The House of Representatives on Wednesday passed legislation establishing a new framework for when cryptocurrencies should be regulated by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).
The House of Representatives voted 279-136 to pass the Financial Innovation and Technology for the 21st Century Act (FIT 21), despite opposition from SEC Chairman Gary Gensler. Seventy-one Democrats joined 208 Republicans in supporting the measure.
FIT 21 would classify digital assets, such as crypto, as commodities regulated by the CFTC if the blockchain they run on is “functional and decentralized.”
If their blockchain is “functional but not decentralized,” they would be considered securities and fall under the purview of the SEC.
Gensler argued in a statement Wednesday that the legislation would “create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts.”
“The crypto industry's reputation for failure, fraud and bankruptcies is not because we don't have rules or because the rules are unclear,” the SEC chairman said ahead of the House vote. “It's because many players in the crypto industry are not following the rules.”
“We must make the policy choice to protect the investing public rather than facilitating business models of companies that don't play by the rules,” he added.
Gensler noted that FIT 21 would abandon the Supreme Court's long-standing test for classifying securities and allow issuers to self-certify that their products are decentralized, making them digital commodities and subjecting them to SEC oversight withdrawn.
This would allow much of the crypto industry to operate under “a light regulatory regime” with the CFTC, Rep. argued. Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee, on the House floor Wednesday.
“This is a bill where the crypto companies decided that they didn't like the SEC, they didn't want to be regulated, and they were going to come to the United States Congress, and they were going to use their power and they were going to use their employees to to change the rules of the game,” says Waters.
Gensler is 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 ultimately approved several exchange-traded funds (ETFs) containing bitcoin in January, but only after a federal court ruled that the agency had improperly denied an application for a spot bitcoin ETF.
Rep. French Hill (R-Ark.), who testified before the House Rules Committee on Tuesday in favor of the legislation, asserted that it “does not create a 'light-touch' regime for crypto criminals nor prevent the SEC from being able to om oversees its markets.”
“This bill does not create any loopholes in securities law. This bill does not deregulate crypto,” said the chairman of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion.
Instead, House Financial Services Chairman Patrick McHenry (R-N.C.) argued Wednesday that the bill helps resolve the confusion within the current regulatory framework, in which the SEC and CFTC are “in a food fight for control of these asset classes.”
“FIT 21 addresses this by creating a regulatory framework that will provide clear rules of the road and strong guardrails for Americans engaging in the digital asset ecosystem,” McHenry said on the House floor.
Although the White House said in a statement Wednesday that it opposes FIT 21 due to a lack of “sufficient protections for consumers and investors,” it did not explicitly threaten to veto the legislation.
“The Administration is committed to working with Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities, that will promote the responsible development of digital assets and payments innovation and enhance United States leadership in global financial system will help strengthen. ” it said.
Updated at 5:54 PM EDT.
