Six key points to understand the draft digital asset market framework of the US Financial Services Commission

Original source: Official website of the U.S. House of Representatives

Original compilation: Jordan, PANews

On June 1, Hong Kong's "Guidelines Applicable to Virtual Asset Trading Platform Operators" came into effect. Just two days later, Patrick McHenry, Chairman of the Financial Services Committee of the United States House of Representatives, and Glenn "GT" Thompson, Chairman of the House Agriculture Committee, jointly released a figure The draft asset market structure discussion aims to provide a statutory regulatory framework for digital assets to further clarify regulatory gaps, promote innovation, and provide adequate consumer protection. This article is the official summary of the Digital Asset Market Structure Discussion Draft issued by the Financial Services Committee of the U.S. House of Representatives. It provides a comprehensive overview of digital asset classification, regulatory responsibilities, innovation and coordination, and regulatory transition measures from six aspects. etc., as follows:

The current U.S. digital asset regulatory framework hinders innovation and fails to provide adequate protection for consumers. The U.S. House Financial Services Committee and the House Agriculture Committee are addressing these issues by establishing a functional framework for market participants and consumers. The functional framework will provide digital asset firms with regulatory certainty and fill the regulatory gap that exists between the two major agencies, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

The draft discussion draft of the digital asset market structure intends to give the U.S. Commodity Futures Trading Commission jurisdiction over digital commodities, and will also clarify the U.S. Securities and Exchange Commission’s jurisdiction over digital assets based on “investment contracts”. Not only that, but the bill also sets out the process by which the United States allows digital commodities to be traded in the secondary market, provided that the digital commodity is initially offered as part of an investment contract. SEC-registered entities enforce strong client protections.

1. Clearly classify whether digital assets are securities or commodities

The Digital Asset Market Framework Discussion Draft is intended to build on the existing exemption system for offering and selling digital assets under investment contracts, and also includes an information disclosure system to address potential risks associated with digital assets. According to the relevant exemption policy, digital asset issuers need to prove that their digital assets operate on a decentralized network and meet specific disclosure requirements. The bill stipulates that digital assets can be considered digital goods if certain conditions are met, subject to the network being functioning properly and considered decentralized.

In addition, the bill also clarifies the definitions of "decentralized network" and "functional network" and provides a certification process, according to which digital asset issuers can prove to the US Securities and Exchange Commission that the network related to digital assets is decentralized. centralized. If the U.S. Securities determines that the certified digital asset issuer does not comply with the Act, it may not be recognized, but must provide a detailed analysis of the reasons for the refusal.

2. Regulatory Responsibilities of the SEC

The "Draft Discussion on the Digital Asset Market Framework" pointed out that digital asset trading platforms should be able to register as an alternative trading system (ATS). If a platform trading digital assets is exempted and can operate as an alternative trading system, then the US Securities and Exchange Commission will Registration applications for this platform cannot be rejected. The bill would also allow alternative trading systems to offer digital goods and use stablecoins for payment on their platforms, and would require the SEC to amend its rules to allow broker-dealers to custody digital assets subject to certain requirements. On the other hand, the bill will require the US Securities and Exchange Commission to develop rules to ensure that certain digital asset regulations adapt to the development of modern markets.

3. Regulatory responsibilities of the U.S. Commodity Futures Trading Commission

The "Draft Discussion Draft of the Digital Asset Market Framework" proposes that the United States will create a Digital Commodity Exchange (DCE); framework similar to the existing trading framework for designated contract markets and swap execution facilities in the US Commodity Exchange Act (CEA). For a registered digital commodity exchange, it is necessary to comply with the requirements of the Digital Asset Market Framework Discussion Draft, as well as certain long-standing core principles of the U.S. Commodity Exchange Act and U.S. Commodity Futures Trading Commission regulations, such as trading activity monitoring, prohibition Abuse of trading behavior, minimum capital requirements, public reporting of trading information, trading conflicts of interest, governance standards and network security, etc., digital commodity exchanges must also be registered with the American Futures Association, and if they provide services directly to customers, they must abide by the American Futures Association customer protection rules.

It should be noted that if a "digital commodity" needs to be listed, the digital commodity exchange must prove to the US Commodity Futures Trading Commission that the relevant digital commodity will not be manipulated before the transaction is launched, and provide usability, structure, function and public information at the same time.

The "Draft Discussion on the Digital Asset Market Framework" also proposes to create a framework for digital commodity brokers (DCB) and digital commodity dealers (DCD). Since they provide services directly to customers, both digital commodity brokers and digital commodity traders must be in NFA is registered and meets regulatory business conduct requirements related to minimum capital, fair dealing, risk disclosure, advertising restrictions, conflicts of interest, record keeping and reporting, daily trading records, and employee fitness standards.

The proposed bill also proposes that customer asset protection needs to be strengthened on the basis of existing commodity market requirements imposed on futures commission merchants (FCMs). Relevant custodians must also be subject to minimum regulatory and comprehensive regulatory standards set by the U.S. Commodity Futures Trading Commission. In addition, when futures commission merchants act as counterparties, the bill clearly requires futures commission merchants to provide bankruptcy protection for clients.

4. Regulatory coordination

The Digital Asset Market Shelf Discussion Draft would allow a single entity to obtain multiple licenses from the CFTC, depending on the nature of the services the entity performs, but would not allow exchanges to register directly as dealers. Additionally, the bill would allow certain entities to dual-register with the CFTC and the SEC to facilitate trading of multiple types of digital assets.

V. Innovation and Coordination

The Digital Asset Market Shelf Discussion Draft outlines the work of the SEC and LabCFTC to jointly establish an Innovation and Financial Technology Strategy Hub (FinHub), which will serve as the information board for the Financial Technology (FinTech) Innovation Council A resource center and service forum to help fintech innovators gain greater access to the CFTC, which in turn allows them to better understand the CFTC regulatory framework.

The bill also proposes the establishment of a Joint Advisory Committee on Digital Assets jointly composed of the SEC and the CFTC, which will consist of 20 market participants who will report to the SEC and CFTC Provide advice related to digital assets. The bill requires the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission to conduct joint research on decentralized finance, and requires the U.S. Department of Commerce to consult with the White House Office of Science and Technology, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission to conduct research on non-fungible digital assets. (NFT) for research.

6. Regulatory Transition

The "Draft Discussion Draft of the Digital Asset Market Framework" mentioned that relevant entities will be provided with a transition period to ensure that entities can "temporarily comply" with the regulations of the US Securities and Exchange Commission and the US Commodity Futures Trading Commission. At the same time, the bill requires the US Commodity Futures Trading Commission to formulate final rules to conduct comprehensive supervision of the market. Existing digital assets are eligible for "safe harbor" protection, and these digital assets are allowed to be traded during the period protected by the "safe harbor" until the US Securities and Exchange Commission and the US Commodity Futures Trading Commission issue a notice to the trading platform that it is clear that the relevant digital assets are not digital goods.