Home > Blog Posts > A Comprehensive Bi-Partisan Approach to Cryptocurrency: New Senate Bill Seeks to Establish Digital Asset Framework and Legal Oversight
Jun20 - 22

A Comprehensive Bi-Partisan Approach to Cryptocurrency: New Senate Bill Seeks to Establish Digital Asset Framework and Legal Oversight

Against the backdrop of a plunging cryptocurrency market, Senators Cynthia M. Lummis (R-Wyo.) and Kirsten Gillibrand (D-NY) have unveiled their “Responsible Financial Innovation Act” (“RFIA”), a bill intended to establish a comprehensive regulatory framework for digital assets. As discussed previously, federal and state efforts to enact legislation on digital assets of all kinds are not new. Reportedly, over fifty bills have been introduced in Congress, and legislation affecting cryptocurrency and other digital assets have been introduced in thirty-seven states during the 2022 legislative session alone. Also not new are regulator warnings about current gaps in the current framework that could impact national security, anti-money laundering, cybersecurity, and investor protection (see Bates post on SEC Chair Gary Gensler’s recent remarks at FINRA’s annual conference). What makes the proposed RFIA different is that it is bipartisan, it is comprehensive across multiple regulatory agencies, and it contains clear definitions on digital assets that attempt to clarify legal requirements and oversight. Moreover, the bill unexpectedly shifts purported jurisdiction from the SEC to the CFTC. Here we look at the outlines of the bill and consider early market reaction.

The Market

According to CoinMarketCap, a price-tracking website for cryptoassets, the market capitalization for crypto assets fell below $1 trillion from nearly $3 trillion at its peak last November, and $2.25 trillion at the beginning of the year. Long term crypto-players are calling this period an expected “crypto-winter” and urge investors to stay the course. The CEO of Binance, Changpeng Zhao, said the company would be doubling down on its hiring despite the downturn. The Winklevoss brothers, founders of the crypto-exchange Gemeni, sent a letter to their “fellow Astronauts” on why the exchange would be downsizing, while arguing that: “we ultimately see [the current market conditions] as an opportunity to double-down on our strongest ideas and customer-centric products so that we may be the catalyst of innovation coming out of these leaner times that will help fuel the next cycle of crypto growth and adoption.”

These voices are in the minority. The financial news suggest otherwise. . Here are just a few headlines: “Crypto exchanges slash jobs as market turmoil triggers trading downturn;” “Bitcoin Drops Toward $20K Amid Contagion Risks in Crypto Markets;” “BlockFi, Crypto.com Slash Jobs as Market Meltdown Worries Swirl.”

The Lummis-Gillibrand Legislation

Against this downturn, the timing of the Lummis-Gillibrand legislation is notable. The RFIA has been called an “industry-friendly” bill. That is due primarily to the legislators’ decision to give primary regulatory oversight to the CFTC over digital asset spot markets (rather than the SEC). The bill does this by defining types of digital assets (e.g., virtual currencies, stablecoins, ancillary assets) in order to designate oversight by commodities, securities and banking regulators. The Senators provided a fact sheet on the provisions of the bill. Here are several of the key provisions:

Oversight by the Commodities Futures Trading Commission

The bill would give the CFTC exclusive spot market jurisdiction over all fungible digital assets which are not securities. The bill requires a trading facility to register with the CFTC as a digital asset exchange and requires such digital asset exchanges to set rules (compliance, recordkeeping and reporting, and terms and conditions for trading and processing) and to make and enforce additional rules on margined, leveraged or financed transactions. Additional provisions of the bill restrict digital asset exchanges from offering any derivative products for sale. The bill also defines stablecoins issued by a depository institution as neither a commodity nor a security.

Digital Assets that are Commodities vs. Securities

The bill makes a distinction between digital assets that are commodities and those that are securities “by examining the rights or powers conveyed to the consumer, giving digital asset companies the ability to determine what their regulatory obligations will be and giving regulators the clarity, they need to enforce existing commodities and securities laws, bringing digital assets into the regulatory perimeter from the current vacuum.”

The bill does this by creating a new category called “ancillary assets” which are digital assets that “are not fully decentralized, and which benefit from entrepreneurial and managerial efforts that determine the value of the assets, but do not represent securities because they are not debt or equity or do not create rights to profits, liquidation preferences or other financial interests in a business entity.” These assets will still be considered commodities under the jurisdiction of the CFTC but, once recognized as an ancillary asset, issuers will be required to make semi-annual tailored disclosures to the SEC in order to “ensure [that] consumers have the information they need to make informed financial decisions.” The Senators contend that this approach “balances investor protection, the need to provide information to the marketplace and legal certainty for innovators.” The bill establishes procedures which allow issuers of these ancillary assets to file a certification with the SEC to cease these disclosures after the assets become completely decentralized. Further, the bill requires the SEC to issue guidance on continuing control, cybersecurity, custody, and customer protection rules on digital assets.

State Money Transmission Laws and Interagency Coordination

As proposed, the bill would require state bank supervisors to adopt uniform standards on the treatment of digital assets under money transmission laws “within 2 years.” The Senators provide that “if a state has not substantially adopted these uniform standards, the Consumer Financial Protection Bureau is authorized to adopt uniform standards for that state which are predominant amongst the other states.” The bill promotes and establishes rules “for the privacy and confidentiality of information shared between State and Federal financial regulators,” and creates an “interstate sandbox” which “permits a financial company operating in an existing state financial technology sandbox to do business across state lines upon approval of the appropriate State and Federal regulator.”


The bill provides an exclusion of up to $200 per transaction from a taxpayer’s gross income on use of virtual currency for payment for goods and services. It also “declares that digital assets obtained from mining or staking activities do not form part of a taxpayer’s gross income until the disposition of those assets. The bill requires the IRS to issue guidance on a host of issues including, among others, “merchant acceptance of digital assets, digital asset mining and staking, charitable contributions of digital assets and the legal characterization of payment stablecoins as indebtedness.” It also requires the Government Accountability Office to analyze the risks of retirement investing in digital assets.

Stablecoins and Consumer Protection

The bill requires all issuers of stablecoins to back the face value of outstanding stablecoins at 100%; to be able to redeem all outstanding stablecoin “at par in legal tender;” and to publicly disclose the assets backing the stablecoin. The bill anticipates and allows the Office of the Comptroller of the Currency to “charter a National Bank Association for the exclusive purpose of issuing a payment stablecoin.” The bill also requires new guidance on sanctions compliance to be developed by the Office of Foreign Assets Control.

Two provisions stand out on additional consumer protections. First, the bill requires issuers of digital assets to disclose information in customer agreements. These disclosures include “asset treatment in bankruptcy, risks of loss, applicable fees, redemption and more.” Second, the bill requires providers of services to give customers “information regarding the source code used for each digital asset and the legal treatment of each asset.” That will be an interesting debate.

The bill also includes several provisions affecting banking law including codifying common law principles on digital asset custody for depository institutions; “underscor[ing] that existing law requires the Federal Reserve banks to make available payment, clearing and settlement services to any depository institution chartered under State or Federal law;” and requiring that the Federal Financial Institutions Examination Council adopt examination standards relating to the digital asset activities of depository institutions, within 18 months. These are all highly complex directives.


The Lummis-Gillibrand legislation is complicated. (Only a handful of key provisions were highlighted above.) The attempt to wrap all these issues under one comprehensive bill is an impressive effort, and may in the end, be the only way to address all the competing interests, many of which would likely be fought in to-be-developed regulation and guidance. The willingness to buck conventional thinking and to reconsider which agency should oversee the market will certainly garner significant pushback. (It already has. See this recent interview with SEC Chair Gensler.)

While the complexity of the crypto legislation and the current environment in Congress assures that the bill will not become law this year, all indications are that the bill is the starting point to a robust conversation about control and oversight. Bates will keep you apprised.

About Bates Group’s MSB, FinTech and Cryptocurrency Services

Bates Group’s MSB, FinTech and Cryptocurrency practice offers guidance and services for fintech and cryptocurrency firms. Our subject matter experts work directly with firms and counsel to design and implement policies to ensure they are AML-compliant.

Bates Group’s MSB and AML Teams also implement, manage, and maintain Money Transmitter Licensing processes and engage clients with BSA/AML/OFAC Program Development, Risk Management, Training, Advisory Services, and Independent Reviews. We provide practical guidance for obtaining and maintaining money transmitter licenses, identifying state requirements, coordinating with state regulators, submitting state reports, identifying risk, detecting suspicious or unusual activity, and preventing exposure associated with money laundering and terrorist financing.





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