House passes bill to create new cryptocurrency framework despite pushback from Securities and Exchange Commission Chair Gary Gensler

The House of Representatives on Wednesday passed a bill that would create a new framework for when virtual currencies should be regulated by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).

The House passed the 21st Century Financial Innovation and Technology Act (FIT 21) by a vote of 279-136, despite opposition from SEC Chairman Gary Gensler.

FIT 21 classifies digital assets such as virtual currencies as regulated products by the CFTC if the blockchain on which they run is “functional and decentralized.”

If blockchains are “functional but not decentralized,” they would be considered securities and fall under the SEC’s jurisdiction.

Gensler argued in a statement Wednesday that the bill “creates new regulatory gaps and undermines decades of precedent for the oversight of investment contracts.”

“The crypto industry’s record of failure, fraud, and bankruptcy is not because there are no rules or because the rules are unclear,” the SEC chairman said before the House vote. “Because many players in the crypto industry are not following the rules.”

“We should choose policies that protect ordinary investors rather than promote the business models of non-compliant companies,” he added.

Gensler said FIT 21 eliminates the security classification test long used by the Supreme Court and allows issuers to self-certify that their products are decentralized, making them digital products. , pointed out that the company would be removed from SEC oversight.

This would allow much of the crypto industry to operate under a “loose regulatory regime” by the CFTC, Rep. Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee, argued on the House floor on Wednesday.

“This bill represents crypto companies deciding they don’t like the SEC, they don’t want to be regulated, and they’re going to Congress and using their power and their employees to change the rules of the game,” Waters said.

Gensler has become an unpopular figure in the industry due to his frequent enforcement actions against crypto companies and his reluctance to approve new crypto-based assets.

The SEC eventually approved several exchange-traded funds (ETFs) that hold bitcoin in January, but only after a federal court found that the SEC had wrongfully rejected an application for a spot bitcoin ETF.

Rep. French Hill (R-Arkansas), who testified in favor of the bill before the House Rules Committee on Tuesday, argued that the bill “does not create a ‘light touch’ regime against cryptocurrency criminals, nor does it preclude the SEC from operating to police the market.”

“This bill does not create loopholes for securities. This bill does not deregulate cryptocurrencies,” said the chairman of the House Financial Services Committee’s Digital Assets, Financial Technology, and Inclusion Subcommittee. .

Instead, House Financial Services Committee Chairman Patrick McHenry (R-N.C.) argued Wednesday that the bill would help resolve confusion under the current regulatory framework, where the SEC and CFTC are “fighting over the governance of these asset classes.”

“FIT21 solves this problem by creating a regulatory framework that provides clear rules and strong guardrails for Americans who interact with the digital asset ecosystem,” McHenry said on the House floor.

The White House said in a statement Wednesday that it opposed FIT21 for lacking “sufficient protections for consumers and investors,” but did not explicitly threaten to veto the bill.

“The Administration is keen to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets that builds on existing authorities and that fosters the responsible development of digital assets and payments innovation. , will help strengthen U.S. leadership in the global financial system,” the statement said.

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