The state of California is in the process of considering a landmark bill that could finally provide clarity to cryptocurrencies and the obligations of companies operating in the space.
More Legal Clarity for Cryptocurrencies
The new bill is an amendment to the state’s existing securities laws, and it could potentially provide additional clarity concerning crypto companies and the state of the assets they deal with them.
The California House has had the bill in front of it for a while. Titled the Cryptocurrency Act of 2020, it was first presented in February by House Majority Leader, Ian Calderon (D). Thursday’s filing, however, amends it to include several provisions.
Initially, the bill’s first draft set out to define and categorize digital assets and the securities agencies that would be charged with regulating them. According to the bill, the digital assets would be categorized into three – cryptocurrencies, crypto commodities, and crypto-securities.
The bill’s first draft also defined the securities agencies to regulate digital assets as the “Federal Digital Asset Regulator.” Per the proposition, this regulatory duty would be limited to three institutions – the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Securities and Exchange Commission (SEC).
The aforementioned agencies would be required to publicly announce all required government documentation that any individual or institution would need to engage before they can facilitate digital asset trading services.
However, the bill’s new draft has now proposed the exclusion of some digital assets which could not be defined as securities. Per the report, all digital assets which presumptively didn’t require “investment contracts” would be excluded from regulations by the aforementioned institutions.
The bill argues that according to the Corporate Securities Law of 1968, corporate securities would first need to fall under the definition of “an offer or sale of securities” before they can be regulated. The proposition also states that digital securities that don’t fall under this description should be exempted.
The California bill falls against a backdrop of government debates all over the world on how to define cryptocurrencies and regulate the sector. In addition to crypto classifications, the bill also notably requires that the FinCEN trace all crypto transactions to ensure Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) compliance.
American Security Laws and Cryptocurrencies
While California is moving to improve crypto clarity, the same can’t especially be said for the federation itself. The consistent rise in the use of cryptocurrency by private individuals and institutions has brought a significant amount of policing by securities agencies over the years, and this has, in more ways than one, stifled growth in the industry.
The SEC has particularly built a reputation for strictly going after Initial Coin Offerings (ICOs). The agency’s campaign against crypto firms raising money by offering digital tokens has gone on for years now, with firms like encrypted social messaging service provider Telegram and social media giant Kik being the most prominent victims of late.
The SEC has had one major argument. According to the agency Chairman Jay Clayton, they are concerned that ICO sales aren’t registered by the respective companies. Clayton maintains that this non-inclusion of the SEC in these dealings provides “less-investor protection” than other conventional security markets.