The North American Securities Administrators Association (NASAA) expressed their concerns to leaders of the U.S. Senate Committee on Agriculture, Nutrition, and Forestry over the Digital Commodity Intermediaries Act (DCIA).
On Jan. 21, Senate Agriculture Republicans released an updated draft of the digital asset market structure legislation titled the “Digital Commodity Intermediaries Act.” The legislation would clarify the CFTC’s authority to regulate digital assets. The Senate Agriculture Committee has jurisdiction over the CFTC. Senate Agriculture Committee Chairman John Boozman (R-AR) stated that it was “unfortunate that we couldn’t reach an agreement,” appearing to reference Senate Democrats. He thanked Sen. Cory Booker (D-NJ) for his work on the legislation on behalf of Senate Agriculture Committee Democrats to garner bipartisan support. A list of amendments was later submitted by Senate Agriculture Committee members. The Senate Agriculture Committee markup was moved to Thursday, Jan. 29 due to weather.
In their letter to Boozman and ranking member Sen. Amy Klobuchar (D-MN), NASAA officials said they were unable to support the DCIA in its current form. As drafted, they said certain provisions could restrict the ability of state securities and commodities authorities to combat investor harm arising from fraud and abuse in transactions that would be covered under the legislation.
Instead, NASAA urged Congress to make three targeted changes to the DCIA:
- Clarify that states retain authority to investigate and bring administrative, civil, and criminal anti-fraud enforcement actions;
- Clarify that states retain authority to combat dishonest or unethical conduct; and
- Address fundamental inconsistencies in the bill’s digital asset definitions that risk undermining investment contract law.
“State securities and commodities regulators play a critical role in detecting and stopping misconduct, particularly retail-facing schemes that operate outside regulated markets. Congress has repeatedly affirmed that state anti-fraud authority should be preserved, and NASA urges that the DCIA clearly effectuate that intent,” Marni Rock Gibson, president of the NASAA, wrote in the letter to Congress.
NASAA leaders also expressed concerns that the DCIA has borrowed inconsistent digital asset definitions from the CLARITY Act.
“A chief concern is that the definitions confusingly state that network tokens are non-securities under federal securities laws that are subject to the CFTC’s exclusive jurisdiction on one hand, while stating on the other hand that these very same network tokens are “covered securities” subject to state and federal securities regulation,” Gibson wrote.
In addition, they said this framework risks creating unworkable scenarios for regulators, the courts, and regulated persons who are seeking clarity.
“The cleanest way for Congress to import the model from the National Securities Markets Improvement Act of 1996 into federal market structure legislation is to treat digital assets and related transactions—no matter what label is used to define them—as federally covered securities under Section 18 of the Securities Act of 1933 and then enact a complementary savings clause for those new covered securities that explicitly preserves state anti-fraud authorities,” Gibson stated.
NASAA request that the definitions be revised to eliminate any confusion on that point.
In closing, NASAA officials said they are ready to work with Congress to ensure that any legislation strikes a balanced, clear, and effective approach to digital asset regulation that protects investors, preserves state authority to address misconduct, and promotes responsible innovation.