Blockchain
SEC’s Gensler Says House Bill Would ‘Undermine’ Regulator’s Oversight of Cryptocurrencies and Capital Markets
The Financial Innovation and Technology for the 21st Century Act would harm investors and hinder 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 Act (‘FIT 21’) would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, exposing investors and capital markets to immeasurable risk,” he said.
FIT21 is a joint bill produced by the House Agriculture Committee and the House Financial Services Committee, and is intended to clarify how the SEC and the Commodity Futures Trading Commission (CFTC) oversee cryptocurrencies. Creates a term “digital commodity” for digital assets that do not meet the law’s definition of security, placing such assets under the purview of the CFTC.
According to Gensler, FIT21 ignores long-standing precedent on how investment contracts are regulated, puts the agency in a difficult position for certifying self-proclaimed issuers of digital commodities, ignores Supreme Court precedent in the Howey Test, removes investor protections and potentially allows investors to take excessive risks without adequate disclosure.
U.S. securities laws were developed after the Great Depression to protect consumers by forcing disclosure and providing both the regulator and investors with tools to safeguard customers, Gensler said. Cryptocurrency industry participants are unwilling to comply with these regulations, she said.
“The bill would eliminate investment contracts recorded on a blockchain
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 does what courts have repeatedly established – but what cryptocurrency market participants have attempted to deny – that many cryptocurrencies are offered and sold as securities under current law.”
While the bill includes a provision allowing companies to self-certify that they are issuing “digital products,” it gives the SEC 60 days to evaluate whether such goods meet the law’s definition of a digital product. That’s not enough time given the number of digital assets out there, he said.
Gensler also took aim at how the bill defines a digital asset, saying it ignores the precedent of the Howey test and the economic realities of assets. Between all of that, the investor protection framework the bill establishes for cryptocurrency investors, and the exclusion of exchanges, the bill could “increase risk to the American public,” she said.
FIT21 could also harm broader U.S. capital markets, Gensler said, by allowing companies to try to avoid SEC oversight by using some sort of decentralized network.
The House of Representatives is expected to vote on the bill later Wednesday, although there is currently no clear path through the Senate and it is unlikely to become law this year.