US Congress passes crypto regulation bill criticized by SEC and Biden

On May 22, the United States House of Representatives adopted a bill titled “Financial Innovation and Technology for the 21st Century Act‘, which establishes a regulatory framework for cryptocurrencies and delineates responsibilities between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The CFTC would have the authority to regulate a digital asset as a commodity if the blockchain, or digital ledger, on which it operates is functional and decentralized, while the SEC would regulate a digital asset as a security if its associated blockchain is functional but not decentralized. decentralized.

The bill amends both the Securities Exchange Act of 1934 and the Commodity Exchange Act of 1936 to divide responsibilities between the SEC, which regulates the securities market, and the CFTC, which regulates derivative products such as contracts futures and options, based on the nature of the blockchain. . The bill classifies a blockchain as decentralized if “no one has unilateral authority to control the blockchain or its use, and no issuer or affiliated person has control of 20% or more of the digital asset or voting power of the digital asset.” The bill also excludes cryptocurrencies from the definition of “investment contracts” in the Securities Act of 1933.

Cryptocurrency developers are also subject to new disclosure rules, including information relating to the operation, ownership and structure of the digital asset project. Cryptocurrency exchanges, brokers and dealers will be required to provide appropriate information to clients, segregate client funds from their own and reduce conflicts of interest through registration, disclosure and operational requirements.

Why is this important

The central issue here is regulatory oversight. According to an explainer Coin Office, U.S. law defines “securities,” meaning financial instruments like stocks and bonds, as “investment contracts,” meaning that a person who invests money in a security “is led to expect profits solely from the efforts of the promoter or a third party. » If cryptocurrencies are considered securities, they would be subject to the SEC’s strict compliance regime. The SEC has argued that cryptocurrencies should be considered securities, while the CFTC insists on classifying them as interchangeable commodities, meaning one bitcoin is interchangeable with another bitcoin.

The bill has been criticized by many, including SEC Chairman Gary Gensler, who claimed the bill would “create new regulatory loopholes and undermine decades of precedent for oversight of securities contracts.” investment, thereby exposing investors and financial markets to immeasurable risks.” In a public statementhe made the following remarks:

• By excluding investment contracts recorded on a blockchain from the legal definition of securities, investors would no longer be protected by federal securities laws.
• The bill allows cryptocurrency issuers to self-certify whether their blockchains are decentralized or not and gives the SEC 60 days to contest their claims. However, Gensler argued that this time frame was not enough to adequately contest most claims. “Given the limitations on staff resources and the absence of new resources provided by the bill, it is implausible that the SEC would be able to review and challenge more than a fraction of these assets,” he said .
• The bill determines whether or not securities laws should apply to a cryptocurrency based on the nature of the blockchain, thereby abandoning the Supreme Court’s long-standing “Howey test.” “But it is economic realities that should determine whether an asset is subject to the federal securities laws, not the type of recordkeeping,” according to Gensler.
• The bill waters down regulations relating to cryptocurrencies that fall under the jurisdiction of the SEC.
• The legislation excludes cryptocurrency trading platforms from the SEC’s jurisdiction and therefore also excludes investors in crypto asset trading platforms from the protections enjoyed by other investors.
• The bill creates a broad exclusion for organizations that fall under the category called “Decentralized Finance.”
• The bill could functionally eliminate existing exemptions by creating a new exempt offering framework.
• He says: “The self-certification process contemplated by the bill puts investor protections at risk, not just in crypto; It could harm the broader $100 trillion capital markets by providing an avenue for those trying to evade rigorous disclosures, prohibitions preventing the loss and theft of client funds, enforcement by the SEC and investors’ private rights of action in federal courts. This could encourage non-compliant entities to try to choose which regulatory regimes they wish to be subject to – not based on economic realities, but potentially based on a label.

Gensler concludes: “The crypto industry’s record of failure, fraud and bankruptcy is not because we have no rules or because the rules are unclear. This is because many players in the crypto industry do not play by the rules. We should make the political choice to protect the investing public rather than facilitate the business models of non-compliant companies.

The passage of the bill comes against the backdrop of Congress’ rejection of the SEC bill. Staff accounting bulletin-121 (SAB-121), which examines personnel regarding the obligations a company had to protect users’ cryptoassets. On May 8, the House passed HJ RES. 109who overturned the ballot and declared that “such a rule shall have no force or effect.”

The White House criticized the resolution, arguing that this could “inappropriately limit the SEC’s ability to ensure appropriate safeguards and address future issues related to cryptoassets, including financial stability.” Additionally, President Biden threatened to veto the resolution if it were presented to him.

Biden also criticized the recently passed bill, stating that “HR 4763 in its current form does not have sufficient protections for consumers and investors who engage in certain digital asset transactions.” However, he expressed his willingness to work with Congress on developing legislation relating to digital assets.

Read also:

Stay up to date with technology news: Our daily newsletter with the day’s news from MediaNama, delivered to your inbox before 9am. Click on here to register today!

Fuente