On July 20, 2023, the Financial Innovation and Technology for the 21st Century Act (H.R. 4763), nicknamed FIT21, was introduced in the House and discussed by the House Financial Services Committee yesterday, July 26, 2023. The cryptocurrency industry has already come out in support, including from Coinbase CEO Brian Armstrong.
For trust and estate industry professionals and financial institutions, FIT21 would achieve two key industry goals but fall short of achieving other necessary goals to protect consumers.
First, Section 104(d) would prohibit the SEC and CFTC from taking any action that would restrict the ability of an individual to “use hardware or software to facilitate the custody or safekeeping by the individual of any digital asset of the individual.” FIT21 does not restrict other federal regulators from restricting self-custody, but Section 104(d) would permit individuals to adopt estate planning solutions where advisors do not have custody or access including distributed key solutions.
Second, Section 312 would reverse the SEC’s Staff Accounting Bulletin 121 (“SAB 121”). Though issued ostensibly as clarifying accounting guidance in 2022, SAB 121 quickly drew criticism for being written and released with the intention of “establish[ing] regulation disguised as guidance, evading legal requirements under the Administrative Procedure Act” and circumventing a public input and comment period. FIT21 would prevent regulators from requiring financial institutions to record liabilities and assets at the fair value of digital assets that they are safeguarding.
FIT21 is narrowly targeted to achieve its cryptocurrency-focused objectives, and falls disappointingly short for the trust and estate industry and for individuals that desire to create a broader plan for their digital assets.
- FIT21 provides no guidance, authorization or safe harbor for trust and estate professionals, fiduciaries, executors, advisors or personal representatives.
- FIT21 provides no relief from potential civil and criminal liability associated with privacy laws such as the Stored Communications Act, the Computer Fraud and Abuse Act or state RUFADAA statutes.
- FIT21 provides no guidance for custody alternatives.
- FIT21 provides no guidance in response to the SEC’s Proposed Safeguarding Rule, including the proposal that mere access to digital assets constitutes constructive custody.
- FIT21 protects individuals adopting self-custody solutions but does not protect or authorize third party custodians to provide custody services.
Many see FIT21 as a step in the right direction despite falling short of expectations among the trust and estate planning industry. FIT21 still has a long way before it becomes law, and will likely see further comments as it moves through Congress.
Link to the text of the bill.
Link to a section-by-section summary of the bill from its sponsors.