What does Preamble of S 1405 do?

This bill is formally titled 'To impose requirements on digital exchanges, and for other purposes.'

What does SHORT TITLE. of S 1405 do?

This bill is formally titled the 'Proving Reserves Of Others' Funds Act' or the 'PROOF Act'.

What does DEFINITIONS. of S 1405 do?

This section defines key terms used throughout the Act. A 'covered asset' is defined as money, an asset, or property of a customer of a digital exchange, excluding proprietary funds and assets in margin accounts. A 'digital asset' is any digital representation of value recorded on a cryptographically secured digital ledger. A 'digital commodity' is a fungible, intangible personal property that can be exclusively possessed and transferred without intermediary reliance, and is not an investment contract. A 'digital custodian' is an entity that holds, maintains, or safeguards digital commodities, assets, and other assets on behalf of a customer, except during clearing or settling processes. A 'digital exchange' is a trading facility listing at least one digital commodity or digital asset. A 'digital wallet' is any device, medium, program, or service storing digital assets or commodities. An 'investment contract' is defined based on traditional securities law principles, involving an investment of money in an enterprise with the expectation of profit derived from the sponsor's efforts. Membership in a decentralized autonomous organization does not automatically constitute holding an investment contract. The 'Office' refers to the Office of Domestic Finance of the Department of the Treasury, and the 'Under Secretary' refers to the Under Secretary of the Treasury for Domestic Finance.

What does REQUIREMENTS FOR DIGITAL EXCHANGES REGARDING TREATMENT OF of S 1405 do?

This section establishes requirements for digital exchanges regarding the treatment of customer assets. Digital exchanges must establish accounting standards and procedures to protect and ensure the safety of customer assets. Exchanges are required to hold customer assets in a manner that minimizes the risk of loss and delays in customer access. Exchanges generally must treat customer assets as belonging to the customer and are prohibited from co-mingling them with non-covered assets or using them to secure other accounts. Exceptions to the co-mingling prohibition exist for deposits into banks, trust companies, or qualified digital custodians, and for withdrawals necessary for business operations like margin or settlements. Customers may explicitly consent to the exchange substituting covered assets. The Under Secretary can impose civil penalties on digital exchanges found to be in violation of this section, referencing penalties described in section 4(c)(1)(A). Failure to satisfy requirements outlined in section 4(a) is deemed a failure to satisfy the requirements of this section.

What does ATTESTATION REQUIREMENTS. of S 1405 do?

This section establishes attestation requirements for digital exchanges and digital custodians. Each entity must obtain monthly attestations from an independent auditing firm verifying proof of reserves, accompanied by supporting evidence. If an entity cannot secure an independent auditing firm, it may contract with a disinterested third party, subject to the same requirements. The Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants are tasked with developing a standard for these attestations through a public comment process and advisory committee. Reports detailing cryptographic proof of possession of keys, verification of reserves, and verification of liabilities must be submitted to the Under Secretary and made publicly available. The Under Secretary can impose civil penalties for non-compliance, with escalating amounts based on the number of failures within a 24-month period. The Under Secretary may waive penalties if the failure was due to an auditing firm's actions and entities can appeal imposed penalties. This section's effective date is contingent upon the joint approval of an industry standard by the Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants.

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PROOF Act — S. 1405

Last updated: 4/10/2025 · Introduced: 4/10/2025

Author: Thomas Tillis (R-NC)

TL;DR (AI)

The PROOF Act requires digital exchanges to establish accounting standards and procedures to protect customer assets, prohibiting them from co-mingling these assets with non-covered assets or using them to secure other accounts, with limited exceptions.
Digital exchanges and digital custodians must obtain monthly attestations from independent auditing firms or disinterested third parties to verify proof of reserves, cryptographic key possession, and liabilities, and publicly disclose these reports.
The Act establishes civil penalties for non-compliance with these requirements, with amounts escalating based on the frequency of failures, and is contingent on the development and approval of an industry standard by the Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants.

119th Congressin committeeOfficial page

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Includes provisions on preamble, short title., and 3 more.

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