SEC’s Gensler says House bill would ‘undermine’ regulator’s oversight of cryptocurrencies and financial markets

The Financial Innovation and Technology for the 21st Century Act would harm investors and hinder the work of the U.S. Securities and Exchange Commission, SEC Chairman Gary Gensler said Wednesday.

“The Financial Innovation and Technology for the 21st Century Act (“FIT 21”) would create new regulatory gaps and undermine decades of precedent for oversight of investment contracts, exposing investors and financial markets at immeasurable risks,” he said.

FIT21 is a joint bill produced by the House Agriculture Committee and the House Financial Services Committee, and aims to clarify how the SEC and Commodity Futures Trading Commission (CFTC) oversee crypto. It creates a term “digital commodity” for digital assets that do not meet the bill’s definition of a security, placing such assets under the jurisdiction of the CFTC.

According to Gensler, FIT21 ignores long-standing precedent regarding how investment contracts are regulated, puts the agency in a difficult position to certify self-described digital commodity issuers, ignores Supreme Court precedent in the test Howey, removes investor protections and potentially allows investors to take excessive risks without proper disclosure.

U.S. securities laws were developed after the Great Depression to protect consumers by mandating disclosures and giving the regulator and investors tools to protect customers, Gensler said. Crypto industry players are not willing to comply with these regulations, he said.

“The bill would remove investment contracts recorded on a blockchain

the legal definition of securities and the proven protections of much federal law

securities laws,” he said. “By removing this set of investment contracts from the legal list of securities, the bill entails what the courts have repeatedly ruled – but what the Crypto market players have tried to deny – that many crypto assets are being offered and sold. as securities under applicable law.

Although the bill includes a provision allowing companies to self-certify that they are issuing “digital products,” it gives the SEC 60 days to evaluate whether those assets meet the bill’s definition of a digital product. That’s not enough time given the number of digital assets circulating, he said.

Gensler also took aim at how the bill defined a digital product, saying it ignored the precedent of the Howey test and the economic realities of assets. Between that, the investor protection framework the bill puts in place for crypto investors, and the exclusion of exchanges, the bill could “increase the risk to the American public,” he said .

FIT21 could also harm the broader U.S. capital markets, Gensler said, by allowing companies to try to avoid SEC oversight by using some sort of decentralized network.

The House of Representatives is expected to vote on the bill later Wednesday, although it does not yet have a clear path through the Senate and is unlikely to become law this year.