Congressmen Introduce Legislation Promoting Growth of Digital Token Business in the United States

Today, Rep. Tom Emmer (R-MN), Co-chair of the Congressional Blockchain Caucus and Ranking Member of the House Committee on Financial Services’ FinTech Task Force, introduced the Securities Clarity Act of 2020, which proposes amending federal securities laws to distinguish between investment assets that are part of an investment contract and securities. Simultaneously, Ranking Member Mike Conaway (R-TX), House Committee on Agriculture, introduced the Digital Commodity Exchange Act of 2020 (the DCEA), which proposes developing a federal framework for the prudential regulation of token trading platforms, among other things, under the CFTC’s supervision. The bills are intended to work in tandem to promote the growth of digital tokens and blockchain development in the United States by tackling challenges blockchain innovators are facing from different angles. Each bill is discussed in further detail below. Given its length and complexity, the Chamber has also developed a detailed summary of the DCEA.

Securities Clarity Act of 2020

One of the biggest issues impacting our industry today is whether digital tokens issued as part of investment contracts are themselves securities.  This is a legal issue promoted in our amicus brief in the case SEC v. Telegram – that digital tokens that are a part of an investment contract are not necessarily themselves “securities” under the federal securities laws.  The Securities Clarity Act amends the securities laws to make this clarification law by:  

  • creating a new term, “investment contract asset,” and excluding it from the definition of security; and
  • defining “investment contract asset” as “an asset, whether tangible or intangible, including assets in digital form sold or otherwise transferred, or intended to be sold or otherwise transferred, pursuant to an investment contract; and that is not otherwise a security….” 

In other words, digital tokens should not be deemed securities solely because they are the object or subject of an investment contract.  It is critical that digital tokens have their own legal analysis as to whether they are securities, and we support this effort to make that a reality.

Lewis Cohen, Co-founder of Chamber Member DLx Law, noted that the uncertain legal status of many digital assets hampers the growth of the infrastructure needed to facilitate the use of these assets for their intended purpose.  Cohen commented, “This bill would bring the U.S. into greater alignment with the regulatory approach taken in other major jurisdictions and will foster the development of blockchain technology here without compromising on investor protection when actual securities are sold or traded.”

"The Digital Chamber has been convening discussions on securities proposals like this among Members of Congress and industry stakeholders for years. Their input on this proposal and many others are vital to advancing support for emerging technologies and making sure they have a home here in the United States." - Congressman Tom Emmer

Digital Commodity Exchange Act of 2020

Another major challenge the industry faces is the current multi-faceted licensing regime. For example, to operate nationally, token trading platforms must obtain money transmission licenses in each state they wish to do business, a tedious and costly process. 

The DCEA seeks to reduce barriers for token trading platforms by supporting three primary objectives:

  • permitting token trading platforms, referred to as “digital commodity exchanges” or “DCEs,” to be supervised by the CFTC under a voluntary registration scheme, allowing DCEs to offer services nationally without obtaining a money transmission license in each state;
  • enabling trading of certain digital tokens offered as part of an investment contract “presale” by allowing CFTC-registered DCEs to list “presale” tokens that are not securities; and
  • creating a regulatory framework for DCEs to trade leveraged, financed, or margined transactions (“retail commodity transactions”) and gives the CFTC discretion to develop rules related to disclosure; recordkeeping; capital and margin; other financial resources; reporting; business conduct; and documentation for these activities.

With over two dozen members who are money transmitters, CFTC-regulated entities, or both, the Chamber has extensively considered the impact of the DCEA on state-regulated money transmitters as well as federally regulated DCMs, SEFs, and DCOs. We support efforts to streamline and refine the regulation of money transmitters, including token trading platforms, to bring them more in line with 20th century digital realities.  Creating such a structure requires careful consideration to create a workable solution for both money transmitters as well as CFTC-regulated entities, which operate within a complex regulatory framework. As such, the Chamber remains interested in further exploring the details around the integration of this legislation into the regulated commodities marketplace while solving the complex yet limited state-by-state licensing regime.