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Gary Gensler Criticizes Pro-Crypto FIT21 Act: Details

by BSC News

May 22, 2024

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Gensler argues that FIT21 would weaken investor protections by reclassifying certain digital assets as "digital commodities" under the CFTC’s purview.

Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), has expressed strong opposition to the Financial Innovation and Technology for the 21st Century Act (FIT21) in a May 22 statement

He claims the act would harm investors and hinder the SEC's work.

 

"The Financial Innovation and Technology for the 21st Century Act ('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," said Gensler on Wednesday.

 

The SEC Chair argues that the act undermines the classification of crypto assets as investment contracts. This change would remove them from the SEC’s oversight, potentially jeopardizing investor protection efforts. 

 

According to Gensler, the bill ignores Supreme Court precedent established in the Howey Test, removing crucial investor protections and potentially allowing investors to take on excessive risks without appropriate disclosures.

A Look Into The FIT21 Act

FIT21, a joint bill from the House Agriculture Committee and the House Financial Services Committee, aims to clarify the regulatory oversight of crypto by the SEC and the Commodity Futures Trading Commission (CFTC). It introduces a "digital commodity" term for digital assets that do not meet the bill's definition of a security, placing these assets under the CFTC's purview.

 

Last week, 60 crypto organizations, including Gemini, Kraken, Coinbase, and the Digital Currency Group, signed a letter supporting the bill. They argue that current securities laws, designed nearly 100 years ago, unfairly tie digital asset firms. 

 

Additionally, Republican candidate and former U.S. President Donald Trump and his advisors support the crypto market structure bill, with Trump even planning to accept campaign donations in crypto. House Speaker Nancy Pelosi (D-CA) is also considering a vote for the crypto bill, as reported by The American Prospect.

Risks of Self-Certification

Nevertheless, Gensler warns of the risks associated with allowing crypto firms to self-certify their investments and products as "decentralized" under a "special class" of "digital commodities." Due to resource constraints, the SEC may be unable to challenge these classifications due to this self-certification process, potentially leaving a significant portion of the crypto market unregulated.

 

Gensler questioned, "What if perpetrators of pump-and-dump schemes and penny stock pushers contend that they’re outside of the securities laws by labeling themselves as crypto investment contracts or self-certifying that they are decentralized systems?" 

 

As a result of the self-certification process, investor protection is at risk not just in the crypto space, but also in the broader $100 trillion capital markets, Gensler said.

 

He further stressed that excluding crypto trading platforms from the definition of an exchange and eliminating frameworks like the Howey test would ultimately endanger investors.

Calls for Clarity

Amidst this development, Adam Cochran, founder of Cinneamhain Ventures and a prominent market observer, recently criticized Gensler regarding the securities classification of cryptocurrencies. 

Cochran urged Gensler to clarify Ethereum's status, following the SEC’s request for revisions in spot Ether ETF applications. This call for clarity aligns with Bloomberg analysts' prediction of a higher chance of approval for an Ethereum ETF. 

 

Despite hints that the SEC might classify Ethereum as a security, recent developments suggest a possible shift in perspective.

 

Paul Grewal, Coinbase’s Chief Legal Officer, has also criticized the SEC’s hesitancy in approving ETF applications without substantial justification. 

Disclaimer

Disclaimer: The views expressed in this article do not necessarily represent the views of BSCNews. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. BSCNews assumes no responsibility for any investment decisions made based on the information provided in this article

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