The US Republican Party's Fit21 encryption bill was approved to enter the full House of Representatives

Author: BitpushNews Mary Liu

**On the afternoon of July 27, New York time, the second day after the Financial Services Committee of the US House of Representatives passed the "Financial Innovation and Technology for the 21st Century Act: Fit21", the House Agriculture Committee Members gave the green light to the bill, which will go to the full House for a vote in the near future.

Glenn Thompson, chairman of the Pennsylvania Agriculture Committee, said at Thursday's hearing:** "This legislation marks the House Agriculture Committee's efforts to create a much-needed regulatory framework for digital assets that protects consumers and investors while promoting U.S. financial and leadership in technology.” **

The new bill clarifies the regulatory framework

The 212-page bill, co-authored by Republican members of the Agriculture Committee and the Financial Services Committee, aims to address regulatory gaps by creating a framework for “specific risks associated with activities related to different digital assets.” The legislation was introduced last week by Rep. French Hill, chair of the inaugural Subcommittee on Digital Assets, Financial Technology and Inclusive Financial Services.

**The act gives the Commodity Futures Trading Commission (CFTC) jurisdiction over digital commodities, clarifies the jurisdiction of the U.S. Securities and Exchange Commission (SEC), and establishes a process for digital assets that would otherwise be considered securities to be sold as commodities. **

**The bill also stipulates the conditions for digital assets to be considered commodities, of which decentralization is the main requirement, and digital asset commodities can be sold on SEC-registered digital asset trading systems. Market participants must comply with new, more comprehensive disclosure requirements and can register with both agencies. **

Disclosure requirements include providing the project’s source code, and the legislation provides clear guidelines for the classification of digital assets, emphasizing that the existence of an investment contract does not automatically classify a token as a security.

According to a bill fact sheet published by the co-sponsors,** around 70% of all crypto tokens are better suited to be considered commodities than securities. **In order to act as a digital asset intermediary, the agency must examine firms seeking to register with the SEC as a broker-dealer or alternative trading system.

These agencies will also need to work with foreign regulators to develop consistent regulatory standards. The Government Accountability Office needs to complete a study on non-fungible tokens (NFTs) and how they fit into traditional markets.

Democratic Obstacles

Representatives French Hill and Dusty Johnson sent a letter to SEC Chairman Gary Gensler the day before the bill was proposed, criticizing the agency's so-called "mandatory regulation" of the encryption industry.

Democratic members specifically raised concerns about the bill’s registration process for cryptocurrency broker-dealers, as not all Agriculture Committee members endorsed the bill.

Rep. Jonathan Jackson of Illinois introduced an amendment that would remove an amendment to the bill that would have exempted companies that had filed “notices of intent to register” from certain enforcement actions by the Securities and Exchange Commission (SEC). "It would be absolutely unfair to our constituents and retail investors to allow 'registration of intent' before these regulations are finalized, and this industry needs to be fully regulated and supervised," Jackson said.

Glenn Thompson countered that "notices of intent" allow firms that meet client money handling, disclosure and recordkeeping requirements to operate on a limited basis at the end of a potentially years-long registration approval process. The bill also allows the CFTC to take enforcement action against companies that have completed the "notice of intent" process.

Jackson's amendment was not approved by the committee.

However, the committee did support an amendment proposed by Rep. Yadira Caraveo to amend the “Notice of Intent” provision. Under the amendment, these companies are obliged to inform consumers that they have not been fully approved.

Innovation was the subject of hearings on the Fit21 bill, which supporters argue will put the U.S. at the center of potentially revolutionary emerging technologies. ** Rep. Tom Emmer, R-Minnesota, said: "America's leadership in the global economy is driven by our ability to use innovation to make markets and communications more efficient."

** Opponents argue that innovation for innovation's sake is dangerous. ** Congressman Brad Sherman (D-Calif.) questioned whether there was any innovation in the crypto industry, saying in the hearing: "I don't believe [Satoshi Nakamoto] is innovative."

The CFTC is popular with the industry for being more open to crypto companies than the SEC, which Democrats say could lead to future fraud. However, Republicans who support the bill argue that the additional $120 million in funding recently approved by the Agriculture Committee will give the CFTC more budget to complete regulatory work.

Therefore, there is still uncertainty about whether the bill can pass the Democratic-controlled Senate.