Being the first dual-party legislation that proposes to govern the regulation of digital assets, the Responsible Financial Innovation Act (RFIA) aims to create a foundation based on US regulatory standards to settle the long-term issue of the jurisdiction of financial regulators over digital assets. Furthermore, this legislation aims to resolve the existing conflict between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) which both dispute over the jurisdictions of cryptocurrency.
The RFIA can be divided into 6 key aspects:
1. The primary regulator of almost all digital assets would be the Commodity Futures Trading Commission (CFTC).
2. Periodic disclosures can be applied to issuers to digital assets by the U.S Securities and Exchange Commission (SEC)
3. Disclosures will be required for digital asset service providers
4. New prudential regulations will be issued upon issuers of payment stablecoins
5. Decentralised Autonomous Organisations (DAOs), would be categorised as “business entities”
6. The use of cryptocurrencies would be promoted by adjusting the taxation of digital assets
As per the SEC’s definition, ‘Ancillary assets’ are defined as “intangible, fungible digital assets that are sold in connection with the purchase or sale of a security constituting in an investing contract. It further does not provide the asset holder with debt or equity rights liquidation rights of the issuer, the right to profits from the issuer, or any other financial interest in the issuing entity”. (Sec. 301)
Currently, ancillary assets that come under the definition of digital assets are controlled by the CFTC who have authority over this area, however the RFIA proposes that the SEC to have authority over issuers of ancillary assets. This aims to get rid of the overlapping jurisdictions that both regulators have over digital assets
Stablecoins are a type of cryptocurrency whose value is fixed to a ‘stable’ reserve asset such as the U.S dollar or gold.
Due to the collapse of the UST stable coin earlier this year in May, there have been concerns about stable coin models and its regulation. With the development of the RFIA, the bill proposes to alleviate these concerns by establishing an oversight framework for such stable coins.Additionally, the bill aims for stablecoin users to prove that they are backed by the U.S dollar and requires users to compensate their users at any time required. Furthermore, the U.S Treasury is given power to ensure that issuers of stablecoin are to comply with relevant sanctions.
While the RFIA is unlikely to be passed any time prior to January 2023, the proposed bill is said to be a benchmark for any future related legislations, and if enacted, this legislation would significantly change the regulations of both cryptocurrency and the regulators of it. With major elements such as tax benefits for crypto users, stablecoin regulation, and the allocation of power for relevant government agencies, the proposal includes the creation of an Advisory Committee on Financial Innovation which would consist of affiliates within the financial technology industry, experts in various fields, SEC and CFTC commissioners, an FRB member, and a state regulator. If passed, this committee would resultingly help shape and regulate how digital assets could further develop in the future.