Wallets and Regulation

DRAFT LEGISLATION

A Bill

To establish minimum security and accreditation standards for cryptocurrency wallet providers, require ongoing professional education for developers, mandate structured consumer education, and provide for regulatory oversight to protect consumers and strengthen the security of digital asset ecosystems.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE. This Act may be cited as the “Digital Wallet Security and Accreditation Act of 20__”.

SEC. 2. FINDINGS AND PURPOSES. (a) Findings.— Congress finds the following: (1) Digital asset wallets enable users to exercise direct control over private keys and seed phrases, functioning as personal financial access points outside of traditional banking structures. (2) The unique nature of digital wallets introduces heightened consumer risk, including the potential for cryptographic vulnerabilities, user error in key management, and a lack of standardized disclosures. (3) Establishing minimum professional standards for wallet developers and requiring accreditation, periodic code audits, and continuing education will enhance consumer trust and promote robust security practices. (4) Providing users with structured, standardized educational materials regarding private keys, seed phrases, and best security practices will further protect consumers from fraud, loss, and misuse. (5) A flexible, principle-based regulatory framework, informed by evolving cybersecurity threats, will ensure that standards adapt over time while preserving the innovation and interoperability characteristic of digital asset markets.

(b) Purposes.— The purposes of this Act are to: (1) Improve consumer protection through the regulation of wallet providers and developers. (2) Establish mandatory accreditation, ongoing professional education requirements, and professional liability standards for wallet developers and providers. (3) Mandate transparent disclosures, secure key generation practices, and safe handling of private keys and seed phrases. (4) Require structured consumer education to promote secure wallet usage and mitigate risks. (5) Provide for regulatory oversight, enforcement mechanisms, and adaptability to emerging threats.

SEC. 3. DEFINITIONS. For purposes of this Act: (1) Digital Wallet; Wallet Provider.— The term “digital wallet” or “wallet” means any software, firmware, or hardware-based interface that facilitates access to digital assets on a blockchain, including hot wallets, cold wallets, single-signature wallets, and multi-party computation (MPC) wallets. A “wallet provider” means any entity engaged in developing, distributing, or maintaining such wallets for end users. (2) Private Key.— The term “private key” means a unique cryptographic value that grants control over associated digital assets on a blockchain network. (3) Seed Phrase.— The term “seed phrase” means a human-readable representation of a private key or a root key that can be used to derive multiple private keys and restore access to a digital wallet. (4) Accredited Developer or Provider.— The term “accredited developer or provider” means a wallet developer or provider that has met all accreditation standards established under this Act and maintains active compliance with continuing education and auditing requirements.

SEC. 4. ACCREDITATION AND PROFESSIONAL STANDARDS FOR DEVELOPERS AND PROVIDERS. (a) Initial Accreditation Requirements.— (1) Code Review and Auditing.— A wallet provider seeking accreditation under this Act shall submit its codebase to a certified third-party auditor for security testing, verification of cryptographic implementations, and review for known vulnerabilities. (2) Security by Design.— Accredited wallet providers shall demonstrate adherence to secure development lifecycles, encryption best practices, and industry cybersecurity standards equivalent to or exceeding ISO 27001. (3) Professional Training.— Key personnel in accredited organizations shall complete initial training on applied cryptography, secure coding practices, key management principles, compliance requirements, and threat modeling.

(b) Continuing Education and Recertification.— (1) Periodic Recertification.— Accredited developers shall complete continuing professional education credits on an annual or biennial basis, covering new cryptographic standards, emergent threats (including zero-day vulnerabilities), secure update mechanisms, and regulatory changes. (2) Professional Liability Insurance.— Accredited providers shall maintain professional liability coverage or participate in a regulated risk pool to ensure consumer compensation in the event of systemic security failures attributable to the provider’s negligence.

(c) Ethical and Professional Conduct Standards.— (1) Ethical Code.— Accredited developers and providers shall adhere to a code of conduct emphasizing user privacy, timely vulnerability disclosures, and cooperation with regulators and law enforcement in investigating breaches. (2) Penalties for Non-Compliance.— The regulatory authority established under section 6 may revoke or suspend accreditation for failing to meet these professional standards.

SEC. 5. CONSUMER EDUCATION REQUIREMENTS. (a) Mandatory Onboarding Education.— (1) Standardized Modules.— Accredited wallet providers shall present standardized, easily understandable educational content during the user onboarding process. Such content shall include guidance on seed phrase management, offline backup techniques, phishing awareness, verifying wallet authenticity, and recognizing fraudulent applications. (2) Ongoing User Awareness Updates.— Providers shall periodically prompt users to review and update their knowledge of best security practices, particularly following significant regulatory or technological changes.

(b) Central Repository of Resources.— (1) Publicly Accessible Repository.— A governing body designated under section 6 shall maintain an online repository of best practices, regulatory guidelines, frequently asked questions, and consumer-focused security tips. (2) Provider Linkage.— Accredited providers must maintain a direct, accessible link to this repository within their wallet interface, ensuring all users can access trusted information at any time.

SEC. 6. REGULATORY OVERSIGHT AND ENFORCEMENT. (a) Establishment of Oversight Authority.— (1) Designation.— The Secretary of [Designated Agency] shall designate a “Digital Wallet Security Board” (DWSB) or rely on an existing financial technology oversight division to administer, monitor, and enforce the provisions of this Act. (2) Duties.— The DWSB shall develop accreditation criteria, certify third-party auditors, issue guidance on compliance, and enforce penalties against non-compliant providers.

(b) Compliance and Audits.— (1) Regular Audits.— Accredited providers shall undergo periodic audits to ensure ongoing compliance with accreditation standards and consumer education requirements. (2) Penalties.— The DWSB may assess civil penalties, issue cease-and-desist orders, or pursue suspension or revocation of accreditation for violations. (3) Appeal Process.— Providers shall have the right to appeal enforcement actions through an administrative review process, with judicial review available thereafter.

SEC. 7. EXCEPTIONS AND SPECIAL RULES. (a) Exemptions.— The DWSB may establish de minimis thresholds or limited exemptions for wallet developers who serve a small user base or research institutions focusing solely on non-commercial, academic cryptographic research, provided such exemptions do not materially undermine consumer protections.

(b) Pilot Programs.— The DWSB may authorize pilot programs to test novel cryptographic techniques, user interface improvements, or emerging best practices under controlled conditions, granting temporary waivers from specific requirements as necessary.

SEC. 8. RELATIONSHIP TO OTHER LAWS. (a) Consistency With Existing Financial Regulatory Frameworks.— Nothing in this Act shall be construed to limit the application of existing financial, consumer protection, or data privacy laws. (b) Harmonization.— The Secretary of [Designated Agency] shall coordinate with other relevant agencies to avoid regulatory duplication and ensure harmonious integration with existing cybersecurity and consumer protection standards.

SEC. 9. EFFECTIVE DATE. This Act shall take effect 1 year after the date of enactment, except that the Secretary of [Designated Agency] may promulgate rules and regulations as necessary to carry out this Act beginning on the date of enactment.