The ongoing uncertainty of crypto regulation in the United States is poised to witness a decisive moment. Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) are preparing to announce regulatory proposals for cryptocurrencies. Known as the Lummis-Gillibrand Responsible Financial Innovation Act, the controversial bipartisan bill aims to bridge the regulatory gap that has underpinned the crypto industry in America. Here are the details…
Lummis-Gillibrand law provides regulatory clarity for cryptocurrencies
An escalating dispute between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over the precise nature of cryptocurrencies has left businesses in limbo. Both regulators use their own enforcement powers against crypto exchanges Coinbase and Binance. The Lummis-Gillibrand Act aims to “enable responsible financial innovation and crypto assets within the regulatory environment.” In stark contrast to the SEC’s ongoing enforcement actions, most define crypto as a commodity under the jurisdiction of the CFTC.
The legislation makes a proposal to avoid further turmoil in the crypto industry, which has witnessed a series of high-profile crashes over the past two years that have resulted in significant investor losses. “This legislation is the most comprehensive proposal to date that provides robust consumer protections and appropriately addresses the current landscape surrounding crypto assets,” Senator Lummis said. The proposed law would require crypto exchanges to securely store client assets in third-party trusts. Next, prohibiting “proprietary trading” or trading with their own funds on their platform.
Crypto exchanges are held accountable
The US crypto regulatory bill could also signal a regulatory tightening on the “material subsidiaries” of crypto exchanges. This comes after allegations that FTX lent large amounts of client funds to its sister company, Alameda Research, before the liquidity crisis that triggered its collapse. “It is critical to integrate crypto assets into existing laws and use the efficiency and transparency of this asset class to address risks… As this industry continues to grow, it is critical that Congress carefully draft legislation that encourages innovation while protecting the consumer against bad actors,” Senator Lummis said. .
Also, the proposal aims to prevent “re-mortgage” of crypto assets. It effectively bans high-risk, yet profitable crypto services like staking. It also imposes stricter standards on new tokens before they are listed on crypto exchanges. Amid substantial opposition to SEC Chairman Gary Gensler, the proposal emerged, due to be announced Wednesday (July 12th). Steps have been taken to reduce Gensler’s influence, especially in the Republican-dominated House of Representatives.
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