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Lummis and Gillibrand Target Stablecoins in Sweeping Crypto Regulation Proposal

Jul 13, 2023

New Crypto Bill Targets Stablecoins: Senators Propose Stringent Regulations for Digital Currencies

A new crypto oversight bill reintroduced by Senators Cynthia Lummis and Kirsten Gillibrand is making waves in the U.S. Senate. The bill proposes that crypto exchanges be overseen by the Commodity Futures Trading Commission (CFTC) rather than the U.S. Securities and Exchange Commission (SEC). Additionally, it calls for all stablecoin issuers to be regulated depository institutions. This bill represents a significant effort to establish U.S. regulation for the crypto industry and addresses the division of oversight between the SEC and CFTC.


The bill aims to distinguish between securities oversight and other forms of regulation. It states that assets that do not give investors a financial interest in a business should not be considered securities, even if they benefit from entrepreneurial and managerial efforts. Issuers of cryptocurrencies would need to make biannual disclosures to the SEC, but as long as the tokens do not represent debt or equity, they would remain outside the SEC's jurisdiction.


The legislation also emphasises the importance of creating a separate organisation, referred to as the "consumer protection and market integrity authority," to govern industry standards and impose penalties for violations. It demands that customers' assets be fully segregated and imposes new risk-management standards for crypto lending. Stablecoins, such as Tether's USDT and Circle Internet Financial's USDC, would only be allowed to be issued by regulated banks or credit unions.


Lummis and Gillibrand are also pushing for a definition of decentralised finance (DeFi) that sets clear rules for when a software project becomes more centralised and needs to be registered as an exchange. The bill represents a middle ground between the two parties and incorporates provisions from proposals by other lawmakers.


While the bill represents a significant step forward, it will face evaluation by Senate committees, and bipartisan support will be crucial. The SEC, under Chair Gary Gensler, has been actively enforcing existing securities laws against prominent crypto companies. The bill's fate remains uncertain, and its passage could be impacted by the divided political landscape and the upcoming presidential election.


The Lummis-Gillibrand bill also includes provisions related to tax restrictions and benefits for crypto investors. It aims to raise $1.4 billion over five years by applying wash-sales tax restrictions to crypto, preventing taxpayers from benefiting from losses followed by immediate repurchases. However, it also offers tax exemptions for crypto payments used to purchase goods or services under $200, potentially facilitating the use of cryptocurrencies as actual currencies.


While this bill represents an important development in the Senate, attention is also focused on the House for any movement on stablecoin and market structure bills. The fate of the bill will be closely watched as the crypto industry seeks regulatory clarity and a level playing field.


Lummis-Gillibrand Responsible Financial Innovation Act

https://www.lummis.senate.gov/wp-content/uploads/Lummis-Gillibrand-2023.pdf

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