SEC Chair Stands Against FIT21 Act: Here's All

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

In a statement released on Wednesday, Gensler argued that the act would create significant regulatory gaps and undermine longstanding precedents regarding the oversight of investment contracts.

A Strong Opposition

Gary Gensler has expressed his concerns, stating that this could put both investors and capital markets at substantial risk.

“The FIT21 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”.
 

His most stressed argument against the FIT21 Act is centred around the classification of crypto assets as investment contracts. 
Gensler believes that the act – known as H.R. 4763 – would remove these assets from the SEC’s oversight, therefore hindering efforts to protect investors.

The Financial Innovation and Technology for the 21st Century Act has passed the House on May 22 with 71 Democrats and 208 Republicans in favour and 136 against.

H.R. 4763 would clarify how the SEC and Commodity Futures Trading Commission handle digital asset regulation. A significant bit of industry leaders and lawmakers have suggested that a lack of regulatory clarity in the crypto space has pushed some companies to leave the United States or staying and risking SEC enforcement actions.

The SEC chair highlighted that this bill could enable crypto firms to self-certify their investments and products as “decentralised” and classify them under a special category of “digital commodities”.

“The self-certification process risks investor protection not just in the crypto space; it could undermine the broader $100 trillion capital markets by providing a path for those trying to escape robust disclosures, prohibitions preventing the loss and theft of customer funds, enforcement by the SEC, and private rights of action for investors in the federal courts”.

What does this exactly mean? This self-certification process would limit the SEC’s ability to challenge these classifications due to resource constraints.

Gary Gensler cautions that such a process could potentially extend risks beyond the crypto space, threatening broader $100 million capital markets. Moreover, he has highlighted the danger of fraudulent schemes, such as pump and dump operations.

“The crypto industry’s record of failures, frauds, and bankruptcies is not because we don’t have rules or because the rules are unclear – it’s because many players in the crypto industry don’t play by the rules. We should make the policy choice to protect the investing public over facilitating business models of noncompliant firms.”

Source: White House

The White House has stated that it was “eager to work with Congress” for an alternative bill to establish a regulatory framework for crypto. The statement suggested that President Biden would not consider a veto of the FIT21 if passed, unlike SAB 121.

Recommended Read: SEC Crypto Accounting Rule Overturned?

Gensler’s firm stance against the FIT21 Act highlights a significant divide between regulators and the crypto industry over how digital assets should be governed.

Gensler shares a history of not being the biggest fan of cryptocurrencies, and has been making it extra hard for the community to flourish.

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