US Senator Jack Reed introduces the draft law to tighten the regulations for the crypto industry and defi

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Title: US Senator Jack Reed brings a draft law for stricter regulation of defi and crypto industry

Date: July 18, 2023

Senator Jack Reed brought in a non-partisan bill in the Senate on July 18, which would exhaust the regulations for obtaining customer information (Know your Customer, KYC) and for money laundering control (anti-money Lundering, AML) in the crypto industry as well as the sanction regulations for the decentralized financial services (defi). The bill is entitled Crypto-Asset National Security Enhancement and Enforcement (Cansee) Act.

The draft law stipulates that defi projects should be subjected to the same requirements as other financial companies, including centralized crypto trading platforms, casinos and deposit houses. Anyone who controls the project would therefore be liable for the use of the defi service by sanctioned persons. If nobody should check a defi service, anyone who invests more than $ 25 million in the development of the project would be responsible for these obligations.

Furthermore, the draft law includes a modernization of the AML powers of the Ministry of Finance, which are to be extended beyond the traditional financial system. The aim is that new technologies such as cryptocurrencies enable new ways to carry out financial transactions and are therefore necessary to expand the powers of the Ministry of Finance in order to act against illegal financial activities outside the banking sector.

In addition, the draft law provides new requirements for the operators of crypto money machines (ATMS) to prevent the use of money laundering. The operators should be obliged to check the identity of both counterparties in a transaction.

The draft law was not yet published until the editorial deadline. An employee of Jack Reed could not yet confirm when the bill is to be published in concrete terms. However, a text has already been released on Github, which apparently is the finished draft law.

The reactions in the crypto community on the bill were already very critical. A commentator described the draft law as a "existential threat to defi" and considered it "not negotiable". Another pointed out that the assessment of control responsibility for an investment would significantly reduce the risk capital in the defi range from $ 25 million.

The Crypto Council for Innovation's lobby association was also similarly critical. The association emphasized that the draft law does not offer any specific guidance on how decentralized protocols could meet the disclosure requirements of the Bank Secrecy Act (BSA). The association therefore prefers an approach that looks at the different elements within the defi and uses the unique possibilities of the blockchain systems to derive suitable compliance measures.

It remains to be seen how the bill develops and whether he can gain support in the Senate. However, the discussion about adequate and effective regulation of the crypto industry and Defi will undoubtedly continue.