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Part of the U.S. CLARITY Act, a law providing regulatory certainty for Practical Blockchain that supports DeFi
U.S. Representative Tom Emmer and others announced on the 10th that they have incorporated the Blockchain Regulatory Certainty Act (BRCA) as part of the Digital Asset Market Transparency Act (CLARITY Act).
The CLARITY Act is a bipartisan regulatory bill for the cryptocurrency market that was submitted to the House at the end of May. It includes provisions that clearly exclude the majority of cryptocurrencies from the definition of securities.
The newly added Blockchain Regulatory Certainty Act (BRCA) aims to prevent software developers and blockchain service providers that do not manage or hold customer funds from being unfairly required to register as "money transfer businesses."
In addition, it includes provisions to avoid being held responsible as an unlicensed remittance operator.
Industry groups, including the DeFi Education Fund, Digital Chamber of Commerce, Blockchain Association, Bitcoin Policy Institute, and Uniswap Labs, had previously called for the inclusion of the BRCA in the market structure bill.
Developers building software without custodial (asset storage) elements in a peer-to-peer (P2P) manner and infrastructure providers realizing decentralized networks point out that they have almost nothing in common with traditional financial institutions. Therefore, they argue that they should not be treated similarly.
What is P2P?
A network form in which connected computers communicate with each other without going through a dedicated server.
This time, with this request being fulfilled, the industry organizations commented as follows.
I am pleased that the Blockchain Regulatory Certainty Act (BRCA) has been included in the CLARITY bill. This is a significant step to protect developers of non-custodial peer-to-peer technologies while maintaining strong supervision over custodial financial institutions.
Significance of BRCA
BRCA reflects and codifies part of the guidance issued by the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) in 2019.
This guidance explains that software developers who develop and provide software tools for individuals to conduct their own P2P financial transactions are not considered money service businesses (MSBs) if they do not receive or send funds on behalf of others.
The DeFi Education Fund previously expressed concerns that treating software developers of non-custodial P2P protocols as operators of money services businesses would drive innovation overseas.
Such entities do not originally collect or store user information, which means they cannot comply with the reporting requirements of the Bank Secrecy Act (BSA) imposed in the United States.
In principle, when people conduct self-managed P2P transactions on the blockchain, privacy similar to cash transactions is ensured. However, it was also stated that if BSA requirements are applied, such privacy would become impossible. BRCA prevents such situations.
In the future, the House Financial Services Committee is scheduled to discuss and vote on amendments to the CLARITY bill, including BRCA, at the markup session on June 10.