The recent statement from Gary Gensler, the head of the US Securities and Exchange Commission (SEC), was in the news in the financial and crypto industries. He spoke extensively against the precursor, the FIT21 Act, which seeks to introduce innovation to the already dynamic legal frameworks governing the emerging cryptocurrency industry. This has been an issue of heated debate for quite some time now. However, Gensler only came out openly and made his criticisms known on May 22nd.
The FIT21 Act seeks to transfer the powers to regulate the activities of the crypto industry to the Commodity Futures Trading Commission (CFTC). Yet, Gensler is still skeptical, though he received support last week from more than 60 notable crypto businesses, including Gemini, Kraken, Coinbase, and Digital Currency Group, on the need to update the archaic securities laws. These companies say the current laws that govern the sector were established almost a hundred years ago and are unfit for today’s modern world of digital assets.
According to an article published in The Block, Gensler voiced some concerns regarding the FIT21 Act, noting that it might lead to the emission of gaps in effective regulation and diluting existing frameworks in governing contracts for investments. He explained that if this new legislation was to sort crypto assets into a new category that effectively shields them from SEC regulation, this could prove detrimental to investor protection. The crypto firm identified Gensler as explicitly pointing out that allowing crypto corporations to self-certify their products as “decentralized” and classify them as “digital commodities” will free them from SEC regulation. He noted that requiring these self-certifications could be problematic for the already strained SEC, leading to a significant percentage of cryptocurrencies staying unregulated.
Gensler also explained that the dangers concerning the self-certification procedure are not constrained to endangering investor protection concerning the new industry of cryptocurrency; they also threaten the most significant capital market, which is estimated to be worth $100 trillion. This is because it offers an opportunity to those who want to avoid stringent rules on disclosure, limitations to customer funds and thefts, regulation by the SEC, and litigation for investors in the federal courts.
He further asked whether misuse can occur under the new act, adding, “What if pump and dump schemes and penny stock scamsters claim they are outside securities laws given that they call themselves crypto investment contracts or self-certify as decentralized systems?”
Furthermore, Gensler also accused the bill of erasing crypto trading platforms from the traditional definition of exchanges and of eliminating other effective measures, like the Howey test for evaluating digital assets, which he said are mandatory for safeguarding investors.
The FIT21 Act also enjoys the support of significant political actors, presidential candidates in the United States of America, the Republican Party, and the 45th president of the United States of America, Donald Trump, who declared his willingness to accept campaign contributions in cryptocurrencies. Also, another proposed bill that may be supported by Nancy Pelosi, the speaker of the House, has ongoing talks, as per The American Prospect.
As the debate continues, the future of regulating cryptocurrencies remains uncertain, and the outcome of this legislative war defines the future of investors and financial markets in particular.
