What is the "Responsible Financial Innovation Act"

The Responsible Financial Innovation Act was first introduced on June 7, 2022, by Republican Senator Cynthia Lummis and Democratic Senator Kirsten Gillibrand, and an updated version was released on July 12, 2023. Its main goal is to create a regulatory framework for digital assets, clarify the jurisdiction of the CFTC and SEC, address issues such as stablecoin issuance and digital asset taxation, protect consumers, and provide certainty and clarity for the industry.

The Responsible Financial Innovation Act was initially proposed after the Terra collapse, which is why it emphasizes regulation of stablecoins. However, at that time, the bill did not garner much support. After the FTX explosion, the sponsors Cynthia and Kirsten significantly revised the bill. The revised version places greater emphasis on consumer protection and clarifies the regulatory dominance of the CFTC over the SEC.

To learn more about the story of FTX and SBF, please read: Who is SBF — From Luxury Homes and Yachts to Silver Bracelets and Iron Fences

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Clarifying the Jurisdiction of the CFTC and SEC

The bill considers most cryptocurrencies as commodities rather than securities, including BTC and ETH, which are regulated by the CFTC. However, when digital assets have features similar to debt or equity, they are regarded as securities and regulated by the SEC. Digital assets are considered securities if they meet any of the following conditions:

Debt or equity

Liquidation rights

Rights to receive interest or dividends

Rights to profit or income solely from others’ management

Any other economic benefits within a company

Under this bill, digital assets are regarded as commodities, which do not need to be fully decentralized, and can also be certified as commodities.

Information Disclosure and Consumer Protection

After incidents like Terra and FTX, the Responsible Financial Bill emphasizes strong consumer protection, including requirements for information disclosure, reserve proof, advertising standards, and lending restrictions.

Digital asset exchanges must register with the CFTC and comply with disclosure requirements.

Issuers of digital assets are required to periodically disclose information to the SEC to demonstrate the commodity nature of the digital assets.

Intermediaries must disclose significant project changes and operational details to users, including asset custody, bankruptcy procedures, fee structures, and dispute resolution.

Establishing Stablecoin Issuance Policies

The bill imposes strict requirements on stablecoin issuance, which can only be issued by federal/state depository institutions and must be regulated by federal/state authorities. Additionally, issuers are required to maintain 100% high-quality asset reserves and publicly disclose the reserves backing the stablecoins and their value. The bill also proposes that algorithmic stablecoins should be regulated by the CFTC.

Adjusting Cryptocurrency Taxation

The bill clarifies the taxation policies for digital assets and offers small-scale tax incentives for cryptocurrency holders. Furthermore, it proposes measures to facilitate crypto services for non-U.S. persons in the United States. **$CFX **$LTC **$ETH **