New US bill to require firms to report off-chain transactions to CFTC

A new bill in the United States aims to require cryptocurrency service providers to report all blockchain transactions to a government repository.

On Sept. 28, U.S. Representative Don Beyer introduced the “Off-Chain Digital Commodity Transaction Reporting Act,” requiring trading platforms to report all transactions to a repository registered with the Commodity Futures Trading Commission.

The new legislation aims to protect cryptocurrency investors from disputes, manipulation or fraud potentially stemming from transactions occurring off-chain or transactions that take place beyond the blockchain network. Unlike on-chain transactions, off-chain crypto transactions are not instantly logged on a blockchain but are processed through secondary layers, thus creating some difficulties in being tracked.

With the emergence of trading platforms and a desire to increase transaction times and lower costs, thousands of transactions occur “off-chain” and are unrecorded on the publicly viewable blockchain, the announcement notes.

“Unfortunately, internal record keeping among these private entities can vary wildly, and this can leave investors and consumers vulnerable to fraud and manipulation,” Beyer wrote, adding:

This bill is a common-sense measure to restore some transparency and confidence to the digital asset market.

According to the bill, crypto service providers will be required to report all off-chain transactions within 24 hours to a CFTC-registered trade repository. The announcement notes that the requirements are similar to the rules for “virtually all securities and swaps transactions.”

U.S. lawmakers have been closely focused on cryptocurrency regulations recently. In mid-September, nine U.S. senators added their support to Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act. Reintroduced in July 2023, the legislation in its current form intends to crack down on noncustodial digital wallets and extend Bank Secrecy Act responsibilities, among other legal measures, to fight the illicit use of digital money.