SEC Chair Gary Gensler Warns Crypto Bill Poses Risks to Investors and Capital Markets
SEC Chair Gary Gensler has expressed grave concerns about the potential impact of the Financial Innovation and Technology for the 21st Century Act (FIT21) on investors and the agency’s regulatory authority.
Gensler argued in a statement on Wednesday that the proposed legislation would put investors and capital markets at immeasurable risk by creating new regulatory gaps and undermining long-standing precedents regarding the oversight of investment contracts.
Key points:
- FIT21 is a joint bill produced by the House Agriculture Committee and the House Financial Services Committee, aiming to clarify the SEC and CFTC’s oversight of crypto.
- The bill creates a “digital commodity” term for digital assets that do not meet the definition of a security, placing them under the CFTC’s purview.
- Gensler argues that FIT21 ignores long-standing precedent for regulating investment contracts and removes investor protections.
- The bill could allow investors to take on excessive risk without appropriate disclosures and potentially harm the broader U.S. capital markets.
According to Gensler, FIT21 disregards the well-established precedent set by the Supreme Court in the Howey Test. The test has been used to determine whether an investment contract qualifies as a security.
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SEC Chair proposed legislation could create regulatory gaps
Gensler also criticized the bill’s provision for companies to self-certify that they are issuing “digital commodities.” He argued that the 60-day window given to the SEC to assess whether these assets meet the bill’s definition of a digital commodity is insufficient. This is given the vast number of digital assets in circulation.
Furthermore, Gensler expressed concerns about how the bill defines a digital commodity. He stated that it ignores the economic realities of assets and the precedent set by the Howey Test.
Gensler cautioned that the bill’s investor protection framework and the exclusion of exchanges could heighten the risk for the American public.
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The SEC Chair also cautioned that FIT21 might have unintended consequences for the broader U.S. capital markets. This is because it could allow companies to avoid SEC oversight by using decentralized networks.
Gensler’s comments come as the House of Representatives prepares to vote on the FIT21 bill later on Wednesday. However, the legislation faces an uncertain future in the Senate and is unlikely to become law this year.
