On Wednesday, U.S. Securities and Exchange Commission Chair Gary Gensler criticized the proposed Financial Innovation and Technology for the 21st Century Act, or FIT21 Act, which aims to overhaul the cryptocurrency industry’s regulatory framework.
Gensler warned that the proposed bill could undermine decades-old investor protections and create major regulatory gaps. Let’s examine Gensler’s key concerns.
Gensler emphasized that moving oversight of some crypto assets from the SEC to the Commodity Futures Trading Commission would create new regulatory gaps under the FIT21 Act.
“The Financial Innovation and Technology for the 21st Century Act would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk.”
A critical aspect of Gensler’s criticism is that the act allows crypto firms to self-certify their products as “decentralized” and, in turn, outside the purview of SEC oversight. According to Gensler, this could enable fraudulent schemes to evade regulatory scrutiny.
“What if perpetrators of pump-and-dump schemes self-certify as decentralized systems?”
In his opinion, this loophole might lead to serious investor risk and potential fraud.
Gensler noted that the Bill would exclude many crypto assets from being classified as securities, removing them from the strict disclosure and protection requirements enforced by the SEC.
“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,” he stated, indicating that many crypto assets are indeed being offered and sold as securities under existing law.
Despite Gensler’s concerns, the FIT21 Act has gathered great support from the crypto industry and the political class.
Sixty major crypto organizations, including Gemini, Kraken, Coinbase, and the Digital Currency Group, have endorsed the bill. They argue that the current securities laws, approaching a century in age, are ill-suited for the digital asset era.
The measure also has the support of former President Donald Trump and several GOP lawmakers, seeing it as a way to modernize and streamline crypto regulation.
On the other hand, opponents of the FIT21 Act, like financial reform groups and some Democratic lawmakers, agree with Gensler’s reservations about investor protections. They said the act could lead to an erosion of regulatory safeguards and open up the broader $100 trillion capital markets to risks associated with under-regulated digital assets.
Gensler commented as the U.S. House of Representatives prepares to vote on the bill.
With an uncertain path ahead of it in the Senate, the next bipartisan meeting will decide whether the FIT21 Bill will be passed to the House.
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