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US Lawmakers to Vote on FIT21 Crypto Regulation
Digital Asset Regulation | May 20, 2024
Image: Freepik
US lawmakers to vote by end of month on The FIT21 Act to establish a clear regulatory framework for digital assets
The Financial Innovation and Technology for the 21st Century Act (FIT21) is a crucial legislative effort to regulate the burgeoning digital asset industry in the United States. Passed out of committee in July 2023, the bill, known as (HR 4763), is now approaching a full floor vote in the House expected by the end of this month.
The FIT21 Act has garnered substantial bipartisan support, reflecting a broad consensus on the need for a structured regulatory framework for the crypto industry. However, the bill still faces significant hurdles, including passing the Senate and securing presidential approval. The current administration's cautious stance on crypto adds a layer of complexity, but the broad support suggests a reasonable chance of success.
See: Canada’s Proposed Mutual Fund Crypto Regulations 2024
On May 16, the Crypto Council for Innovation (CCI), representing major crypto industry groups and public companies like Coinbase (COIN) and Block (SQ), urged lawmakers in a letter of support to provide regulatory clarity and support the bill.
Why the FIT21 Act Matters
Regulatory Clarity
The FIT21 Act seeks to resolve the ambiguity surrounding the roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in regulating digital assets. By clearly defining the regulatory responsibilities, the bill aims to create a stable environment conducive to business operations and innovation.
See: Balancing Fintech Innovation and Regulation
The FIT21 Act is part of a broader legislative effort to regulate digital assets. For instance, Chairman McHenry’s Clarity for Payment Stablecoins Act also seeks to regulate stablecoin issuers through federal and state frameworks. Comparing these proposals highlights the comprehensive approach of the FIT21 Act in addressing various aspects of digital asset regulation, from market structure to consumer protection.
Enhanced Consumer Protection
One of the core components of the FIT21 Act is its focus on consumer protection. The bill mandates stringent security and transparency standards for digital asset platforms. These measures are designed to prevent incidents like the collapse of major exchanges such as FTX, ensuring that platforms operate with high levels of integrity and reliability. This focus on consumer protection is vital for building trust in the crypto ecosystem.
Potential Outcomes of the FIT21 Act
If the Bill Passes
- Passage of the FIT21 Act would likely lead to a more favorable investment climate for digital assets. Institutional investors would feel more confident entering the market, leading to increased capital flows and the potential for significant technological advancements.
See: 2024 Budget: Crypto ETFs & Registered Accounts Consultation
- With stringent security and transparency requirements, consumer confidence in the crypto market would be bolstered. This trust is essential for the widespread adoption of digital assets and for the long-term viability of crypto platforms.
- The US could position itself as a global leader in crypto regulation, setting a standard that other countries might follow. This leadership could enhance the competitiveness of US-based crypto businesses on the international stage.
If the Bill Does Not Pass
- The absence of a comprehensive federal framework could lead to a patchwork of state regulations, complicating compliance for crypto businesses operating across multiple jurisdictions. This fragmentation could further hinder the growth of the industry.
- Failure to pass the FIT21 Act would maintain the current state of regulatory ambiguity. This uncertainty could deter institutional investors and stymie the growth and innovation potential of the US crypto market.
See: Challenges in Global Crypto Regulations – Lessons from Dubai
- Without the enhanced consumer protection measures outlined in the FIT21 Act, risks to consumers would remain high. Incidents like the collapse of major exchanges could continue to undermine trust in the market.
Gary Gensler, SEC Chairman issued a lengthy warning of the risks about the bill:
"The crypto industry's record of failures, frauds and bankruptcies is not because we do not have rules or because the rules are unclear. It's because many players in the crypto industry don't play by the rules."
Outlook
The bill's progress through Congress will be closely watched as its passage would provide much-needed regulatory certainty, fostering innovation and economic growth while protecting consumers, especially given the current political climate. The upcoming 2024 presidential election could also influence its fate, as candidates may use the bill to appeal to tech-savvy and economically progressive voters. Crypto regulation is poised to be a defining issue in the 2024 election, reflecting broader debates about innovation, financial freedom, and regulatory oversight.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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