U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler has publicly criticized the Financial Innovation and Technology for the 21st Century Act (FIT21 Act), a new bill set to be passed in the House of Representatives.
Gensler expressed significant concerns over its potential impact on investor protection and market stability.
In a statement on Wednesday, May 22, 2024, Gensler argued that the FIT21 Act would create substantial regulatory gaps, undermining decades of established oversight. He warned that the act could jeopardize investor safety and destabilize capital markets by shifting regulatory responsibilities away from the SEC.
Gensler highlighted that the act’s reclassification of crypto assets would effectively remove them from SEC oversight. This change, he contends, would hinder efforts to protect investors by stripping the SEC of its authority to regulate these assets as investment contracts.
The FIT21 Act aims to establish a comprehensive regulatory framework for the cryptocurrency ecosystem and proposes delegating more regulatory responsibilities to the Commodity Futures Trading Commission (CFTC). This approach has garnered significant support from the crypto industry and some political figures.
Over sixty crypto organizations, including major firms such as Gemini, Kraken, Coinbase, and the Digital Currency Group, have backed the bill. These supporters argue that current securities laws are outdated and ill-suited to digital assets.
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One of Gensler’s major concerns is the bill’s provision that could allow crypto firms to self-certify their investments and products as “decentralized” and classify them under a special category of “digital commodities.”
According to Gensler, this self-certification process could enable companies to bypass SEC scrutiny, potentially leading to insufficient oversight. He emphasized that such practices could undermine the integrity of the $100 trillion capital markets by allowing entities to evade rigorous disclosures and SEC enforcement mechanisms.
Additionally, Gensler criticized the bill for excluding crypto trading platforms from the definition of an exchange and removing historically tested frameworks, such as the Howey test, which has been instrumental in determining whether an asset qualifies as a security.
Notably, FIT21 is scheduled for debate and is expected to pass on Wednesday, May 22, 2024.
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