The House Committee on Financial Services and the House Committee on Agriculture are proposing a new regulatory framework for digital assets to promote innovation and protect consumers. The framework aims to bridge the regulatory gap between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

The proposed legislation distinguishes between digital commodities and digital assets offered as investment contracts. It establishes a certification process for digital asset issuers to demonstrate decentralization and specifies conditions for a digital asset to be classified as a digital commodity.

Under the framework, digital asset trading platforms can register as Alternative Trading Systems (ATS) and offer digital commodities and payment stablecoins. The SEC would need to modify its rules to allow broker-dealers to custody digital assets. The Act also requires the SEC to update regulations for digital assets.

For CFTC oversight, the legislation creates a Digital Commodity Exchange (DCE) framework, including compliance requirements, customer protection rules, and registration with a registered futures association. Digital Commodity Brokers (DCBs) and Digital Commodity Dealers (DCDs) are also required to register and meet business conduct requirements.

The proposed legislation emphasizes regulatory coordination between the CFTC and SEC. Entities can obtain multiple licenses with the CFTC, and certain entities can dually register with both agencies to facilitate transactions in different types of digital assets.

To foster innovation, the legislation establishes the Strategic Hub for Innovation and Financial Technology (FinHub) at the SEC and LabCFTC at the CFTC. These offices will serve as resources and forums for fintech innovators. A Joint CFTC-SEC Advisory Committee on Digital Assets will provide advice, and studies on decentralized finance and non-fungible digital assets will be conducted.

During the transition period, entities can temporarily comply with both the SEC and CFTC while final rules are being developed. Existing digital assets are eligible for a safe harbor until a notice is issued determining they are not digital commodities.

Overall, the proposed framework aims to provide regulatory clarity, promote innovation, and enhance consumer protection in the digital asset market.