The FIT 21 Bill: A comprehensive regulatory framework for digital assets

On 16 May, a letter was signed by over 50 participants and groups from the digital asset industry. They sent it to the Speaker and Minority Leader of the U.S. House of Representatives, urging them to back a Bill (HR 4763, the Financial Innovation and Technology for the 21st Century Act or “FIT 21”). FIT 21 is expected to be debated and voted on this week.

The letter appeals to both major parties in the House to acknowledge that FIT 21 “establishes a comprehensive regulatory framework to protect consumers while addressing the unique structure of the U.S. digital assets market,” and that the U.S. “falls behind other major jurisdictions” in creating regulations for digital assets.

Part of the challenge for law-makers in the U.S. is the bifurcated nature of regulation in the U.S. Nominally, the Securities and Exchange Commission (SEC) regulates and oversees the equities markets and the Commodities and Futures Trading Commission (CFTC) regulates and oversees derivatives (including futures, swaps and certain options). Both of (or neither) the SEC and the CFTC have claimed jurisdiction over the digital assets market which has led to a number of concerns for U.S. market participants, not the least of which is the attempt by the SEC’s Chair, Gary Gensler, to seek to classify most (if not all) digital assets as “securities” in order to bring them squarely within the SEC’s purview. This strategy has not been entirely successful – as has been demonstrated by the court-ordered acceptance for launch of spot BTC exchange-traded products – but it has blown a cold wind over the U.S. markets and their participants.

Among other things, FIT 21 should make each of the CFTC’s and SEC’s jurisdictions clearer.

As an English lawyer, it is not within my purview to comment on U.S. laws or its effectiveness so far as they relate to domestic matters. All I will say is:

• It is good to have clear boundaries between SEC's and CFTC's jurisdictions;
• Draft sections 108 and 109 are about international cooperation and harmonisation – it is good to consult, coordinate and share information (but the deadline for making the rules and regulations in section 109 (360 days) is not very long if they want to reach or try international “harmonization”); and
• Some exemptions from the rules based on transaction size and other signs of a transaction being between “parties who can handle the risk” are fair in principle; and
• Some requirements in FIT 21 are similar to those in the EU’s MiCA.

Regarding the final point, my view of FIT 21 is that it is more similar to MiCA in approach - digital assets (and their derivatives) are a distinct category of financial instrument, with separate treatment -  than to the UK’s regulatory approach (which I favour more).