FIT 21 moves forward with new cryptographic security

The first major cryptocurrency regulation bill to pass the U.S. House of Representatives was approved this week with bipartisan support. However, there is still a long way to go before the Financial Innovation and Technology for the 21st Century Act (FIT21) becomes law.

The legislation establishes the Commodity Futures Trading Commission (CFTC) as the lead regulator of digital assets in the US. The legislation would establish consumer protections in U.S. cryptocurrency markets by imposing comprehensive disclosure requirements for issuers of digital assets.

It would also more clearly define what makes a cryptographic token a security or commodity. Under the rules, the CFTC would regulate commodities and derivatives, while the Securities and Exchange Commission (SEC) would oversee digital assets classified as securities.

“The SEC and CFTC are currently fighting for control of this asset class,” said Rep. Patrick McHenry (R-N.C.), one of the bill’s leading supporters. “They have created an impossible situation in which the same companies are subject to competing and conflicting enforcement actions by two different agencies. FIT21 addresses this problem by creating a regulatory framework that provides clear rules of the road and strong barriers for Americans engaging in the digital asset ecosystem.”

The structure of FIT21 points to a new and productive path forward for the U.S. crypto industry.

“The most important aspect of FIT21 is creating a consistent framework for how existing regulatory agencies divide the digital asset world and the cryptocurrency world,” said James Wester, director of cryptocurrency at Javelin Strategy & Research. “Under the Act, the framework is based on how tokens are used, rather than on difficult-to-define interpretations or regulatory opinions.

“Additionally, creating a true registration system where participants know the registration rules and have a path to compliance will help ensure that good actors are separated from bad actors,” he said.

What awaits us?

FIT21 passed with 208 of the 211 Republicans supporting the bill, 71 Democrats voting in favor and 133 voting against. Several prominent Democrats have expressed support, including former House Speaker Nancy Pelosi. The next step is for the bill to be passed by the Senate, which is marginally controlled by Democrats, but only a few of them would need to cross the aisle for the bill to pass. President Biden opposed the bill in an earlier statement but did not say he would veto it.

“This is yet another sign that our current regulation of cryptocurrencies is inadequate to where the technology is heading, and that fixing these shortcomings has bipartisan support,” Wester said. “This is good news if the United States continues to lead as digital assets, cryptocurrencies and blockchain evolve. This is important in its own right, but it is also crucial if we want laws that provide real protection and safeguards.”