On July 12, U.S. Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) reintroduced legislation, titled the Responsible Financial Innovation Act that would establish a comprehensive regulatory framework for crypto assets. This proposed bill expands on the bill the senators introduced in 2022 by adding new consumer protections and safeguards to further strengthen the industry against fraud and bad actors, among other additions.

If passed, the Responsible Financial Innovation Act would:

  • Create definitions for crypto assets, payment stablecoins, smart contracts, distributed ledger technology, and similar important industry terms;
  • Allocate enforcement authority for new crypto asset consumer protection requirements amongst the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), banking agencies, and a new Customer Protection and Market Integrity Authority;
  • Create a registration framework for crypto asset exchanges to register with the CFTC to conduct trading activities;
  • Establish core principles, rulemaking, custody, customer protection, prevention of market manipulation, information-sharing, and preemption standards;
  • Require all crypto asset intermediaries to maintain proof of reserves and undergo an annual verification, and give the Public Company Accounting Oversight Board authority to enforce these provisions;
  • Require customer agreements to be written in plain language, and that these agreements and subsequent changes be filed in a public database;
  • Create mandatory notice requirements for customers;
  • Impose basic notice and risk management standards for crypto asset lending and ban rehypothecation;
  • Require customer agreements to specify the moment when a transaction is finally settled between an intermediary and a customer as a matter of law;
  • Create advertising standards for crypto asset marketing, including a duty to be fair and balanced, not be misleading, and required disclosures, including compensation;
  • Require that crypto asset intermediaries report cybersecurity breaches in a timely manner, and require the CFTC and SEC, in consultation with other agencies, to develop cybersecurity standards for exchanges, brokers, and other intermediaries;
  • Require the Treasury Department, CFTC, and SEC to adopt financial institution examination standards relating to the prevention of money laundering and sanctions evasion;
  • Provide that a payment stablecoin issued by a depository institution (bank/credit union) is neither a commodity, nor a security;
  • Establish crypto asset exchanges as “financial institutions” under the Bank Secrecy Act;
  • Authorize the SEC and CFTC to charter customer protection and market integrity authorities to supervise crypto asset intermediaries and to enforce the law;
  • Establish a registration procedure for market integrity authorities with the SEC and CFTC, and provide rulemaking standards;
  • Create supervisory and regulatory standards for crypto asset intermediary operations;
  • Require all issuers of payment stablecoins to become depository institutions supervised by a federal/state regulator and to: (1) maintain high-quality liquid assets valued at 100% of the face value of all outstanding payment stablecoins; (2) provide public disclosures on the assets backing the stablecoin and their value; and (3) have the ability to redeem all outstanding payment stablecoin at par in legal tender;
  • Permit the Office of the Comptroller of the Currency to charter a National Bank Association for the exclusive purpose of issuing a payment stablecoin, and establish permissible activities, tailored capital requirements, community contribution requirements, as well as a recovery and resolution plan; and (among other requirements)
  • Require federal financial regulators to provide interpretive guidance on a matter within the jurisdiction of the regulator within six months of a request.

Troutman Pepper will continue to monitor the progress of the Responsible Financial Innovation Act and report on any relevant updates as they happen.

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Photo of Ethan G. Ostroff Ethan G. Ostroff

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and state laws.

Photo of Addison Morgan Addison Morgan

Addison is an associate in the firm’s nationally recognized Consumer Financial Services Practice Group. He has represented several of the nation’s preeminent financial institutions in litigation arising under the Fair Credit Reporting Act (FCRA), the Telephone Consumer Protection Act (TCPA), the Fair Debt…

Addison is an associate in the firm’s nationally recognized Consumer Financial Services Practice Group. He has represented several of the nation’s preeminent financial institutions in litigation arising under the Fair Credit Reporting Act (FCRA), the Telephone Consumer Protection Act (TCPA), the Fair Debt Collection Practices Act (FDCPA), the FTC Holder Rule, and other consumer protection state analogs.

Photo of Trey Smith Trey Smith

Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice. He focuses his practice on helping financial institutions and consumer facing companies navigate regulatory investigations and resulting litigation. He has experience litigating the Consumer Financial Protection Act, the FTC Act…

Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice. He focuses his practice on helping financial institutions and consumer facing companies navigate regulatory investigations and resulting litigation. He has experience litigating the Consumer Financial Protection Act, the FTC Act, the Truth in Lending Act, state UDAAP statutes, and other consumer protection laws.