II 118th CONGRESS 1st Session S. 1357 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.

1. Short title This Act may be cited as the Responsible Digital Asset Advertising Act of 2023 . 2. Definitions In this Act: (1) Commissions The term Commissions means the Securities and Exchange Commission and the Commodity Futures Trading Commission, acting jointly. (2) Covered advertisement The term covered advertisement — (A) means a communication that— (i) relates to— (I) the desirability of purchasing or entering into a transaction for a digital asset; or (II) the availability of digital asset-related services; and (ii) is widely available to the general public, as specified by rule of the Commissions; and (B) includes any script, slide, handout, or other written (including electronic) material used in connection with a public appearance with respect to a digital asset or the availability of digital asset-related services. (3) Digital asset The term digital asset means a natively electronic asset that— (A) confers economic, proprietary, or access rights or authorities; and (B) is recorded using cryptographically-secured distributed ledger technology, or any similar analogue. (4) Digital asset intermediary The term digital asset intermediary means a person that— (A) holds a license, registration, or other similar authorization pursuant to the Commodity Exchange Act ( 7 U.S.C. 1 et seq. ), the Securities Act of 1933 ( 15 U.S.C. 77a et seq. ), the Corporation of Foreign Bondholders Act, 1933 ( 15 U.S.C. 77bb et seq. ), the Trust Indenture Act of 1939 ( 15 U.S.C. 77aaa et seq. ), the Securities Exchange Act of 1934 ( 15 U.S.C. 78a et seq. ), the Securities Investor Protection Act of 1970 ( 15 U.S.C. 78aaa et seq. ), the Investment Company Act of 1940 ( 15 U.S.C. 80a–1 et seq. ), the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–1 et seq. ), or the Omnibus Small Business Capital Formation Act of 1980 (title V of Public Law 96–2 ); and (B) engages in market activities relating to digital assets. 3. Advertising by digital asset intermediaries (a) Approval by officer Before a digital asset intermediary may make a covered advertisement available to the public, an officer of the digital asset intermediary shall be required to approve that covered advertisement and certify compliance with the requirements of this section. (b) Procedures (1) In general Each digital asset intermediary shall establish written procedures, which are appropriate and reasonable to the business, size, structure, and customers of the digital asset intermediary, for the review of covered advertisements, as required under subsection (a), which shall include— (A) provisions for the education and training of applicable employees of the digital asset intermediary regarding the procedures of the digital asset intermediary governing covered advertisements; (B) documentation of the education and training required under subparagraph (A); and (C) surveillance and follow-up measures to ensure that the digital asset intermediary implements and adheres to those procedures. (2) Recordkeeping (A) Period of maintenance Each digital asset intermediary shall maintain the records required under this subsection for not less than 5 years. (B) Types of records The types of records that a digital asset intermediary is required to maintain under subparagraph (A) include, with respect to each covered advertisement made by the digital asset intermediary— (i) a copy of the covered advertisement; (ii) the dates of the first and, if applicable, last use of the covered advertisement; (iii) the name of the officer of the digital asset intermediary who approved the covered advertisement, as required under subsection (a), including the date on which the officer gave that approval; (iv) information concerning the source of all data, statistical tables, charts, graphs, or other illustrations or outside sources used in the covered advertisement; and (v) for a covered advertisement that includes or incorporates a performance ranking or comparison with another digital asset intermediary, a copy of the ranking or performance used. (c) Requirements for covered advertisements Each covered advertisement shall adhere to the following standards: (1) The covered advertisement shall— (A) be based on principles of fair dealing and good faith; and (B) provide a sound basis for evaluating the facts with respect to any particular digital asset or type of digital asset, industry, or service that is the subject of the covered advertisement. (2) The covered advertisement may not omit any material fact or qualification if that omission, in light of the context of the material presented, would cause the covered advertisement to be misleading. (3) The covered advertisement may not make any false, exaggerated, unwarranted, promissory, or misleading statement or claim. (4) Information may be placed in a legend or footnote within the covered advertisement only if that placement would not inhibit understanding of the covered advertisement. (5) The covered advertisement shall be consistent with risks that are present with respect to the subject matter of the covered advertisement, including volatility with respect to the value of digital assets, the amount of potential returns, and operational risks for digital asset intermediaries. (6) The covered advertisement shall— (A) consider the nature of the audience to which the covered advertisement will be directed; and (B) provide details and explanations that are appropriate for the audience described in subparagraph (A). (7) (A) The covered advertisement may not predict or project performance, imply that past performance will recur, or make any exaggerated or unwarranted claim, opinion, or forecast. (B) Nothing in subparagraph (A) may be construed to prohibit the use of— (i) a hypothetical illustration of mathematical principles, if that illustration does not predict or project the performance of a particular strategy; (ii) an analysis tool, or a written report produced by an analysis tool; or (iii) a price target contained in a research report, if the target has a reasonable basis, the report discloses the valuation methods used to determine the price target, and the price target is accompanied by a disclosure concerning the risks that may impede achievement of the price target. (8) Any comparison in the covered advertisement between digital assets, digital asset intermediaries, or digital asset-related services shall disclose key material differences between the applicable items, including, as applicable, differences with respect to return objectives, costs and expenses, liquidity, safety, guarantees or insurance, volatility, and tax features. (9) The covered advertisement shall prominently disclose the following: (A) The fact that the covered advertisement is governed by this section and is subject to Federal law. (B) The name of the applicable digital asset intermediary. (C) The name of the officer who made the certification with respect to the covered advertisement, as required under subsection (a). (D) Any relationship between the applicable digital asset intermediary and any person that appears in the covered advertisement or any compensation offered by that digital asset intermediary to such a person. (E) Registrations, licenses, or other authorizations in good standing that are held by the applicable digital asset intermediary. (10) (A) In the covered advertisement, any reference to tax-free or tax-exempt income shall indicate which taxes apply, or which do not, unless income is free from all applicable taxes. (B) For the purposes of subparagraph (A), the covered advertisement may not characterize income or returns as tax-free or exempt from income tax if tax liability is merely postponed or deferred, such as when taxes are payable upon redemption. (C) The Commissions may, by rule, adopt further standards regarding tax considerations that appear in covered advertisements. (11) The covered advertisement shall disclose the amounts of the following fees with respect to the digital asset or digital asset-related services that are the subject of the covered advertisement, which shall be set forth prominently and, in any print advertisement, in a prominent text box that contains only such information: (A) Custody fees. (B) Account fees. (C) Applicable bank fees. (12) If any testimonial in the covered advertisement concerns a technical aspect of purchasing or otherwise entering into a transaction for digital assets— (A) the person making the testimonial shall have the knowledge and experience to form a valid opinion regarding the issue; and (B) the testimonial, if the testimonial concerns the advisability of purchasing digital assets or the performance of a digital asset, shall prominently disclose— (i) the fact that the testimonial may not be representative of the experience of other customers; (ii) the fact that the testimonial is no guarantee of future performance or success; and (iii) if more than $1,000 in value is paid for the testimonial— (I) the fact that the testimonial is a paid testimonial; and (II) the amount and type of compensation paid, which shall include, if compensation was paid in digital assets, an identification of each specific digital asset. (13) If the covered advertisement includes a recommendation to purchase, or otherwise transact in, a digital asset, the covered advertisement shall— (A) have a reasonable basis for the recommendation; and (B) if applicable, disclose— (i) that, at the time the covered advertisement was published or distributed, the applicable digital asset intermediary was conducting trading activities in the digital asset; (ii) that the applicable digital asset intermediary— (I) is directly and materially involved in the preparation of the content of the covered advertisement; and (II) has a financial interest the digital assets being recommended; and (iii) the nature of any financial interest disclosed under clause (ii), including whether that financial interest consists of any option, right, warrant, future, or long or short position, unless the extent of that financial interest is nominal. (14) (A) Except as otherwise provided by subparagraph (B), the covered advertisement may not refer, directly or indirectly, to past specific recommendations made by the applicable digital asset intermediary that were or would have been profitable to any person. (B) The covered advertisement may set out or offer to furnish a list of all recommendations as to the same type of digital assets made by the applicable digital asset intermediary during the 1-year period preceding the date on which the covered advertisement is released, if the communication or list— (i) states the name of each digital asset recommended, the date and nature of each such recommendation (such as whether to buy, sell, or hold the digital asset), the market price (as of the date of the recommendation), the price at which a person was meant to act upon the recommendation, and the market price of each such digital asset, as of the most recent practicable date; and (ii) contains the following warning, which shall appear prominently within the communication or list: it should not be assumed that recommendations made in the future will be profitable or will equal the performance of the digital assets in this list. . (d) Sources supporting a recommendation (1) In general A digital asset intermediary shall provide, or offer to provide upon request, available information or sources supporting any recommendation described in subsection (c)(13). (2) Price disclosure When a digital asset intermediary recommends a digital asset in a covered advertisement, as described in subsection (c)(13), the digital asset intermediary shall provide the price of the digital asset, as of the date on which the recommendation is made. (e) Information provided in public appearances (1) In general When an officer or employee of a digital asset intermediary is sponsoring or participating in a seminar, forum, or radio or television interview, or when such an individual is otherwise engaged in a public appearance or speaking activity, paragraphs (1), (2), and (3) of subsection (c) shall apply to that appearance to the same extent as those provisions apply to a covered advertisement. (2) Recommendations If an officer or employee of a digital asset intermediary recommends a digital asset in a public appearance, that individual shall— (A) have a reasonable basis for the recommendation; and (B) disclose, as applicable— (i) whether the individual has a financial interest in the digital asset recommended; (ii) the nature of the financial interest disclosed under clause (i), including whether that financial interest consists of any option, right, warrant, future, or long or short position, unless the extent of that financial interest is nominal; and (iii) any other actual, material conflict of interest of which the individual knows or has reason to know at the time of the public appearance. (f) Procedures for public appearances Each digital asset intermediary shall establish written procedures that are appropriate and reasonable to the business, size, structure, and customers of the digital asset intermediary in order to supervise the public appearances of the officers and employees of the digital asset intermediary, which shall include— (1) provisions for the education and training of employees of the digital asset intermediary regarding those procedures; (2) documentation of the education and training required under paragraph (1); and (3) surveillance and follow-up measures to ensure that the digital asset intermediary implements and adheres to those procedures. (g) Enforcement by Commissions (1) In general The Securities and Exchange Commission, the Commodity Futures Trading Commission, or any applicable self-regulatory organization operating under delegated authority by the appropriate commission, as applicable to a digital asset intermediary, shall regularly ascertain the compliance with this section by the digital asset intermediary (and applicable individuals) at the time of each regular examination of the intermediary by the applicable entity. (2) Investigations The appropriate commission or self-regulatory organization, as applicable, may conduct an investigation into a suspected violation of this section and take enforcement action outside of a regular examination of a digital asset intermediary, which shall be comprised of the following: (A) With respect to such a violation by that digital asset intermediary, the following: (i) For an initial violation of this section, the imposition of a civil monetary penalty in an amount that is not more than $100,000. (ii) For any subsequent violation of this section, the imposition of a civil monetary penalty in an amount that is not more than $1,000,000. (iii) The enjoinment of future violations of this section by the digital asset intermediary and the requirement that the digital asset intermediary submit to the enforcing entity appropriate remediation plans. (B) For repeated, knowing violations of this section by an individual, the imposition of a temporary or permanent bar from the digital asset industry with respect to that individual. (h) Applicability to disclosures A document filed with the Securities and Exchange Commission, as otherwise required by law or regulation, is not subject to the requirements of this section. (i) Rules The Commissions, after not less than a 120-day comment period, shall adopt rules to implement this section. (j) Authorization of appropriations For the purposes of appointing employees to enforce the requirements of this section, and for other costs relating to the enforcement of this section, there is authorized to be appropriated, for fiscal year 2023, to remain available until September 30, 2024— (1) $25,000,000 to the Securities and Exchange Commission; and (2) $25,000,000 to the Commodity Futures Trading Commission. 4. Offsetting the costs of digital asset advertising supervision (a) Recovery of certain costs of annual appropriations (1) In general Beginning October 1, 2024, the Securities and Exchange Commission and the Commodity Futures Trading Commission may, jointly, by rule, collect fees— (A) to fund expenses relating to the supervision of advertising by digital asset intermediaries; and (B) that are designed to recover the costs to the Federal Government of the annual appropriation to each commission by Congress for the cost of the supervision of advertising by digital asset intermediaries. (2) Registered entities A fee shall be imposed under paragraph (1) only— (A) on an entity that— (i) is licensed, registered, or similarly authorized pursuant to a provision of law described in section 2(4)(A); and (ii) is engaged in activities relating to digital assets, including a digital asset intermediary that is registered with either commission as otherwise may be provided by Federal law; and (B) in relation to the regulation of those activities under a provision of law described in section 2(4)(A). (3) Fee rates A fee imposed under paragraph (1) shall— (A) be strictly related to the cost to the Commissions relating to the supervision of advertising by digital asset intermediaries; (B) minimize negative impacts on market liquidity; and (C) maintain the efficiency, competitiveness, and financial integrity of digital asset markets. (4) Collection of fees The Commissions shall collect fees under this subsection in such manner and within such time as may be specified by the Commissions, by rule. (b) Fee rate orders (1) In general Each fiscal year, the Commissions shall jointly adopt an order setting rates for fees that are collected under subsection (a) during that fiscal year. (2) Publication The Commissions shall publish in the Federal Register each order adopted under paragraph (1), which shall include— (A) projections on which the fees are based; and (B) an explanation of the method used for calculating applicable fee rates. (c) Deposit of fees (1) Offsetting collections Fees collected under subsection (a) for any fiscal year shall— (A) be split evenly between the Commissions; (B) be deposited and credited as offsetting collections to the accounts providing appropriations to each respective commission; and (C) not be collected or available for obligation for any fiscal year except to the extent provided in advance in appropriation Acts. (2) General revenues prohibited No fee collected under subsection (a) may be deposited and credited as general revenue of the Treasury. (d) Lapse of appropriations If a regular appropriation to a commission has not been enacted on the first day of a fiscal year, the commission shall continue to collect fees under this section at the rates in effect on September 30 of the preceding fiscal year until the regular appropriation for the fiscal year has been enacted and the commission has published fees based on the appropriation under subsection (b)(2). (e) Limitations (1) Leveraged, margined, or financed transactions Nothing in this section may be construed to authorize the imposition of fees on a registered entity relating to leveraged, margined, or financed transactions under this Act, including those activities relating to digital assets. (2) Other appropriations Notwithstanding any other provision of law, a commission may use appropriations otherwise made available by law to fund expenses relating to the supervision of digital asset advertising under section 2. (f) Ceiling on fees Unless otherwise provided by law, the total amount of fees collected under this section shall not exceed $50,000,000.