US Looks To Provide Customer Protections To Crypto Investors In This New Bill
A group of US senators recently introduced a law called the Digital Goods Consumer Protection Act of 2022 which gives the Commodity Futures Trading Commission (CFTC) the power to regulate trade in digital goods. This framework can be seen as a safeguard for US clients operating in a currently unregulated market. The full draft bill can be found here.
"This rule holds digital product platforms to the same standards as traditional financial institutions," the bill's summary says.
The bill would allow the CFTC to regulate the two most popular cryptocurrencies, bitcoin and ethereum, as well as other cryptocurrencies not classified as securities by the Securities and Exchange Commission (the US SEBI equivalent).
The bill was supported by the following senators:
“One in five Americans have used or traded digital assets, but these markets lack the transparency and accountability they expect from our financial system. This often puts Americans' hard-earned money at risk," Stabenow said.
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Why it matters: This bill is important because it will provide clear state oversight of commodity markets for digital assets. The Cryptocurrency market has recently been hit by a series of hacks that have left investors in a desperate situation.
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Definition: The bill defines digital goods as “transferable digital forms of private property that can be transferred from person to person without the necessary reliance on intermediaries.” The draft also lists the following exceptions to the definition:
However, the project avoids determining whether the token is a commodity or a security.
Jurisdiction: One of the main provisions of the bill grants the CFTC "exclusive jurisdiction" over digital commodity transactions. The CFTC will be tasked with banning fraudulent digital commodity trading.
Registration: The law states that doing business without registration is illegal. Any entity operating as a digital commodity platform must register with the CFTC under one of the following categories:
Key principle: All institutions should only allow trading in transactions that are difficult to manipulate. They must provide “a competitive, open and efficient marketplace and transaction execution system that protects the value discovery process of trading on the platform”.
Client Protection: The CFTC has been asked to include client protection requirements that require digital product platforms to disclose to clients:
Self-Regulation: The law requires digital commodity brokers, digital commodity traders, or digital commodity custodians to become registered futures association members. The CFTC is empowered by law to require associations to perform registration functions for trade in digital products.
Fees Collected by the CFTC: The CFTC may charge the entity valuations and fees that are used to cover annual fees:
Reporting: The CFTC was asked to study energy consumption and the energy sources used to manufacture and transfer the best-selling digital products.
This is not the first bill to regulate cryptocurrencies in the US Senate.
The Digital Consumer Protection Act is not the first bill introduced in the US Senate to regulate cryptocurrencies. This follows the Responsible Finance Innovation Act introduced in June 2022 by US Senators Kirsten Gillibrand and Cynthia Loomis, which set the stage for digital asset regulation in the US.
In addition, the Gillibrand and Lummis Bill proposes the creation of a Commodity Futures Trading Commission with the authority to regulate the digital asset spot market. The order "is in good agreement with the existing [CFTC] experience in other commodity markets," the draft said
The scope of the Loomis-Gillibrand bill is wider than that proposed by Stabilno. The project addresses tax issues including the $200 minimum tax exemption, definitions, stablecoins, central bank digital currencies, innovation, and more.
The bill also includes customer protection that requires intermediaries to ensure that "the scope of permitted transactions that can be carried out with a customer's digital assets is clearly stated in the contract with the customer."
This instructs them to recognize:
When will India introduce its own laws to regulate crypto assets?
The Loomis-Gillibrand bill, along with the Stablenow Bill, could serve as a model for India's digital asset law, which is currently under negotiation. It is not clear when the bill will go to Parliament after it was introduced twice.
The government recently announced that it is working on publishing a consultancy paper covering various issues raised by crypto assets. The document will likely outline the government's stance on cryptocurrencies and how it intends to regulate it. This means that the law is still a few months away.
The road to regulation is full of dangerous twists and turns as India's central bank seeks to impose sanctions. Finance Minister Nirmala Sitharaman recently announced that the RBI intends to roll back the cryptocurrency ban that was first introduced in 2018.
Notes. Title updated at 00:28 August 8th for clarity.
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