CRYPTO BOARDS

Watershed Moment for Digital Assets:

The SEC surprised the #crypto industry by approving spot ether exchange-traded funds (ETFs) after approving spot bitcoin ETFs in January. This move comes amid growing institutional interest in crypto and coincides with the House passing a substantial crypto regulation bill that aims to provide regulatory clarity for the industry.

The Financial Innovation and Technology for the 21st Century Act, or “FIT 21 Act” - gives the Commodity Futures Trading Commission new oversight of the digital commodities market while also designating the SEC as the regulator for the digital securities market. The legislation calls on both agencies to propose joint rule-makings on digital assets and allows digital asset intermediaries to dually register with the SEC and CFTC. It also contains disclosure requirements, asset safeguarding provisions and operational requirements for SEC and CFTC registrants.

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Lawmakers who sponsored the bill and crypto trade groups say it will provide regulatory clarity for firms to comply with federal regulations.

https://medium.com/@bobbi_29045/regulation-the-secret-ingredient-to-turning-crypto-chaos-into-crypto-class-d45fa4b35770

While the bill faces challenges in the Senate and opposition from SEC Chair Gary Gensler and the White House, it signifies growing recognition of the need for a digital asset regulatory regime.

Notably, both party leaders have expressed openness to the crypto industry, suggesting that crypto regulation could become a bipartisan campaign issue in the upcoming election.

The passage of the Financial Innovation and Technology for the 21st Century Act (FIT 21 Act) by the U.S. House of Representatives represents a significant milestone in the regulation of digital assets. This legislation aims to establish a clear regulatory framework for the issuance and trading of digital assets, defining the roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in regulating these assets. Here are the implications for boards of directors and recommendations for strategic governance:

Implications for Boards of Directors

1. Regulatory Compliance: Boards must ensure that their companies comply with the new regulations set forth by the FIT 21 Act. This includes understanding whether digital assets are classified as commodities or securities and adhering to the corresponding regulatory requirements by the CFTC and SEC [oai_citation:1,House passes crypto market structure bill with bipartisan support? - Blockworks](https://blockworks.co/news/house-passes-act-fit21-with-bipartisan-support) [oai_citation:2,House passes FIT21 crypto bill with majority bipartisan support](https://cryptoslate.com/house-passes-fit21-crypto-bill-with-majority-bipartisan-support/).

2. Risk Management: The Act mandates enhanced disclosures and consumer protections, necessitating robust risk management strategies. Boards should oversee the implementation of comprehensive compliance programs to mitigate regulatory risks and protect consumer interests [oai_citation:3,House passes FIT21 crypto bill with majority bipartisan support](https://cryptoslate.com/house-passes-fit21-crypto-bill-with-majority-bipartisan-support/).

3. Operational Adjustments: Companies may need to adjust their operations to segregate customer funds from corporate funds and comply with other financial practices outlined in the legislation. This may involve revising internal processes and systems to ensure compliance [oai_citation:4,US House Approves FIT21 Bill: A New Era for Digital Asset Regulation](https://coinpedia.org/news/fit21-act-passes-house-a-milestone-for-us-digital-asset-regulation/).

4. Strategic Alignment: Boards should align their company's strategic goals with the regulatory environment to leverage the opportunities presented by the FIT 21 Act. This includes exploring new avenues for innovation and growth within the compliant framework [oai_citation:5,House passes FIT21 crypto bill with majority bipartisan support](https://cryptoslate.com/house-passes-fit21-crypto-bill-with-majority-bipartisan-support/).

Recommended Strategic Governance Framework

1. Establish a Compliance Committee: Form a dedicated committee within the board to focus on compliance with digital asset regulations. This committee should work closely with legal and compliance teams to stay abreast of regulatory changes and ensure company-wide adherence.

2. Enhanced Reporting and Transparency: Implement enhanced reporting mechanisms to provide the board with regular updates on compliance status, regulatory changes, and potential risks. Transparent reporting will facilitate informed decision-making and strategic planning.

3. Training and Education: Invest in continuous education for board members and senior management on the evolving landscape of digital asset regulations. This will ensure that the leadership is well-informed and capable of making strategic decisions that align with regulatory requirements.

4. Risk Management Framework: Develop and implement a comprehensive risk management framework that addresses the unique risks associated with digital assets. This should include regular risk assessments, audits, and the establishment of internal controls to monitor and mitigate risks.

5. Stakeholder Engagement: Engage with key stakeholders, including regulators, investors, and customers, to understand their concerns and expectations regarding digital asset regulation. Proactive engagement can help the company anticipate regulatory changes and adjust its strategy accordingly.

6. Technology and Innovation: Encourage investment in technology and innovation to enhance the company’s capability to comply with regulations while maintaining competitive advantage. This includes leveraging blockchain technology for transparency and security in digital asset transactions.

By adopting these strategies, boards of directors can navigate the regulatory landscape effectively, ensuring compliance while positioning their companies for growth and innovation in the digital asset market.

For further details on the FIT 21 Act and its implications, you can refer to sources from [Blockworks](https://blockworks.co) and [Coinpedia](https://coinpedia.org).

Best wishes!

"Bo" Subodh Dalvi , Board Director, Executive Advisor & Impact Investor