Reed Smith In-depth

On June 7, highly anticipated federal legislation aiming to regulate the U.S. digital asset markets was introduced in the U.S. Senate by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY).1 The ambitious draft bill, dubbed the “Responsible Financial Innovation Act” (RFIA), is multifaceted, addressing a number of issues arising in the rapidly expanding digital asset markets. Areas addressed by the legislation range from taxation of digital assets and energy consumption to core financial markets matters such as federal regulatory jurisdiction over digital asset exchanges and stablecoin reserve requirements. Each specific element of this proposed legislation will surely be analyzed in the weeks to come, and will likely evolve with further input from legislators, regulators, and the public. But the clear winner under RFIA – at least in terms of being designated as the federal agency with the primary authority over the burgeoning digital asset markets – is the Commodity Futures Trading Commission (CFTC).

RFIA would endow the CFTC – a relatively small federal agency that regulates U.S. derivatives markets – with the authority to regulate and oversee the digital asset spot markets (i.e., transactions involving digital asset commodities), essentially encompassing all digital assets that are not clearly securities (which are subject to regulation and oversight by the Securities and Exchange Commission (SEC)). This assignment of authority would be unprecedented for the agency, as the CFTC, though it has long had the authority to bring enforcement actions to combat fraud and manipulation in commodity spot markets, has never had the power to adopt new rules and impose them on those markets.

While RFIA still likely faces a long, windy path toward becoming law, the framework presented by it has been generally well received, including by the CFTC itself. The day after the bill was introduced, CFTC Chair Rostin Behnam, who has been a particularly vocal advocate of his agency’s ability to oversee the digital asset commodity markets, signaled his general approval of RFIA’s proposed framework and reaffirmed his conviction that the CFTC is up to the task.

Specifically in relation to the CFTC, RFIA would: