What is the "21st Century Financial Innovation and Technology Act"

The “Financial Innovation and Technology for the 21st Century Act” (FIT21), proposed by Republican members of the House Financial Services Committee and the Agriculture Committee on July 20, 2023, was passed by votes in two House committees on July 26 and 27, respectively. The bill aims to establish a regulatory framework for the digital asset market in the United States, provide clear rules for market participants, and protect investors and consumers.

The sponsors of the “Financial Innovation and Technology for the 21st Century Act” have attracted significant attention, including House Agriculture Committee Chairman Glenn “GT” Thompson and House Financial Services Committee Chairman Patrick McHenry. The bill has garnered support from Republicans and crypto advocates. Patrick McHenry publicly stated that this is the first time the committee has revised legislation on cryptocurrencies and emphasized the importance of preventing the U.S. from falling behind other countries in crypto regulation. Coinbase CEO Brian Armstrong also publicly supported the bill before the vote, believing it to be a vote to protect cryptocurrencies, American innovation, and security.

Clarifying CFTC and SEC Jurisdiction

The bill advocates for joint management of digital assets by the CFTC and SEC, with the CFTC taking the lead and the SEC providing support. The bill classifies digital assets into digital commodities, restricted digital assets, and payment stablecoins. Digital commodities are managed by the CFTC, while restricted digital assets are managed by the SEC. Payment stablecoins can be traded in venues regulated by the SEC and CFTC, but neither agency has authority to regulate stablecoins or their issuers.

What is a digital commodity? The bill stipulates that when a digital asset’s related blockchain network meets the following two conditions, the asset is recognized as a digital commodity: 1) functional network 2) decentralization. A functional network means digital assets can be used for value transfer and storage, participate in services or applications, or participate in governance on that network. Decentralization means no individual or entity can unilaterally control the blockchain. If a digital asset does not meet the criteria for a digital commodity, it is considered a restricted digital asset.

Similarly, the bill divides intermediary institutions into digital commodity intermediaries and digital asset intermediaries. Digital commodity intermediaries are regulated by the CFTC, while digital asset intermediaries are regulated by the SEC.

Information Disclosure and Consumer Protection

For digital assets and blockchain systems related to digital assets, the bill requires disclosure of source code, transaction records, economic models, development plans, relevant entities and personnel, risk factors, and more.

For intermediaries, before providing services, they must prove to the CFTC that they are not involved in market manipulation and register with a specific futures association. After registration, intermediaries must meet various requirements during operation, including compliance with business conduct standards, minimum capital requirements, ensuring fair trading, segregating customer assets, and disclosing operational status, ledger records, conflicts of interest, etc. Violations will result in penalties from regulatory authorities.

Assisting activities do not require registration with regulatory agencies

The bill explicitly states that personnel involved in auxiliary activities related to blockchain operations, such as network validation, node management, providing API/RPC services, development, maintenance, or management of blockchain systems, do not need to register with regulatory agencies. **$BTC **$ETH **$BCH **