On June 7, highly anticipated federal legislation aiming to regulate the U.S. digital asset markets was introduced in the U.S. Senate by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY).1 The ambitious draft bill, dubbed the “Responsible Financial Innovation Act” (RFIA), is multifaceted, addressing a number of issues arising in the rapidly expanding digital asset markets. Areas addressed by the legislation range from taxation of digital assets and energy consumption to core financial markets matters such as federal regulatory jurisdiction over digital asset exchanges and stablecoin reserve requirements. Each specific element of this proposed legislation will surely be analyzed in the weeks to come, and will likely evolve with further input from legislators, regulators, and the public. But the clear winner under RFIA – at least in terms of being designated as the federal agency with the primary authority over the burgeoning digital asset markets – is the Commodity Futures Trading Commission (CFTC).

RFIA would endow the CFTC – a relatively small federal agency that regulates U.S. derivatives markets – with the authority to regulate and oversee the digital asset spot markets (i.e., transactions involving digital asset commodities), essentially encompassing all digital assets that are not clearly securities (which are subject to regulation and oversight by the Securities and Exchange Commission (SEC)). This assignment of authority would be unprecedented for the agency, as the CFTC, though it has long had the authority to bring enforcement actions to combat fraud and manipulation in commodity spot markets, has never had the power to adopt new rules and impose them on those markets.

While RFIA still likely faces a long, windy path toward becoming law, the framework presented by it has been generally well received, including by the CFTC itself. The day after the bill was introduced, CFTC Chair Rostin Behnam, who has been a particularly vocal advocate of his agency’s ability to oversee the digital asset commodity markets, signaled his general approval of RFIA’s proposed framework and reaffirmed his conviction that the CFTC is up to the task.2

Specifically in relation to the CFTC, RFIA would:

  • Grant the CFTC (largely) exclusive jurisdiction over most digital assets – RFIA would grant the CFTC “exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset in interstate commerce, including ancillary assets.”
  • Importantly, RFIA would establish a new class of digital assets, which the bill refers to as “ancillary assets.” The bill attempts to differentiate “ancillary assets” (to be classified as commodities regulated by the CFTC) from “securities” (which fall under the SEC’s purview). The new “ancillary asset” class would not encompass more traditional securities, including equity interests in an issuer, profit or revenue share interests, and entitlements to dividends; these would remain under the SEC’s jurisdiction. However the bill adopts the view that digital tokens or other “ancillary assets” may be offered alongside securities (e.g., equity interests in a company developing a crypto project), without the ancillary assets themselves constituting securities.
  • While ancillary assets would be subject to the exclusive jurisdiction of the CFTC, the issuers of securities associated with them would have disclosure requirements subject to the SEC’s jurisdiction.
  • The classification of “ancillary assets” as commodities rather than securities is a “rebuttable presumption” – which can be challenged in federal court. Thus a court could determine that there is not a substantial basis to treat the ancillary asset as a commodity, in which case it would not escape regulation as a security.
  • Authorize the CFTC to oversee digital asset exchanges – RFIA would add a new section to the Commodity Exchange Act outlining the process of registering with the CFTC as a digital asset exchange, and governing the terms of trading on such exchanges. Registration as a digital asset exchange would be voluntary, and exchanges that choose to register would be subject to RFIA’s “Core Principles for Digital Asset Exchanges.”
  • Direct the CFTC and SEC to study the creation of a “self-regulatory organization” that would play “a complementary role, working with regulators to allow them to be more nimble and efficient, while maintaining strong supervision.”

As noted above, RFIA also attempts to implement a regulatory framework for a class of digital assets that has recently garnered significant public attention – stablecoins. While this post does not include a detailed analysis, it is worth noting that the bill would require 100 percent reserves of “high-liquid assets” for all outstanding liabilities of stablecoin issuers, and require certain disclosures. The bill also would allow banks and credit unions to issue payment stablecoins.

Time will tell whether and how many of the provisions proposed by RFIA will survive and become law. Questions about the CFTC’s capacity to take on this herculean task, given its relatively limited resources, will no doubt be raised. On that score, RFIA contemplates a regime that would allow the CFTC to collect fees from registered entities for activities associated with regulation of the digital asset markets in order to offset the costs of such regulation. RFIA also reserves the ability to fund the CFTC’s digital asset markets oversight through appropriations. Moreover, given its recent success in establishing a regime for regulating the vast swaps market and its long history working with complex derivative products and closely collaborating with other agencies, including the SEC, the CFTC appears to be particularly well suited to administer a novel regulatory scheme aimed at both regulating and fostering innovation in U.S. digital asset markets.

Finally, recent reports indicate that another digital asset regulation-focused bill will be introduced in the coming weeks, this one authored by Senators Debbie Stabenow (D-MI) and John Boozman (R-AR), the chair and ranking member of the Senate Agriculture Committee (the Senate committee with primary jurisdiction over the CFTC) respectively.3 This legislative proposal would apparently be more narrowly focused than RFIA, homing in specifically on empowering the CFTC to oversee digital asset spot markets. The Stabenow–Boozman effort is yet another sign that the CFTC is being viewed as the regulator of choice for the U.S. digital asset markets by prominent lawmakers from both sides of the aisle.