FIT21 Act opposed by SEC’s Gensler, cites risks to investors and markets

In a statement released Wednesday, Gary Gensler publicly stated his opposition to the Financial Innovation and Technology for the 21st Century Act.

Gensler’s statement noted the potential consequences of the FIT21 bill, stating that it would “create new regulatory loopholes and undermine decades of precedent regarding the oversight of investment contracts, placing investors and capital markets at immeasurable risk.”

The FIT21 bill, drafted by the House Agriculture Committee and the House Financial Services Committee, aims to clarify how the SEC classifies crypto by creating a “digital commodity” term for digital assets.

Gensler’s concerns

Gensler cited seven concerns about the bill, which primarily focus on removing investment contracts recorded on blockchain from the protection of federal securities laws. He argued that this removal would put investors at risk.

The bill also proposes a means for crypto contracts to be “decentralized” and outside the SEC’s oversight, effectively eliminating any involvement by the SEC. Companies would be allowed to self-certify that they “issue digital commodities,” and the SEC would be given only 60 days to confirm whether the asset meets the criteria for a digital commodity.

Gensler argues that more than 60 days are needed for the SEC to provide proper oversight.

“There are currently more than 16,000 crypto assets in existence,” Gensler wrote. “Given the limitations on staff resources and the new resources provided by the bill, it is unreasonable for the SEC to review and challenge more than a fraction of these assets.”

Gensler also argued that the bill would harm U.S. capital markets by allowing dubious investors and companies to bypass the SEC by claiming to be decentralized networks.

“What if perpetrators of pump-and-dump schemes and penny stock pushers claim to be outside securities laws by labeling themselves as crypto investment contracts or self-certifying that they are decentralized systems?” Gensler wrote.

The House of Representatives is expected to vote on the bill later Wednesday.

public responses

Alexander Grieve, head of government affairs at Paradigm, noted that “it is potentially notable that @garygensler did not specify whether this statement was in his personal or official capacity, or whether it represents the actual view of the @SECGov commission (both past and present).” To present). Reasonable rejection? Is Gary on an island? Time will show us.”

Ryze Labs Managing Partner Matthew Graham supported this sentiment, saying of “We know that ‘s not just a hack, it’s a partisan hack.”

The SEC’s politically motivated decision regarding the Ethereum ETF is a great outcome for the crypto industry. But it’s worth knowing that this further erodes the SEC’s legitimacy. We now know that Gensler was not just a hack, but a partisan hack. https://t.co/KA1juFJb5S

— Matthew Graham (@mattyryze) May 22, 2024

Congressman Wiley Nickel expressed partial support for the bill, humorously remarking: “Gary Gensler is right about one thing: Our securities laws are 90 years old!”

If FIT 21 is passed this week, it will be submitted to the Senate for approval and will not become law until the end of the year.