeks to regulate stablecoin issuers through federal and state frameworks. Comparing these proposals highlights the comprehensive approach of the FIT21 Act in addressing various aspects of digital asset regulation, from market structure to consumer protection​.

Enhanced Consumer Protection

One of the core components of the FIT21 Act is its focus on consumer protection. The bill mandates stringent security and transparency standards for digital asset platforms. These measures are designed to prevent incidents like the collapse of major exchanges such as FTX, ensuring that platforms operate with high levels of integrity and reliability. This focus on consumer protection is vital for building trust in the crypto ecosystem.

Potential Outcomes of the FIT21 Act

If the Bill Passes

  • Passage of the FIT21 Act would likely lead to a more favorable investment climate for digital assets. Institutional investors would feel more confident entering the market, leading to increased capital flows and the potential for significant technological advancements​​.

See:  2024 Budget: Crypto ETFs & Registered Accounts Consultation

  • With stringent security and transparency requirements, consumer confidence in the crypto market would be bolstered. This trust is essential for the widespread adoption of digital assets and for the long-term viability of crypto platforms​.
  • The US could position itself as a global leader in crypto regulation, setting a standard that other countries might follow. This leadership could enhance the competitiveness of US-based crypto businesses on the international stage​.

If the Bill Does Not Pass

  • The absence of a comprehensive federal framework could lead to a patchwork of state regulations, complicating compliance for crypto businesses operating across multiple jurisdictions. This fragmentation could further hinder the growth of the industry.
  • Failure to pass the FIT21 Act would maintain the current state of regulatory ambiguity. This uncertainty could deter institutional investors and stymie the growth and innovation potential of the US crypto market​.

See:  Challenges in Global Crypto Regulations – Lessons from Dubai

  • Without the enhanced consumer protection measures outlined in the FIT21 Act, risks to consumers would remain high. Incidents like the collapse of major exchanges could continue to undermine trust in the market​.

Gary Gensler, SEC Chairman issued a lengthy warning of the risks about the bill:

"The crypto industry's record of failures, frauds and bankruptcies is not because we do not have rules or because the rules are unclear.  It's because many players in the crypto industry don't play by the rules."

Outlook

The bill's progress through Congress will be closely watched as its passage would provide much-needed regulatory certainty, fostering innovation and economic growth while protecting consumers, especially given the current political climate. The upcoming 2024 presidential election could also influence its fate, as candidates may use the bill to appeal to tech-savvy and economically progressive voters. Crypto regulation is poised to be a defining issue in the 2024 election, reflecting broader debates about innovation, financial freedom, and regulatory oversight.


NCFA Jan 2018 resize - US Lawmakers to Vote on FIT21 Crypto RegulationThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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