Operational Framework of the Digital Asset Policy Proposal

We've created a simple explainer on how to comment on individual elements of the framework, or the framework as a whole, using GitHub. You will find it here: CONTRIBUTING.md

Regulate Digital Assets Under a Separate Framework

• Define digital asset as: A financial asset issued and transferred using distributed ledger or blockchain technology. “Financial asset” would include an asset whose primary use is as a payment instrument, medium of exchange, means of storing value, or otherwise as a financial interest.
• In creating a new regulatory framework for digital assets, Congress should recognize in law that all digital assets, including digitally native versions of traditional financial assets, should be subject to a new regulatory regime for digital assets.

Designate One Regulator for Digital Asset Markets:

• Authority would include
  1. A new registration process established for marketplaces for digital assets (MDAs).
  2. Appropriate disclosures to inform purchasers of digital assets.
• MDA regulation should support the efficiency benefits of straight-through-processing.
• MDAs should be authorized to perform the full lifecycle of digital asset services, including digital asset trading, transfer (e.g., wallet services), custody, clearing, money payment, staking, borrowing and lending, and related incidental services.
• The regulator should be authorized to offer different registration paths for different kinds of MDAs depending on the scope of activities they provide.
• Regulations should focus on equal and open access to digital asset trading for all market participants — retail and institutional.
• A dedicated self-regulatory organization (SRO) should be established to strengthen the oversight regime and provide more granular oversight of MDAs.
  1. All registered MDAs should be required to be members of the SRO.
  2. The SRO should establish the self-certification process that an MDA would use to make a digital asset available for trading on its platform.
• The framework would preempt state-by-state registration and related regulatory requirements.
• The treatment of platforms and services that do not custody or otherwise control the assets of a customer would need to be inherently different from an MDA that holds and controls customer assets, and is therefore not addressed by this framework.

New Framework Should Be Guided by Three Goals

1. Enhance transparency through appropriate disclosure requirements
   1. The information environment for digital assets should focus on the material characteristics, benefits, and risks of the asset itself. An asset-centric approach would include information about the features of underlying projects that investors are likely to find most relevant in their purchase or use decisions.
      1. For digital assets that are debt or equity securities, many of the current securities disclosure requirements may be appropriate.
      2. Digital assets that are well-established, broadly understood, and decentralized, like Bitcoin and Ether, should not require ongoing disclosure.
      3. Digital tokens that are earlier in the life cycle, and not yet decentralized, should have a minimum set of disclosures. For example, those could be based on key features of the white papers that are already widely used by the industry.
      4. Asset-backed tokens, like stablecoins and other digital assets that are pegged to a particular value or fiat currency and maintain a reserve of assets designed to ensure they maintain the peg, require a different type of disclosure. The disclosures should be appropriate to how they are being used, which is inherently different from money market funds.
   2. Disclosure requirements must be flexible, so they can be readily applied to a wide range of digital assets and so they are resilient in the face of future innovation.
      1. The assigned federal regulator — together with the new SRO — must also take a flexible and nimble approach with the disclosure requirements rules that the information environment applied in practice.
      2. Where additional guidance is needed, there should be a straightforward process for obtaining timely, case-specific, interpretive, or exemptive relief.
2. Protect against fraud and market manipulation
   1. An MDA would need to make available required disclosures about the digital assets it supports.
   2. It should establish requirements and mechanisms for executing transactions on MDA platforms, including for order book matching.
   3. The MDA should have the ability to monitor trading activity on its platforms and to enforce its trading requirements.
   4. MDAs should provide clear information about their operations to the public.
3. Promote efficiency and strengthen market resiliency
   1. Rules for MDAs should account for market participants having direct access to exchange services, and not through broker-dealers as gatekeepers.
   2. The regulations should prescribe baseline requirements around cyber and operational integrity and resiliency.
   3. They should include requirements for post-trade transparency of material terms of digital asset transactions conducted on the platform.
   4. Rules should include requirements for asset safekeeping and use, to address financial stability by requiring MDAs to maintain adequate capital and liquidity, to facilitate customer portability, to promote interoperability, and provide clear disclosures regarding the services provided and associated fees.
   5. MDAs would be required to implement a compliance program, including coverage of BSA AML requirements. Appropriately tailored customer identification, transaction monitoring, SAR filing requirements, and OFAC and sanctions screening obligations should all remain as available resources.
   6. MDAs should be required to mitigate and disclose potential conflicts of interest.
   7. MDAs must also consider and address risks arising from the role played by market-makers and other liquidity providers on their trading venues.
4. Each of the goals should be accomplished in recognition of the unique characteristics and risks of the underlying functionalities of digital assets.

Promote Interoperability and Fair Competition

• MDAs must be interoperable with products and services across the cryptoeconomy.
• The new regulatory framework should encourage communication, competition and cross-pollination among protocols, applications, and MDAs.