US new bills could make DeFi protocol investors responsible, aim to fight crypto-facilitated crime

• Senators Warren, Marshall, Lummis and Gillibrand introduce a bipartisan bill amendment increasing regulation of cryptocurrencies.
• A further bill titled the Crypto-Asset National Security Enhancement Act of 2023 is focused on changing the regulatory landscape of the DeFi market.
• Nasdaq is set to cancel its plans of launching a crypto custody service, citing (uncertain) US regulatory conditions.

The US Senate has been busy preparing legislation to increase regulatory scrutiny of crypto providers. This includes an amendment to a new bill set to go before the Senate with a focus on Anti-Money Laundering (AML) and a bill that imposes the same regulatory demands on DeFi as those faced by mainstream financial institutions, including DeFi investors of over $25 million US Dollars being saddled with new obligations and responsibilities. 

Anti-Money Laundering Amendment to go before Senate

The first piece of regulation, S.Amdt.712 to the National Defense Authorization Act for Fiscal Year 2024, increases Anti-Money Laundering regulations on crypto service providers. The bipartisan amendment was introduced by Senators Warren, Marshall, Lummis and Gillibrand. The first two have been critical of crypto, while the other two have been avid crypto supporters.

The amendment focuses on different aspects of improving security and requires the development of a new process by the US Treasury, SEC, CFTC, and FinCEN, among others.

Over the next two years, the aim is to introduce new powers to ensure that crypto protocols and service providers’ AML programs are robust. It further requires FinCEN to submit a report in a year on the operations of crypto-asset mixers and tumblers.  

New bill to oversee DeFi

On Tuesday, Senators introduced another piece of crypto regulation, a crypto-related bill entitled Crypto-Asset National Security Enhancement and Enforcement Act of 2023 (CANSEE). Senators Jack Reed, Mike Rounds, Mark Warner and Mitt Romney put forward the bill, which requires Decentralized Finance (DeFi) services to meet the same AML and economic sanctions compliance obligations as other financial companies.

As per Senator Warner, The CANSEE Act would end special treatment for DeFi by applying the same national security laws that apply to banks. The press release also noted,

“If nobody controls a DeFi service, then—as a backstop—anyone who invests more than $25 million in developing the project will be responsible for these obligations.

In line with the same, Senator Reed stated,

“This legislation bolsters the Treasury Department’s tools to protect our national and economic security…Our bill  will also ensure that law enforcement has access to better information about cryptocurrency transactions, which they need to fight crimes like cross-border drug trafficking, weapons proliferation, and ransomware attacks.

Effects of regulatory uncertainty

Recent crackdowns by the SEC have led companies to undertake self-assessment before planning to adopt crypto. The foremost example of this is Nasdaq which was set to launch its crypto custody services in Q2 this year.

However, following the recent SEC and Gary Gensler spectacle, Nasdaq announced that it would be dropping its plans. The announcement was made by CEO Adena Friedman in an earnings call on July 19. 

Read more - This is what Nasdaq launching its crypto custody services in Q2 2023 means for Bitcoin and Ethereum

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