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In a statement released on Wednesday, U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler expressed his strong opposition to the Financial Innovation and Technology for the 21st Century Act, also known as the FIT21 Act.
According to a transcript published by the SEC, Gensler believes that the proposed legislation, H.R. 4763, would undermine regulation and demolish investment contract oversight precedents — with grave consequences. He said:
[The legislation] 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’s primary concern is that FIT21 could allow crypto firms to self-certify their investments and products as “decentralized” and under a “special class” of “digital commodities,” thereby avoiding SEC scrutiny. He argues that the SEC’s ability to challenge these self-certifications would be limited by resource constraints, potentially leaving a large portion of the crypto market unregulated. He added:
Further, 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.
“Rules not unclear, but unfollowed”
Furthermore, Gensler pointed out that the bill excludes crypto trading platforms from the definition of an exchange and eliminates historically tested frameworks such as the Howey test, which he believes would ultimately put investors at risk. He emphasized that the crypto industry’s record of failures, frauds, and bankruptcies is not due to a lack of rules or unclear regulations, but rather because many players in the crypto industry do not adhere to the existing rules.
Despite Gensler’s concerns, FIT21 has garnered support from 60 crypto organizations, including Gemini, Kraken, Coinbase, and the Digital Currency Group. These organizations signed a letter stating that digital asset firms are currently being tied to securities laws designed nearly a century ago. The bill, led by the U.S. Republican Party, aims to entrust more responsibility to the Commodity Futures Trading Commission (CFTC) in regulating the larger crypto ecosystem.
Notable supporters of the bill include Republican candidate and former U.S. President Donald Trump and his advisors, who believe that FIT21 could provide a more comprehensive approach to regulating the crypto industry. The U.S. House of Representatives plans to vote on the bill later on Wednesday.
The news follows recent reports that the U.S. Senate has joined forces with the House of Representatives to nullify a SEC’s controversial crypto policy. The policy required companies holding customers’ cryptocurrencies to record them on their own balance sheets, potentially having significant capital implications for banks working with crypto clients.
Just yesterday Ethereum (ETH) has soared by about 21% within 24 hours after analysts started suggesting that the coin may soon see the approval of its own spot exchange-traded fund.
