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FIT21 For Purpose: What the U.S. Congress’s New Bill Means for Crypto Compliance
5/29/2024

Last week, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act, known as FIT21.

This is a major step in the regulation of the cryptocurrency industry in the United States. It comes as quite an abrupt about-face from the current administration, which had made its wariness of the industry well known. The landmark legislation, passed with support from key Democratic lawmakers, aims to establish a comprehensive framework for the oversight and management of digital assets.

“Digital currency is already integrated into our economy and will only grow in significance in the years to come. Millions of Americans own cryptocurrency. American companies are the cutting edge of global financial technology. Many jobs in my Bay Area community are dependent on this industry.

The digital asset industry needs clearer rules of the road and the federal government needs stronger enforcement authority in order to ensure the responsible development of this emerging technology.”

Nancy Pelosi

FIT21 For Purpose: What the U.S. Congress’s New Bill Means for Crypto Compliance

Key Highlights of FIT21

The Financial Innovation and Technology for the 21st Century Act (FIT21) amends the Securities Exchange Act of 1934 to specify how to treat digital assets. The bill includes provisions that define and classify digital assets, establishes disclosure and certification requirements, and sets forth guidelines for the registration and oversight of digital asset intermediaries. This helps to distinguish between digital assets that are considered securities, commodities, or other forms of digital property, thus providing a regulatory framework for their treatment and oversight.

Key provisions of the bill include:

  • Standardized Regulatory Framework: The bill establishes clear guidelines for the classification and oversight of digital assets, distinguishing between securities, commodities, and other forms of digital property.

  • Enhanced Consumer Protections: It introduces measures to protect consumers from fraud and market manipulation, ensuring greater transparency and accountability within the industry.

  • Support for Domestic Innovation: By creating a supportive regulatory environment, the bill aims to encourage innovation and growth in the U.S. blockchain and cryptocurrency sectors.

  • International Cooperation: The legislation emphasizes the importance of international collaboration to address the global nature of digital assets and mitigate cross-border risks.

Crypto Compliance in This New Regulatory Era

As the regulatory environment for cryptocurrencies becomes more structured, companies will be required to adopt meaningful crypto compliance and security measures to meet the new standards. Our SkyInsights platform is uniquely positioned to help businesses navigate these changes.

1. Comprehensive Risk Assessments

SkyInsights provides detailed insights into counterparty risk and exposure, helping companies identify and mitigate potential threats. By analyzing transaction data and monitoring suspicious activities, SkyInsights ensures that businesses remain compliant with regulatory requirements.

CertiK SkyInsights Risk Score Dashboard Overview for Crypto Wallet

2. Regulatory Compliance and Reporting

With the bill's emphasis on transparency and accountability, accurate reporting is crucial. SkyInsights offers automated compliance solutions, generating detailed reports that meet regulatory standards. This reduces the burden on compliance teams and ensures timely and accurate flagging and incident reporting.

SkyInsights Case Summary and Alerts Dashboard

3. Enhanced Due Diligence

SkyInsights' advanced analytics capabilities allow for the thorough due diligence of counterparties, including VASPs (Virtual Asset Service Providers). SkyInsights can evaluate the regulatory status, legal entities, and past alerts or news associated with these entities.

SkyInsights Transaction Flow Analysis

4. Real-time Threat Detection & Alerts

Our global team of security and investigation experts provides real-time alerts on sanctions updates, exploits, hacks, and security incidents, all accessible through the compliance dashboard.

SkyInsights Real-Time Monitoring Dashboard

The approval of FIT21 is a pivotal moment for the cryptocurrency industry in the United States, bringing much-needed clarity and structure. For companies navigating this new environment, SkyInsights offers essential tools to ensure compliance, enhance security, and support growth. By leveraging advanced analytics and comprehensive risk management features, SkyInsights empowers businesses to continue to thrive in an industry that is now facing long-awaited regulatory clarity.

As the industry continues to mature, staying ahead of regulatory changes and adopting proactive compliance measures will be key to success. Through SkyInsights, CertiK is committed to providing the insights and solutions needed to navigate this exciting moment.

The Future of Crypto Compliance in the United States

Let's end with a direct quote from FIT21 which highlights the significance of its passage in its creators' words:

Congress finds the following:

1. Entrepreneurs and innovators are building and deploying this next generation of the internet.

2. Digital asset networks represent a new way for people to join together and cooperate with one another to undertake certain activities.

3. Digital assets have the potential to be the foundational building blocks of these networks, aligning the economic incentive for individuals to cooperate with one another to achieve a common purpose.

4. The digital asset ecosystem has the potential to grow our economy and improve the everyday lives of Americans by facilitating collaboration through the use of technology to manage activities, allocate resources, and facilitate decision making.

5. Blockchain networks and the digital assets they empower provide creator control, enhance transparency, reduce transaction costs, and increase efficiency if proper protections are put in place for investors, consumers, our financial system, and our national security.

6. Blockchain technology facilitates new types of network participation which businesses in the United States may utilize in innovative ways.

7. Other digital asset companies are setting up their operations outside of the United States, where countries are establishing frameworks to embrace the potential of blockchain technology and digital assets and provide safeguards for consumers.

8. Digital assets, despite the purported anonymity, provide law enforcement with an exceptional tracing tool to identify illicit activity and bring criminals to justice.

9. The Financial Services Committee of the House of Representatives has held multiple hearings highlighting various risks that digital assets can pose to the financial markets, consumers, and investors that must be addressed as we seek to harness the benefits of these innovations.

It is the sense of Congress that:

1. The United States should seek to prioritize understanding the potential opportunities of the next generation of the internet.

2. The United States should seek to foster advances in technology that have robust evidence indicating they can improve our financial system and create more fair and equitable access to financial services for everyday Americans while protecting our financial system, investors, and consumers.

3. The United States must support the responsible development of digital assets and the underlying technology in the United States or risk the shifting of the development of such assets and technology outside of the United States, to less regulated countries.

4. Congress should consult with public and private sector stakeholders to understand how to enact a functional framework tailored to the specific risks and unique benefits of different digital asset-related activities, distributed ledger technology, distributed networks, and decentralized systems.

5. Congress should enact a functional framework tailored to the specific risks of different digital asset-related activities and unique benefits of distributed ledger technology, distributed networks, and decentralized systems.

6. Consumers and market participants will benefit from a framework for digital assets consistent with longstanding investor protections in securities and commodities markets, yet tailored to the unique benefits and risks of the digital asset ecosystem.

Source: TEXT OF H.R. 4763, THE FINANCIAL INNOVATION AND TECHNOLOGY FOR THE 21ST CENTURY ACT (pp. 225-228)

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