- The US Congress is gearing up to vote on the FIT21.
- Gary Gensler is protesting against the crypto bill.
- The SEC Chair claims the new bill could put Americans at immeasurable risk.
Lawmakers in the United States are gearing up to vote for the Financial Innovation and Technology for the 21st Century Act (FIT21), a legislative initiative designed to clarify the regulatory and investor concerns about digital assets like cryptocurrencies.
However, since the transformative crypto bill seeks to clearly define how US regulators and investors approach novel assets like cryptocurrencies, it has encountered staunch opposition from the SEC’s top chief, Gary Gensler, who accuses it of breaking decades-old tradition.
Crypto Not Playing by SEC’s Century-Old Rules
Gensler began his official statement on Wednesday with a history lesson, recounting how and why the SEC was created 90 years ago—to protect the public. The SEC chair argued that the rules established nearly a century ago for assets that likely don’t exist today are still suitable for governing the modern crypto landscape, an asset class born just 15 years ago.
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The SEC chair criticized the crypto industry for not conforming to decades-old laws and regulations, dismissing their calls for a much clearer and transparent regulatory framework. He proudly asserted that “history has shown for 90 years” that the SEC’s laws build trust and “foster innovation.”
Shifting gears from his trip down memory lane, Gensler took aim at the new FIT21 crypto act, claiming it would expose millions of Americans to “immeasurable risk” by disrupting a regulatory norm that has stood the test of time.
Gensler Worried About Limited Crypto Industry Oversight
“FIT21 would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk,” Gensler protested.
The SEC chief expressed fear that the upcoming crypto bill would exempt cryptocurrencies from the regulator’s oversight. This is particularly because the bill looks to redefine investment contracts recorded on a blockchain, potentially excluding them from being classified as securities.
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Gensler warned that the FIT21 bill would allow crypto firms to self-certify their crypto investments and products as “decentralized” and under a “special class” of “digital commodities” and thereby avoid scrutiny by the SEC.
Highlighting the thousands of crypto projects in the market, Gensler feared that a significant portion could be left unregulated since the SEC didn’t have enough resources to challenge all certifications effectively.
“What if perpetrators of pump and dump schemes and penny stock pushers contend that they’re outside of the securities laws by labeling themselves as crypto investment contracts or self-certifying that they are decentralized systems?” he argued.
Gensler also questioned the bill’s departure from the Howey test, a longstanding standard for determining securities status, expressing disappointment at the proposed changes.
Gensler Champions 80-Year-Old Howey Test as Perfect For Crypto Regulation
Despite originating in 1946, the Howey test remains the SEC’s go-to litmus test for determining whether assets fall under securities laws. The commission often relies on this age-old test while targeting cryptocurrencies, as evidenced by its case against Ripple.
In his statement, Gensler objected to FIT21’s approach of determining whether a crypto project falls under securities laws based on the accounting ledger it used. The SEC chair, instead, advocated for using an 80-year-old test over assessing assets based on their underlying technology.
The SEC chair concluded his statement, maintaining,
"The crypto industry’s record of failures, frauds, and bankruptcies is not because we don't have rules or because the rules are unclear...”
“It’s because many players in the crypto industry don’t play by the rules,” he added.
Despite Gensler’s protest against the new crypto act, the House gears up for a crucial vote.
House Prepares to Vote For FIT21 Crypto Bill
The United States House Financial Services Committee announced on May 10 that it is preparing for a full floor vote on the FIT21 act.
The FIT21 bill, passed out of committee in July 2023, seeks to clarify how digital assets are regulated by clearly defining the roles of the US CFTC and the SEC. It is the first time the committee has marked up crypto-specific legislation, with lawmakers highlighting that these bills are necessary to prevent the US from falling behind other countries in regulating crypto.
If passed, the act could significantly change how crypto is regulated, giving the industry much-needed clarity. Many crypto companies, including Gemini, Kraken, Coinbase, and the Digital Currency Group, have signed a letter supporting the bill stating that digital asset firms are currently tied to securities laws designed nearly a century ago.
On the Flipside
- Earlier in May, the US House of Representatives passed a groundbreaking resolution to overturn the SEC’s crypto accounting guidance. However, President Joe Biden threatened to veto it before they could celebrate.
- In a new statement, President Biden’s administration shared that although it opposes the FIT21 act, it is eager to work with Congress.
- Legislators have repeatedly questioned the SEC’s use of the Howey Test, which many label outdated.
Why This Matters
Gary Gensler’s tenure as the SEC’s chair has been marked by a relentless crackdown on the crypto industry. While some of the regulator’s interventions were warranted, its adherence to outdated regulations is stifling innovation and driving talent away. Gensler’s recent statement underscores his rigid stance on cryptocurrencies and his resistance to embracing change and progress.
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