Responsible Digital Asset Advertising Act of 2023

II 118TH CONGRESS 1ST SESSION S. 1357 To address advertising by digital asset intermediaries, and for other purposes. IN THE SENATE OF THE UNITED STATES APRIL 27, 2023 Ms. SINEMA (for herself and Ms. LUMMIS) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To address advertising by digital asset intermediaries, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Responsible Digital 4 Asset Advertising Act of 2023’’. 5 SEC. 2. DEFINITIONS. 6 In this Act: 7 (1) COMMISSIONS.—The term ‘‘Commissions’’ 8 means the Securities and Exchange Commission and 9 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1357 IS the Commodity Futures Trading Commission, acting 1 jointly. 2 (2) COVERED ADVERTISEMENT.—The term 3 ‘‘covered advertisement’’— 4 (A) means a communication that— 5 (i) relates to— 6 (I) the desirability of purchasing 7 or entering into a transaction for a 8 digital asset; or 9 (II) the availability of digital 10 asset-related services; and 11 (ii) is widely available to the general 12 public, as specified by rule of the Commis- 13 sions; and 14 (B) includes any script, slide, handout, or 15 other written (including electronic) material 16 used in connection with a public appearance 17 with respect to a digital asset or the availability 18 of digital asset-related services. 19 (3) DIGITAL ASSET.—The term ‘‘digital asset’’ 20 means a natively electronic asset that— 21 (A) confers economic, proprietary, or ac- 22 cess rights or authorities; and 23 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1357 IS (B) is recorded using cryptographically-se- 1 cured distributed ledger technology, or any 2 similar analogue. 3 (4) DIGITAL ASSET INTERMEDIARY.—The term 4 ‘‘digital asset intermediary’’ means a person that— 5 (A) holds a license, registration, or other 6 similar authorization pursuant to the Com- 7 modity Exchange Act (7 U.S.C. 1 et seq.), the 8 Securities Act of 1933 (15 U.S.C. 77a et seq.), 9 the Corporation of Foreign Bondholders Act, 10 1933 (15 U.S.C. 77bb et seq.), the Trust In- 11 denture Act of 1939 (15 U.S.C. 77aaa et seq.), 12 the Securities Exchange Act of 1934 (15 13 U.S.C. 78a et seq.), the Securities Investor Pro- 14 tection Act of 1970 (15 U.S.C. 78aaa et seq.), 15 the Investment Company Act of 1940 (15 16 U.S.C. 80a–1 et seq.), the Investment Advisers 17 Act of 1940 (15 U.S.C. 80b–1 et seq.), or the 18 Omnibus Small Business Capital Formation 19 Act of 1980 (title V of Public Law 96–2); and 20 (B) engages in market activities relating to 21 digital assets. 22 SEC. 3. ADVERTISING BY DIGITAL ASSET INTERMEDIARIES. 23 (a) APPROVAL BY OFFICER.—Before a digital asset 24 intermediary may make a covered advertisement available 25 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1357 IS to the public, an officer of the digital asset intermediary 1 shall be required to approve that covered advertisement 2 and certify compliance with the requirements of this sec- 3 tion. 4 (b) PROCEDURES.— 5 (1) IN GENERAL.—Each digital asset inter- 6 mediary shall establish written procedures, which are 7 appropriate and reasonable to the business, size, 8 structure, and customers of the digital asset inter- 9 mediary, for the review of covered advertisements, as 10 required under subsection (a), which shall include— 11 (A) provisions for the education and train- 12 ing of applicable employees of the digital asset 13 intermediary regarding the procedures of the 14 digital asset intermediary governing covered ad- 15 vertisements; 16 (B) documentation of the education and 17 training required under subparagraph (A); and 18 (C) surveillance and follow-up measures to 19 ensure that the digital asset intermediary im- 20 plements and adheres to those procedures. 21 (2) RECORDKEEPING.— 22 (A) PERIOD OF MAINTENANCE.—Each dig- 23 ital asset intermediary shall maintain the 24 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1357 IS records required under this subsection for not 1 less than 5 years. 2 (B) TYPES OF RECORDS.—The types of 3 records that a digital asset intermediary is re- 4 quired to maintain under subparagraph (A) in- 5 clude, with respect to each covered advertise- 6 ment made by the digital asset intermediary— 7 (i) a copy of the covered advertise- 8 ment; 9 (ii) the dates of the first and, if appli- 10 cable, last use of the covered advertise- 11 ment; 12 (iii) the name of the officer of the dig- 13 ital asset intermediary who approved the 14 covered advertisement, as required under 15 subsection (a), including the date on which 16 the officer gave that approval; 17 (iv) information concerning the source 18 of all data, statistical tables, charts, 19 graphs, or other illustrations or outside 20 sources used in the covered advertisement; 21 and 22 (v) for a covered advertisement that 23 includes or incorporates a performance 24 ranking or comparison with another digital 25 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1357 IS asset intermediary, a copy of the ranking 1 or performance used. 2 (c) REQUIREMENTS FOR COVERED ADVERTISE- 3 MENTS.—Each covered advertisement shall adhere to the 4 following standards: 5 (1) The covered advertisement shall— 6 (A) be based on principles of fair dealing 7 and good faith; and 8 (B) provide a sound basis for evaluating 9 the facts with respect to any particular digital 10 asset or type of digital asset, industry, or serv- 11 ice that is the subject of the covered advertise- 12 ment. 13 (2) The covered advertisement may not omit 14 any material fact or qualification if that omission, in 15 light of the context of the material presented, would 16 cause the covered advertisement to be misleading. 17 (3) The covered advertisement may not make 18 any false, exaggerated, unwarranted, promissory, or 19 misleading statement or claim. 20 (4) Information may be placed in a legend or 21 footnote within the covered advertisement only if 22 that placement would not inhibit understanding of 23 the covered advertisement. 24 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 7 •S 1357 IS (5) The covered advertisement shall be con- 1 sistent with risks that are present with respect to 2 the subject matter of the covered advertisement, in- 3 cluding volatility with respect to the value of digital 4 assets, the amount of potential returns, and oper- 5 ational risks for digital asset intermediaries. 6 (6) The covered advertisement shall— 7 (A) consider the nature of the audience to 8 which the covered advertisement will be di- 9 rected; and 10 (B) provide details and explanations that 11 are appropriate for the audience described in 12 subparagraph (A). 13 (7)(A) The covered advertisement may not pre- 14 dict or project performance, imply that past per- 15 formance will recur, or make any exaggerated or un- 16 warranted claim, opinion, or forecast. 17 (B) Nothing in subparagraph (A) may be con- 18 strued to prohibit the use of— 19 (i) a hypothetical illustration of mathe- 20 matical principles, if that illustration does not 21 predict or project the performance of a par- 22 ticular strategy; 23 (ii) an analysis tool, or a written report 24 produced by an analysis tool; or 25 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 8 •S 1357 IS (iii) a price target contained in a research 1 report, if the target has a reasonable basis, the 2 report discloses the valuation methods used to 3 determine the price target, and the price target 4 is accompanied by a disclosure concerning the 5 risks that may impede achievement of the price 6 target. 7 (8) Any comparison in the covered advertise- 8 ment between digital assets, digital asset inter- 9 mediaries, or digital asset-related services shall dis- 10 close key material differences between the applicable 11 items, including, as applicable, differences with re- 12 spect to return objectives, costs and expenses, liquid- 13 ity, safety, guarantees or insurance, volatility, and 14 tax features. 15 (9) The covered advertisement shall promi- 16 nently disclose the following: 17 (A) The fact that the covered advertise- 18 ment is governed by this section and is subject 19 to Federal law. 20 (B) The name of the applicable digital 21 asset intermediary. 22 (C) The name of the officer who made the 23 certification with respect to the covered adver- 24 tisement, as required under subsection (a). 25 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 9 •S 1357 IS (D) Any relationship between the applica- 1 ble digital asset intermediary and any person 2 that appears in the covered advertisement or 3 any compensation offered by that digital asset 4 intermediary to such a person. 5 (E) Registrations, licenses, or other au- 6 thorizations in good standing that are held by 7 the applicable digital asset intermediary. 8 (10)(A) In the covered advertisement, any ref- 9 erence to tax-free or tax-exempt income shall indi- 10 cate which taxes apply, or which do not, unless in- 11 come is free from all applicable taxes. 12 (B) For the purposes of subparagraph (A), the 13 covered advertisement may not characterize income 14 or returns as tax-free or exempt from income tax if 15 tax liability is merely postponed or deferred, such as 16 when taxes are payable upon redemption. 17 (C) The Commissions may, by rule, adopt fur- 18 ther standards regarding tax considerations that ap- 19 pear in covered advertisements. 20 (11) The covered advertisement shall disclose 21 the amounts of the following fees with respect to the 22 digital asset or digital asset-related services that are 23 the subject of the covered advertisement, which shall 24 be set forth prominently and, in any print advertise- 25 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 10 •S 1357 IS ment, in a prominent text box that contains only 1 such information: 2 (A) Custody fees. 3 (B) Account fees. 4 (C) Applicable bank fees. 5 (12) If any testimonial in the covered advertise- 6 ment concerns a technical aspect of purchasing or 7 otherwise entering into a transaction for digital as- 8 sets— 9 (A) the person making the testimonial 10 shall have the knowledge and experience to 11 form a valid opinion regarding the issue; and 12 (B) the testimonial, if the testimonial con- 13 cerns the advisability of purchasing digital as- 14 sets or the performance of a digital asset, shall 15 prominently disclose— 16 (i) the fact that the testimonial may 17 not be representative of the experience of 18 other customers; 19 (ii) the fact that the testimonial is no 20 guarantee of future performance or suc- 21 cess; and 22 (iii) if more than $1,000 in value is 23 paid for the testimonial— 24 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 11 •S 1357 IS (I) the fact that the testimonial 1 is a paid testimonial; and 2 (II) the amount and type of com- 3 pensation paid, which shall include, if 4 compensation was paid in digital as- 5 sets, an identification of each specific 6 digital asset. 7 (13) If the covered advertisement includes a 8 recommendation to purchase, or otherwise transact 9 in, a digital asset, the covered advertisement shall— 10 (A) have a reasonable basis for the rec- 11 ommendation; and 12 (B) if applicable, disclose— 13 (i) that, at the time the covered adver- 14 tisement was published or distributed, the 15 applicable digital asset intermediary was 16 conducting trading activities in the digital 17 asset; 18 (ii) that the applicable digital asset 19 intermediary— 20 (I) is directly and materially in- 21 volved in the preparation of the con- 22 tent of the covered advertisement; and 23 (II) has a financial interest the 24 digital assets being recommended; and 25 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 12 •S 1357 IS (iii) the nature of any financial inter- 1 est disclosed under clause (ii), including 2 whether that financial interest consists of 3 any option, right, warrant, future, or long 4 or short position, unless the extent of that 5 financial interest is nominal. 6 (14)(A) Except as otherwise provided by sub- 7 paragraph (B), the covered advertisement may not 8 refer, directly or indirectly, to past specific rec- 9 ommendations made by the applicable digital asset 10 intermediary that were or would have been profitable 11 to any person. 12 (B) The covered advertisement may set out or 13 offer to furnish a list of all recommendations as to 14 the same type of digital assets made by the applica- 15 ble digital asset intermediary during the 1-year pe- 16 riod preceding the date on which the covered adver- 17 tisement is released, if the communication or list— 18 (i) states the name of each digital asset 19 recommended, the date and nature of each such 20 recommendation (such as whether to buy, sell, 21 or hold the digital asset), the market price (as 22 of the date of the recommendation), the price at 23 which a person was meant to act upon the rec- 24 ommendation, and the market price of each 25 VerDate Sep 11 2014 21:35 May 04, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1357.IS S1357 kjohnson on DSK79L0C42PROD with BILLS 13 •S 1357 IS such digital asset, as of the most recent prac- 1 ticable date; and 2 (ii) contains the following warning, which 3 shall appear prominently within the communica- 4 tion or list: ‘‘it should not be assumed that rec- 5 ommendations made in the future will be profit- 6 able or will equal the performance of the digital 7 assets in this list.’’. 8 (d) SOURCES SUPPORTING A RECOMMENDATION.— 9 (1 [Text truncated for display. Full text available on Congress.gov.]