SEC Chair Gary Gensler stated on Wednesday that the Financial Innovation and Technology for the 21st Century Act would be detrimental to investors and the work of the U.S. Securities and Exchange Commission. “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, putting investors and capital markets at immeasurable risk,” he stated.
The House Financial Services Committee and the House Agriculture Committee collaborated to draft FIT21, a bill that aims to make clearer how the SEC and Commodities Futures Trading Commission (CFTC) regulate cryptocurrencies.
It adds a word “digital commodity” to digital assets that fall outside of the bill’s definition of a security, making them subject to the CFTC’s jurisdiction. Gensler claims that FIT21 removes investor protections, potentially permits investors to take on excessive risk without providing the necessary disclosures, disregards Supreme Court precedent in the Howey Test, puts the agency in a difficult position when certifying self-proclaimed digital commodity issuers, and disregards long-standing precedent for the regulation of investment contracts.
According to Gensler, U.S. securities laws were created following the Great Depression to provide investors and regulators with tools to protect consumers by requiring disclosures. According to him, those involved in the cryptocurrency sector have not shown a willingness to follow these rules. Investment contracts that are stored on a blockchain would no longer be available through the bill. the federal securities laws’ well-established safeguards, including the statutory definition of securities,” he stated. “By removing this set of investment contracts from the statutory list of securities, the bill implies what courts have repeatedly ruled – but what crypto market participants have attempted to deny – that many crypto assets are being offered and sold as securities under existing law.”
Although the measure allows businesses to self-certify that they are issuing “digital commodities,” it also provides the SEC sixty days to determine whether the assets in question actually qualify as digital commodities. He claimed that considering the quantity of digital assets in circulation, that is insufficient time. In addition, Gensler criticised the bill’s definition of a digital commodity, claiming that it disregarded asset economic reality and the Howey Test precedent. In light of it, the measure may “increase risk to the American public,” he warned, in addition to the framework for investor protection it establishes for cryptocurrency investors and its exclusion of exchanges.
According to Gensler, FIT21 may potentially be detrimental to the United States’ wider financial markets by enabling businesses to attempt to evade SEC supervision through the use of decentralised networks. Though the plan does not yet have a clear path through the Senate and is unlikely to become law this year, the House of Representatives is poised to vote on it later on Wednesday.