A quick 5-minute overview of the main contents of the latest U.S. encryption bill FIT21

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 hold a full vote on the Financial Innovation and Technology for the 21st Century Act (FIT21) this month.

a16z partner dixon posted on May 15, “In the next two weeks, the House of Representatives will vote on FIT21, the most important encryption bill to date. We have long called for clear regulation to protect consumers and innovation. , the FIT21 bill will do just that. Americans have embraced digital assets, but current regulatory approaches often limit innovation and privacy without truly addressing the solutions needed to protect consumers or combat illegal activity. FIT21 will help stamp out scams. , ensuring oversight of cryptocurrency exchanges and protecting American consumers by enforcing strict rules on cryptocurrency trading, FIT21 has bipartisan support because it addresses these issues. I encourage everyone to believe in the power of blockchain technology. of people support this legislation”

Background

July 20, 2023 House Agriculture Committee Chairman Glenn “GT” Thompson, Rep. French Hill, Rep. Dusty Johnson, Whip Tom. Emmer and Rep. Warren Davidson sponsored HR 4763, the Financial Innovation and Technology for the 21st Century Act (FIT21). House Financial Services Committee Chairman Patrick McHenry is one of the co-sponsors of the legislation.

FIT21 sets out clear and practical federal requirements for digital asset markets. It provides strong consumer protections 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 center of 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 that are part of investment contracts. Additionally, the bill establishes a process to allow digital goods to be traded on the secondary market (if they were originally offered as part of an investment contract). Finally, FIT21 imposes comprehensive customer disclosure, asset protection and operational requirements for all entities required to register with the CFTC and/or SEC.

A quick look at the main contents of the FIT21 bill

The FIT21 bill is 253 pages long. Golden Finance reporters used 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 content of the bill:

Part I: Definitions, Rulemaking and Registration Notice

• Definition: Definition of relevant terms, such as "digital assets" (digital asset), “blockchain system”, “decentralized governance system”, etc.

• Rulemaking: The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) need to jointly develop rules to further clarify related terminology and establish hybrid transactions for digital asset transactions. rule.

• Registration Notice: Digital commodity exchanges, brokers and trading system operators are required to submit a notice of intention to register to the CFTC and comply with specific administrative requirements.

Part II: Clarity of Investment Contract Assets

The short title may be called "Securities Clarity Act of 2024", indicating that the act is intended to provide securities markets Certain assets in provide clarity and clarity. It mainly revised the contents of the US federal securities-related acts, paying special attention to the definition and treatment of "investment contract assets".

(a) Amendments to the Securities Act of 1933): Two major amendments have been made to Section 2(a) of the Securities Act of 1933: The first amendment is in “Securities.” The definition of (security) specifically excludes “investment contract assets”. 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 therefore be subject to different regulatory requirements. The second amendment is the addition of 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 distributed ledger through encryption and security without an intermediary. 2. The asset must be sold or otherwise transferred, or intended to be sold or otherwise transferred, as part of the investment contract. 3. The assets themselves are not considered securities according to the first sentence of the Securities Law.

(b) Amendments to the Investment Advisers Act of 1940: Section 202(a)(18) of the Investment Advisers Act of 1940 is amended to clearly state that "securities" The term does not include investment contract assets.

(c) Amendment to the Investment Company Act of 1940: Section 2(a)(36) of the Investment Company Act of 1940 is amended to also state that the term "security" does not Includes investment contract assets.

(d) Amendment to the Securities Exchange Act of 1934: Section 3(a)(10) of the Securities Exchange Act of 1934 is amended to clarify that “securities” The term does not include investment contract assets.

(e) Amendment to the Securities Investor Protection Act of 1970: Section 16(14) of the Securities Investor Protection Act of 1970 is amended to state that “Securities Investor Protection Act of 1970” The term ” does not include investment contract assets.

The purpose of these revisions is to provide greater flexibility and clarity for digital assets within the existing securities legal framework, while ensuring investor protection. By excluding investment contract assets from the definition of traditional securities, the bill aims to promote innovation while maintaining appropriate investor protections.

The provisions of Part II are of great significance to digital asset issuers, investors and regulatory agencies. It provides legal clarity for the issuance and trading of digital assets and helps reduce regulatory uncertainty, potentially encouraging more investment and innovation within 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 supervision of such assets.

Part Three: Offer and Sale of Digital Assets

• Exempt Transactions: Specifies specific exemptions for digital asset transactions.

• Requirements: Sets requirements for the offer and sale of certain digital assets.

• Enhanced disclosure requirements: Require enhanced disclosure information for digital assets.

• Certification: Certify certain digital assets.

Part 4: Digital Asset Intermediaries Registered with the SEC

• Processing of Digital Commodities and Other Digital Assets: Provides for the SEC’s handling of digital commodities and other digital assets.

• Registration and Requirements: Relates to the registration of digital asset trading systems, requirements and rules related to digital asset brokers and dealers.

Part 5: Digital asset intermediaries registered with CFTC

• CFTC’s jurisdiction over digital commodity transactions: CFTC’s jurisdiction over digital commodity transactions is clarified scope of supervision.

• Registration and Regulation: Specifies the registration and regulatory requirements for digital commodity exchanges, brokers, trading advisors and commodity pool operators.

Part Six: Innovation and Technological Improvement

• Investigation and Report: Requesting the SEC and CFTC to discuss financial technology innovation, decentralized finance, Conduct research and submit reports on non-fungible digital assets, the financial literacy of digital asset holders, and improvements in financial market infrastructure.

Other Important Terms and Provisions

• Effective Date of Law: Most provisions will take effect 360 days after enactment of the bill, unless a rule is required If enacted, the rules will take effect 60 days after they are enacted.

• Coordination between SEC and CFTC: The two agencies will jointly formulate rules to promote the fair and orderly development of the digital asset market and protect investors.

• International Coordination: The SEC and CFTC will coordinate with foreign regulatory agencies to establish consistent regulatory standards for global digital assets.

• Bank Secrecy Act: Digital asset trading systems are considered financial institutions and are subject to the Bank Secrecy Act.

Fees and Funds

• Fees and Charges: The CFTC will charge registration fees, Annual and termination fees.

• Fee adjustment: The CFTC has the authority to adjust fees as needed to promote fair competition and innovation.

• Fee usage: The fees collected will be used to cover the CFTC’s functional implementation costs under this bill.

Research and Report

• Decentralized Finance Research: SEC and CFTC will jointly conduct research to analyze the nature and scale of decentralized finance , role, purpose and degree of integration with traditional financial markets.

• Research on non-fungible digital assets: Study the nature, market and integration of non-fungible digital assets with traditional markets.

• Financial Literacy Research: Evaluating methods to improve financial literacy among digital asset holders.

• Financial Market Infrastructure Study: Assessing whether additional guidance or rules are needed to facilitate the development of tokenized securities and derivatives.

Conclusion

H.R. 4763 provides a comprehensive framework designed to regulate and promote the development of digital assets and blockchain technology in the United States. The bill 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 harmonization. In addition, the bill also emphasizes research on financial technology and digital asset ecosystems, as well as the importance of increasing public awareness and understanding of these emerging technologies. Through these measures, the bill seeks to protect investors, preserve market integrity, and harness the potential of digital assets and blockchain technology to strengthen the U.S. economy.

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