Zinger Key Points
- Gensler warned that FIT21 might harm broader U.S. capital markets by enabling companies to bypass SEC oversight.
- The House of Representatives is expected to vote on FIT21, but the bill faces an uncertain future in the Senate.
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The Financial Innovation and Technology for the 21st Century Act (FIT21) would undermine investor protections and hinder the SEC’s regulatory efforts, the financial watchdog’s Chair Gary Gensler stated on Wednesday.
What Happened: “FIT21 would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk,” Gensler warned.
A joint effort by the House Agriculture Committee and the House Financial Services Committee, FIT21 aims to delineate the roles of the SEC and the Commodity Futures Trading Commission (CFTC) in overseeing cryptocurrency.
The bill introduces the term “digital commodity” for digital assets not classified as securities, placing them under the CFTC’s jurisdiction.
Gensler argued that FIT21 disregards long-standing regulatory precedents for investment contracts and places the SEC in a difficult position for certifying self-proclaimed digital commodity issuers.
He emphasized that the bill overlooks the Supreme Court’s Howey Test precedent, compromises investor protections, and potentially exposes investors to undue risk without adequate disclosures.
“U.S. securities laws, developed after the Great Depression, were designed to protect consumers by enforcing disclosures and providing tools for regulators and investors to safeguard customers,” Gensler noted.
He pointed out that the crypto industry has been reluctant to comply with these established regulations.
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Gensler also criticized the bill for removing investment contracts recorded on a blockchain from the statutory definition of securities, thus excluding them from federal securities laws’ protections.
He highlighted that this exclusion contradicts court rulings that many crypto assets are offered and sold as securities under existing laws.
The bill’s provision allowing 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 timeframe he deemed insufficient given the vast number of digital assets in circulation.
Gensler also expressed concerns about the bill’s definition of a digital commodity, which he argued ignores the Howey Test and the economic realities of assets.
He cautioned that the bill’s investor protection framework and the exclusion of exchanges could increase risks to the public.
Moreover, Gensler warned that FIT21 might harm the broader U.S. capital markets by enabling companies to circumvent SEC oversight through decentralized networks.
The House of Representatives is expected to vote on FIT21 later on Wednesday.
However, the bill faces an uncertain future in the Senate and is unlikely to become law this year.
What’s Next: For further insights into regulatory developments and their impact on the digital asset space, join industry leaders at Benzinga’s Future of Digital Assets event on Nov. 19.
This gathering will delve into the evolving role of digital assets in the global financial landscape.
Read Next: SEC Could Approve Spot Ethereum ETF ‘This Week:’ Report
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