What is Responsible Financial Innovation Act


The Responsible Financial Innovation Act (shortened as RFIA) was first proposed by Republican and Democratic Senators on June 7, 2022, with its updated version being released on July 12, 2023. Its main objective is to establish a regulatory framework for digital assets, clarify the jurisdiction of CFTC and SEC, address stablecoin issuance, digital asset taxation, and protect consumers, providing the industry with certainty and clarity.

The Responsible Financial Innovation Act was first introduced after the Terra collapse, emphasizing stablecoin regulation. However, it didn't gain much traction at the time. After the FTX incident, sponsors Cynthia Lummis and Kirsten Gillibrand significantly adjusted the bill. The adjusted bill leans more towards consumer protection, asserting the superiority of CFTC over SEC.

For more on FTX and SBF's story, read: "Who is SBF - from mansions and yachts to silver bracelets and iron bars in five years".

Sponsors of RFIA, Source: The Washington Post

Clarifying the Jurisdiction of CFTC and SEC

The bill contends that most digital assets, including BTC and ETH, are commodities, not securities, and fall under the jurisdiction of the CFTC. However, if a digital asset exhibits characteristics of debt or equity, it's considered a security and is regulated by the SEC. A digital asset is deemed a security if it meets any of the following criteria:

  • A debt or equity interest,
  • Liquidation rights,
  • Right to interest or dividends,
  • Profits or income derived solely from the efforts of others,
  • Any other economic benefit within the enterprise.

Under this bill, a digital asset doesn't need to be fully decentralized to be classified as a commodity.

Disclosure and Consumer Protection

In the aftermath of major incidents involving Terra, FTX, and others, the Responsible Financial Act emphasizes consumer protection, setting requirements for information disclosure, proof of reserves, advertising standards, and loan limitations.

  • Digital (Crypto) asset exchanges must register with the CFTC and adhere to disclosure mandates.
  • Issuers of digital assets need to periodically disclose information to the SEC to prove the commodity nature of the asset.
  • Intermediaries must disclose significant changes and its operations details, including asset custody, bankruptcy handling, fee structures, and dispute resolution.

Stablecoin Issuance Policies

The bill puts forth strict requirements for the issuance of stablecoins, allowing only federal/state depository institutions to issue them and subjecting them to federal/state regulatory oversight. Moreover, issuers are required to maintain a 100% reserve of high-quality assets and must publicly disclose the reserve assets backing the stablecoin and their value. Additionally, the bill proposes that algorithmic stablecoins should be regulated by the CFTC.

Adjustments to Digital Currency Taxation

The act delineates digital asset taxation policies and offers minor tax breaks for cryptocurrency holders. Moreover, it proposes facilitative tax measures for non-US entities offering crypto services in the US.

Policy and Regulation

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