Markets
SEC’s Gensler Says Bill Would ‘Undermine’ Regulator’s Crypto and Capital Markets Oversight
The Financial Innovation and Technology for the 21st Century Act would hurt investors and undermine the work of the U.S. Securities and Exchange Commission, SEC Chairman Gary Gensler said Wednesday.
“The Financial Innovation and Technology for the 21st Century (‘FIT 21’) Act would create new regulatory loopholes and undermine decades of precedent regarding oversight of investment contracts, putting investors and capital markets at immeasurable risk,” he said .
FIT21 is a joint bill produced by the House Agriculture Committee and the House Financial Services Committee and aims to clarify how the SEC and the Commodity Futures Trading Commission (CFTC) oversee crypto. It creates a “digital commodity” term for digital assets that do not meet the bill’s security definition, placing these assets under the purview of the CFTC.
According to Gensler, FIT21 ignores long-standing precedents for how investment contracts are regulated, puts the agency in a difficult position to certify self-proclaimed issuers of digital commodities, ignores Supreme Court precedent on the Howey Test, removes protections from investors and potentially allows investors to take excessive risks without appropriate disclosures.
U.S. securities laws were developed after the Great Depression to protect consumers by forcing disclosures and giving the regulator and investors tools to protect customers, Gensler said. Crypto industry participants are unwilling to comply with these regulations, he said.
“The bill would remove investment contracts recorded on a blockchain from
the legal definition of securities and the time-tested protections of much of the federal government
securities laws,” he said. “By removing this set of investment contracts from the legal list of securities, the bill implies what courts have repeatedly ruled – but what crypto market participants have sought to deny – that many cryptographic assets are being offered and sold as securities under existing legislation.”
While the bill includes a provision for companies to self-certify that they are issuing “digital commodities,” it gives the SEC 60 days to evaluate whether those assets meet the bill’s definition of a digital commodity. That’s not enough time given the amount of digital assets in circulation, he said.
Gensler also addressed the way the bill defined a digital commodity, saying it ignored Howey Test precedent and the economic realities of assets. Between this, the investor protection framework the bill establishes for cryptocurrency investors, and the exclusion of exchanges, the bill could “increase the risk to the American public,” he said.
FIT21 could also harm broader U.S. capital markets, Gensler said, by allowing companies to try to avoid SEC oversight by using some type of decentralized network.
The House of Representatives is expected to vote on the bill later this Wednesday, although it currently has no clear path through the Senate and is unlikely to become law this year.