Regulation
House Passes Bill to Create New Cryptocurrency Framework Despite Rejection from Securities and Exchange Commission Chairman Gary Gensler
The House on Wednesday passed legislation that sets a new regulatory framework for when cryptocurrencies should be regulated by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).
The lower house voted 279-136 to pass the Financial Innovation and Technology for the 21st Century Act (FIT 21), despite opposition from SEC Chairman Gary Gensler. Seventy-one Democrats joined 208 Republicans in supporting the measure.
FIT 21 would classify digital assets, such as cryptocurrencies, as CFTC-regulated commodities if the blockchain they run on is “functional and decentralized.”
If their blockchain was “functional but not decentralized,” they would be considered securities and would fall under the purview of the SEC.
Gensler argued in a statement Wednesday that the legislation would “create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts.”
“The cryptocurrency industry’s record of failures, fraud and bankruptcy is not due to a lack of rules or the rules being unclear,” the SEC chairman said before the House vote. “It’s because many players in the cryptocurrency industry don’t 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,” he added.
Gensler noted that FIT 21 would abandon the Supreme Court’s long-standing test for securities classification and allow issuers to self-certify that their products are decentralized, making them digital commodities and removing them from SEC oversight.
This would allow much of the cryptocurrency industry to operate under “a light regulatory regime” with the CFTC, Rep. Maxine Waters (D-California), ranking member of the House Financial Services Committee, told the House on Wednesday.
“This is a bill where the crypto companies decided that they didn’t like the SEC, that they didn’t want to be regulated, and that they were going to come to the United States Congress, and they were going to use their power and they were going to use their employees to change the rules of the game,” Waters said.
Gensler is a unpopular figure in the industry due to its frequent enforcement actions against crypto companies and its hesitation to approve new cryptocurrency-based assets.
The SEC finally approved several exchange-traded funds (ETFs) holding bitcoin in January, but only after a federal court found that the agency had wrongly rejected an application for a spot bitcoin ETF.
Rep. French Hill (R-Ark.), who testified before the House Rules Committee on Tuesday in favor of the legislation, argued that it “does not create a ‘soft’ regime for crypto criminals nor prevent the SEC from being capable of doing so.” supervise its markets.”
“This bill does not create securities loopholes. This bill does not deregulate cryptocurrencies,” said the chairman of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion.
Instead, House Financial Services Chairman Patrick McHenry (R-N.C.) argued Wednesday that the bill helps resolve confusion in the current regulatory framework, in which the SEC and CFTC are “in a food fight over the control of these asset classes”.
“FIT 21 solves this problem by creating a regulatory framework that will provide clear rules of the road and strong protections for America’s engagement with the digital asset ecosystem,” McHenry told the House.
While the White House said in a statement Wednesday that it opposes FIT 21 due to its lack of “sufficient protections for consumers and investors,” it did not specifically threaten to veto the legislation.
“The Administration looks forward to working with Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities, that will promote responsible digital asset development and payments innovation and help strengthen industry leadership. United States in the global financial system,” he said.
Sheila Warren, CEO of the Crypto Council for Innovation, called Wednesday’s vote a “defining moment for the cryptocurrency industry.”
“The permafrost is melting and there is a feeling of positive momentum across Washington,” Warren said in a statement.
Kristin Smith, CEO of the Blockchain Association, highlighted the bipartisan nature of the vote.
“This bipartisan vote signals that lawmakers on both sides of the aisle recognize the immense potential of blockchain technology and digital assets, while also recognizing the need for regulatory guidance to enable responsible innovation and prioritize consumer protections,” he said Smith.
Updated at 6:12 pm EDT.
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