Davis Polk partner Zach Zweihorn discussed the FIT 21 Act and the implications of the bill for traditional financial institutions with American Banker.

When asked whether the bill would make it easier for banks and asset managers to create assets that would be overseen by the Commodity and Futures Trading Commission rather than the Securities and Exchange Commission, Zach explained that the idea that financial institutions “can just slap a blockchain label on something” and therefore get out from the regulatory structure for securities isn’t “realistic under the text of the bill.”

“The way I read it is that it says an asset that was sold pursuant to an investment contract is not automatically a security as a result,” Zach said. “Unless it is otherwise a security, which is kind of circular.”

Zach also explained that if a large bank or another financial institution creates an asset that meets the definition of a digital asset that should be regulated by the CFTC under the bill, then the CFTC might be the best place for that asset to be regulated.

“It’s hard to imagine a bank creating this kind of asset that would meet this definition,” Zach said. “And you know, if they do, then it’s probably not the worst idea for it to go [to the CFTC].”

Is the latest crypto bill an opening for banks to bypass regulation?American Banker (June 3, 2024) (subscription required)