The digital asset market, which is currently valued at $2 trillion, has presented a variety of regulatory obstacles and blurred lines. However, as the market continues to gain momentum and commercial recognition, so does the push for defined regulation and classification in the U.S..
Last month, the Eliminate Barriers to Innovation Act of 2021 passed within the House of Representatives and now heads to the Senate. If passed by the Senate, the bill would establish a working group of representatives from the Securities and Exchange Commission (SEC) and the Commodities Future Trading Commission (CFTC) to evaluate and assess the digital assets market.
The bill would provide the working committee no more than a year to submit a report to the SEC and CFTC that contains:
(A) an analysis of—
(i) the legal and regulatory framework and related developments in the United States relating to digital assets, including—
(I) the impact that lack of clarity in such framework has on primary and secondary markets in digital assets; and
(II) how the domestic legal and regulatory regimes relating to digital assets impact the competitive position of the United States; and
(ii) developments in other countries related to digital assets and identification of how these developments impact the competitive position of the United States; and
(i) for the creation, maintenance, and improvement of primary and secondary markets in digital assets, including for improving the fairness, orderliness, integrity, efficiency, transparency, availability, and efficacy of such markets;
(ii) for standards concerning custody, private key management, cybersecurity, and business continuity relating to digital asset intermediaries; and
(iii) for best practices to—
(I) reduce fraud and manipulation of digital assets in cash, leveraged, and derivatives markets;
(II) improve investor protections for participants in such markets; and
(III) assist in compliance with anti-money laundering and countering the financing of terrorism obligations under the Bank Secrecy Act.
Hester Peirce, commissioner at the Securities and Exchange Commission was quoted, “we’ve seen other countries take a more productive approach to regulating crypto. Our approach has been to say no and tell people wait…we need to build a framework that is appropriate for this industry.”
In April, Pierce published an update to the Token Safe Harbor Proposal. The proposal would allow crypto network developers the ability to raise funds as initial coin offerings (ICOs) and offer a three-year grace period for the development stage of “functional or decentralized networks. In her statement regarding the proposal, Pierce remarked that her updates reflect “constructive feedback provided by the crypto community, securities lawyers, and members of the public,” while noting that more work is needed to provide regulatory clarity.
Pierce’s recent updates now include a requirement for developers to provide semi-annual development and block explorer to the SEC, and an exit report analysis provided by outside counsel analysis on the decentralized network.
Pierce posted her updated Token Safe Harbor Proposal to Github to solicit more collaborative feedback from the community. If the SEC continues with this approach to rulemaking in the space, we remain positive that thoughtful regulation will be passed to regulate digital assets that otherwise fall under the SEC’s purview under the Securities Act of 1933 and the Securities Exchange Act of 1943.