Regulation
SEC Chairman Gensler Criticizes FIT21 Cryptocurrency Act, Warns of ‘New Regulatory Gaps’
The Financial Innovation and Technology for the 21st Century Act (FIT21) would undermine investor protection and hinder The SEC’s Regulatory Effortspresident of the financial supervisory body Gary Gensler declared Wednesday.
What happened: “FIT21 would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, exposing investors and capital markets to immeasurable risk,” Gensler warned.
A joint effort of the House Agriculture Committee and the House Financial Services Committee, FIT21 aims to outline the roles of the SEC and the Commodity Futures Trading Commission (CFTC) in cryptocurrency oversight.
The bill introduces the term “digital commodity” for digital assets not classified as securities, placing them under the jurisdiction of the CFTC.
Gensler argued that FIT21 ignores long-standing regulatory precedents for investment contracts and puts the SEC in a difficult position to certify self-proclaimed issuers of digital commodities.
He pointed out that the bill ignores the Supreme Court’s previous Howey Test, undermines investor protection, and potentially exposes investors to excessive risk without adequate disclosure.
“U.S. securities laws, developed after the Great Depression, were designed to protect consumers by mandating disclosure and providing tools for regulators and investors to safeguard customers,” Gensler noted.
He pointed out that the cryptocurrency industry is reluctant to comply with these established regulations.
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Gensler also criticized the bill aimed at removing investment contracts recorded on a blockchain from the legal definition of securities, thus excluding them from the protections of federal securities laws.
He pointed out that this exclusion contradicts court rulings that many crypto assets are offered and sold as securities under existing laws.
The bill’s provision that allows companies to self-certify as issuers of “digital commodities” is problematic, Gensler said, because it gives the SEC only 60 days to evaluate whether these assets meet the bill’s criteria, a time frame deemed insufficient given the large number of digital assets in circulation.
Gensler also expressed concern about the bill’s definition of a digital commodity, which he said ignores the Howey test and the economic realities of assets.
He warned that the bill’s investor protection framework and trading exclusion could increase risks to the public.
Additionally, Gensler warned that FIT21 could harm broader U.S. capital markets by allowing companies to evade SEC oversight through decentralized networks.
The House of Representatives is expected to vote FIT21 later Wednesday.
However, the bill has an uncertain future in the Senate and is unlikely to become law this year.
What’s next: For more insights into regulatory developments and their impact on the digital assets space, join industry leaders from Benzinga The future of digital assets event on November 19th.
This meeting will delve into the evolving role of digital assets in the global financial landscape.
Read next: SEC May Approve Ethereum Spot ETF “This Week:” Report
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