Written by: 0xjs & kimi
The U.S. Congress is about to vote on the latest encryption bill. On May 10, 2024, the U.S. House of Representatives Rules Committee stated that the U.S. House of Representatives will vote on the Financial Innovation and Technology for the 21st Century Act (FIT21) this month.
A16z partner Dixon wrote on May 15, "In the next two weeks, the House of Representatives will vote on FIT21, the most important crypto bill to date. We have long called for clear regulation to protect consumers and innovation, and the FIT21 bill will do this. Americans have accepted digital assets, but current regulatory approaches often restrict innovation and privacy without truly addressing the solutions needed to protect consumers or combat illegal activities. FIT21 will help eliminate scams, ensure oversight of cryptocurrency exchanges, and protect American consumers by imposing strict rules on cryptocurrency transactions. FIT21 has bipartisan support because it addresses these issues. I encourage everyone who believes in the power of blockchain technology to support this legislation."
On July 20, 2023, House Agriculture Committee Chairman Glenn "GT" Thompson, Congressman French Hill, Congressman Dusty Johnson, Whip Tom Emmer, and Congressman Warren Davidson initiated HR 4763, the 21st Century Financial Innovation and Technology Act (FIT21). House Financial Services Committee Chairman Patrick McHenry is one of the co-sponsors of the legislation.
FIT21 establishes clear and practical federal requirements for digital asset markets. It provides strong consumer protection and regulatory clarity for the digital asset ecosystem to thrive in the United States, solidifying America’s leadership in the future global financial system while strengthening our role as a hub for innovation.
The legislation gives the U.S. Commodity Futures Trading Commission (CFTC) new jurisdiction over digital commodities and clarifies the U.S. Securities and Exchange Commission’s (SEC) jurisdiction over digital assets offered as part of an investment contract. In addition, the bill establishes a process to allow digital commodities to be traded in secondary markets if they were originally offered as part of an investment contract. Finally, FIT21 imposes comprehensive customer disclosure, asset protection, and operational requirements on all entities that need to register with the CFTC and/or SEC.
The FIT21 Act is 253 pages long, and we use Kimi to summarize the bill.
The 21st Century Financial Innovation and Technology Act (H.R. 4763) is a comprehensive legislation designed to regulate and promote the development of digital assets and blockchain technology in the United States. The following is a detailed summary of the contents of the bill:
Definitions: Define relevant terms, such as "digital asset", "blockchain system", "decentralized governance system", etc.
Rulemaking: The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are required to jointly develop rules to further clarify relevant terms and establish rules for hybrid transactions in digital asset transactions.
Registration Notice: Digital commodity exchanges, brokers, and trading system operators are required to submit a registration intention notice to the CFTC and comply with specific administrative requirements.
The short title can be called the "Securities Clarity Act of 2024", indicating that the bill is intended to provide clarity and clarity for certain assets in the securities market. It mainly amends the content of the US federal securities-related laws, with particular attention to the definition and treatment of "investment contract assets".
(a) Amendments to the Securities Act of 1933: Two major amendments were made to Section 2(a) of the Securities Act of 1933: The first amendment explicitly excludes "investment contract assets" from the definition of "security". This means that if an asset is classified as an investment contract asset, it will not be considered a security in the traditional sense and may be subject to different regulatory requirements. The second amendment adds a definition of "investment contract assets" at the end of Section 2(a) of the Securities Act. This definition contains three main conditions: 1. The asset must be a transferable digital representation of value that can be recorded on a cryptographically secure public distributed ledger without an intermediary. 2. The asset must be sold or otherwise transferred, or intended to be sold or otherwise transferred, as part of an investment contract. 3. The asset itself is not considered a security under the first sentence of the Securities Act.
(b) Amendments to the Investment Advisers Act of 1940: Section 202(a)(18) of the Investment Advisers Act of 1940 is amended to clarify that the term “security” does not include investment contract assets.
(c) Amendments to the Investment Company Act of 1940: Section 2(a)(36) of the Investment Company Act of 1940 is amended to similarly clarify that the term “security” does not include investment contract assets.
(d) Amendments to the Securities Exchange Act of 1934: Section 3(a)(10) of the Securities Exchange Act of 1934 is amended to clarify that the term “security” does not include investment contract assets.
(e) Amendments to the Securities Investor Protection Act of 1970: Section 16(14) of the Securities Investor Protection Act of 1970 is amended to specify that the term “security” does not include investment contract assets.
The purpose of these amendments is to provide greater flexibility and clarity for digital assets within the existing securities law framework while ensuring investor protection. By excluding investment contract assets from the definition of traditional securities, the Act aims to promote innovation while maintaining appropriate investor protection.
The provisions of Part II are of great significance to digital asset issuers, investors, and regulators. It provides legal clarity for the issuance and trading of digital assets and helps reduce regulatory uncertainty, which may encourage more investment and innovation in the digital asset space. At the same time, by excluding investment contract assets from the definition of securities, it also provides a new path for the regulation of such assets.
Exempt Transactions: Provides for certain exemptions for digital asset transactions.
Requirements: Sets requirements for the offers and sales of certain digital assets.
Enhanced Disclosure Requirements: Requires enhanced disclosure information for digital assets.
Certification: Certification for certain digital assets.
Dealing with Digital Commodities and Other Digital Assets: Provides for the SEC’s regulatory authority over digital commodities and other digital assets.
Registration and Requirements: Concerns the registration of digital asset trading systems, requirements, and rules related to digital asset brokers and dealers.
CFTC Jurisdiction over Digital Commodity Transactions: Clarifies the scope of the CFTC's supervision of digital commodity transactions.
Registration and Supervision: Sets out registration and supervision requirements for digital commodity exchanges, brokers, trading advisors, and commodity pool operators.
Investigation and Reporting: Requires the SEC and CFTC to conduct research and submit reports on financial technology innovation, decentralized finance, non-fungible digital assets, financial literacy of digital asset holders, and improvements to financial market infrastructure.
Effective Date of the Law: Most provisions will take effect 360 days after enactment of the bill, unless rulemaking is required, in which case they will take effect 60 days after rulemaking.
SEC and CFTC Coordination: The two agencies will jointly develop rules to promote the fair and orderly development of digital asset markets and protect investors.
International Coordination: The SEC and CFTC will coordinate with foreign regulators to establish consistent regulatory standards for digital assets around the world.
Bank Secrecy Act: Digital asset trading systems are treated as financial institutions and are subject to the Bank Secrecy Act.
Fee Collection: The CFTC will collect registration fees, annual fees, and termination fees from entities that register digital commodity exchanges, brokers, and trading systems.
Fee Adjustment: The CFTC has the authority to adjust fees as needed to promote fair competition and innovation.
Use of Fees: Fees collected will be used to cover the costs of implementing the CFTC's functions under this Act.
Decentralized Finance Study: The SEC and CFTC will jointly conduct a study to analyze the nature, size, role, uses, and integration of decentralized finance with traditional financial markets.
Non-fungible Digital Assets Study: Study the nature, markets, and integration with traditional markets of non-fungible digital assets.
Financial Literacy Study: Assess methods to improve the financial literacy of digital asset holders.
Financial Market Infrastructure Study: Assess whether additional guidance or rules are needed to promote the development of tokenized securities and derivatives.
H.R. 4763 provides a comprehensive framework to regulate and promote the development of digital assets and blockchain technology in the United States. The Act lays the foundation for growth and innovation in the digital asset market by defining key terms, setting registration requirements, enhancing disclosure and transparency, and promoting international regulatory coordination. In addition, the bill emphasizes the importance of research into the financial technology and digital asset ecosystems, as well as increasing public awareness and understanding of these emerging technologies. Through these measures, the bill aims to protect investors, maintain market integrity, and leverage the potential of digital assets and blockchain technology to strengthen the U.S. economy.
The FIT21 bill aims to clearly define cryptocurrencies, classify specific cryptocurrencies to determine whether they are securities or commodities, and decide which government agency will regulate them. The crypto bill proposal will next be sent to the U.S. Senate for a vote.
JinseFinanceThis article will interpret the FIT21 Act from the aspects of legislative background, bill content, and potential impact.
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