U.S. House of Representatives members Tom Emmer and Darby Torres recently resubmitted a bill aimed at establishing a clear regulatory framework for Non-Custodial Service Providers. This bill was previously proposed in 2023. This updated version focuses on the pain points of industry compliance and attempts to balance innovation and regulatory requirements.
The core content of the bill: Defining rights and responsibilities as well as exemption provisions
Clarify the scope of services: The bill for the first time defines “non-custodian service providers” in legislative form, covering entities such as wallet developers and decentralized application (DApps) operators that do not hold users’ private keys, and treats them differently from traditional custodian exchanges.
Exemption from registration requirements: If the service provider is not involved in fund custody or user asset control, it can be exempted from registering as a trading platform with the U.S. Commodity Futures Trading Commission (CFTC) or the Securities and Exchange Commission (SEC), thereby reducing compliance costs.
Anti-money laundering (AML) obligation exception: Non-custodian service providers are not required to perform the customer identification (KYC) procedures of traditional financial institutions, but they must cooperate with the legitimate investigation requests of law enforcement authorities.
The two parties cooperate to promote responses to the ambiguity of industry regulation
In a joint statement, Emmer (Republican) and Torres (Democratic) pointed out that the current regulatory system’s lack of definition of unmanaged services has led to innovative enterprises facing a “legal gray area”. The bill aims to “provide certainty for responsible innovators” while preventing illegal activities from using decentralized tools for money laundering.
The crypto industry association Coin Center expressed its support, saying that the bill “recognizes the essential differences of non-custodial services”, while the American Bankers Association (ABA) called for additional consumer protection provisions, requiring service providers to offer relief channels when users’ private keys are lost.
Potential conflicts with the existing regulatory framework
SEC jurisdiction dispute: If the bill is passed, it may challenge the SEC’s previous position of regarding some non-custodial services as “securities intermediaries”. In the SEC’s enforcement operation against Paxos in 2023, non-custodians’ wallets were included in the regulatory scope.
State law coordination issue: Some states in the United States (such as New York) have implemented strict encryption licensing systems. The bill needs to be connected with the state-level regulatory system to avoid rule conflicts.
Industry impact and subsequent outlook
If this bill is passed, it will provide a clear legal status for non-custocustoal wallets such as MetaMask and DeFi protocol developers, promoting the compliance of decentralized finance (DeFi). However, analysis points out that the bill faces challenges in the Democratically dominant Senate and needs to be advanced in coordination with other crypto regulatory proposals, such as the Digital Asset Markets Act.
At present, the bill has been submitted to the House Financial Services Committee for review and is expected to trigger multiple rounds of negotiations among regulatory agencies, industry representatives and consumer rights organizations.
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