Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), issued a statement on May 22 expressing strong opposition to the Financial Innovation and Technology for the 21st Century (FIT21) Act.
The FIT21 Act is widely celebrated for offering regulatory clarity to the crypto industry. However, Gensler has criticized it, arguing that the bill would weaken current consumer protections in the crypto market.
The President Biden administration said it opposes the bill’s passage. However, the White House clarified that it was willing to work with the US Congress to “ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities.”
Notably, the US House of Representatives is scheduled to vote on the bill later today, May 22.
Gensler’s dissent
Gensler warned that the proposed bill would create significant regulatory gaps, undermining decades of precedent in overseeing investment contracts and putting investors and capital markets at substantial risk.
The SEC chair further highlighted that the regulation would prevent blockchain-based investment contracts from being classified as securities. This change would enable crypto investment contract issuers to self-certify their products as decentralized, effectively removing them from SEC oversight. He added:
“The SEC would only have 60 days to review and challenge the certification that a product is a digital commodity. Those that the SEC successfully challenges would be re-classified as restricted digital assets and subject to the bill’s lighter-touch SEC oversight regime that excludes many core protections. “
Moreover, Gensler criticized the bill for abandoning the Howey Test, a key method for determining if an investment qualifies as a security. He argued that this would lead to reduced protections for the few investment contracts that are considered securities. Additionally, he pointed out the risks posed by excluding crypto asset trading platforms from being classified as exchanges.
Gensler emphasized that the bill poses a significant threat to the American capital market and its investors. He stated that the legislation would undermine capital markets by allowing firms to evade enforcement actions more easily.
FIT21 enjoys support
Despite Gensler’s antagonism towards the bill, the proposed legislation enjoys strong support from the US Congress and the crypto community.
In a May 21 statement, Congressman French Hill, the Chairman of the Subcommittee on Digital Assets, Financial Technology, and Inclusion, said the bill gives the SEC authority over digital assets that are not certified under the legislation and would provide adequate securities to protect against another FTX-like situation.
Several crypto companies, including Coinbase, Circle, Kraken, Gemini, and advocacy group Stand With Crypto, have urged US lawmakers to support the legislation. The Crypto Council for Innovation (CCI) stated:
“FIT 21 will introduce new compliance challenges for digital assets companies, but regulatory clarity is indisputably more responsible, safer for consumers, and preferable to the status quo.”
As the bill awaits today’s vote, the White House has confirmed that it will not attempt to veto it if it passes, even though it does “oppose” the bill. The vote will likely now be one of the most important pieces of crypto legislation to be voted on by Congress.
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