Crypto Regulation: FIT21 and the U.S. Landscape

The House recently passed the Financial Innovation and Technology for the 21st Century Act (“FIT21”). If FIT21 becomes law, it would:

More clearly define crypto asset regulatory boundaries for Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”), providing statutory definitions for “restricted digital assets” and “digital commodities.”
For the first time, give the CFTC plenary jurisdiction over spot trading in digital commodities, instead of the limited jurisdiction the CFTC now has over such spot commodities.
Provide for a “certification” process, through which a blockchain could be shown to “decentralized,” permitting the assets on such blockchain to be regulated as digital commodities, rather than securities.
Create new categories of SEC and CFTC registrants, providing a pathway for platforms to offer trading in both digital commodities and securities.
Provide for provisional registration to transition to the new framework, with a limited safe harbor from SEC enforcement actions.
Provide exemptions from regulation for certain enumerated types of decentralized finance (“DeFi”) activity.
Mandate joint rulemaking by the SEC and CFTC in certain areas of shared jurisdiction.

Key Takeaways