Why It Matters

A Senate bill would establish a federal regulatory framework for cryptocurrency and digital-asset activities and industry participants, according to a new report by the Congressional Research Service. The proposal assigns the Commodity Futures Trading Commission a central role for digital commodities while retaining a defined Securities and Exchange Commission role for certain primary-market sales. That division would place cash and spot-market sales of digital commodities under the CFTC’s exclusive jurisdiction, while requiring exchanges, brokers, and dealers in those markets to register with the agency. For the public, the text would establish customer-asset protections by requiring those assets to remain the customer’s property and generally barring their commingling with intermediary funds.

The text also would bar the president, vice president, Members of Congress, and other covered officials from issuing or sponsoring a digital asset in exchange for consideration.

The Big Picture

The measure combines and modifies language from H.R. 3633, Senate Banking Committee amendments reported June 1, and S. 3755 as reported by the Senate Agriculture Committee Feb. 2.

An originator could raise no more than $200 million under the exemption and would have to file disclosures with the SEC, while a digital asset service provider could fulfill the disclosure requirement in certain circumstances. The disclosure requirement would no longer apply if an issuer certified that, during the preceding 180 days, it engaged in no more than a nominal level of entrepreneurial or managerial efforts and that those efforts were not a primary factor in determining the asset’s value; the certification would be deemed effective if the SEC failed to issue a notice of objection within 90 days.

The Bottom Line

The draft would extend the regulatory perimeter beyond trading venues by treating digital-commodity brokers, dealers, and exchanges as financial institutions under the Bank Secrecy Act. Those intermediaries would need anti-money-laundering and countering-the-financing-of-terrorism programs, customer-identification procedures, record retention, and suspicious-activity monitoring and reporting. The proposal would classify digital-asset kiosk operators as money-transmitting businesses required to register with Treasury and update each kiosk’s location within 90 days of the bill’s effective date and at least every 90 days thereafter.

A separate provision would allow banks to provide digital-asset custody, collateralize loans with digital assets, and facilitate clients’ secondary-market transactions. The text would restrict third-party payments on stablecoin balances that are economically or functionally equivalent to deposit interest, while permitting payments for bona fide transactions or activity and allowing the Treasury Secretary to implement a rule preventing third-party stablecoin-yield payments if, within 18 months of enactment, the yield caused a substantial detrimental impact on community-bank deposits.

Its final enforcement architecture would combine federal action by the U.S. attorney general, potential state attorneys general suits for injunctive relief when a state or its residents were alleged to have been harmed, and disgorgement or other penalties for covered officials who violated the issuance restriction.

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