Tech
House passes bill to create new cryptocurrency regulatory framework despite resistance from Securities and Exchange Commission Chairman Gary Gensler
The House on Wednesday passed a bill that establishes a new regulatory framework for determining when cryptocurrencies should be regulated by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).
The lower house voted 279-136 to approve 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 cryptocurrencies, as regulated commodities under the CFTC if the blockchain on which they are executed is “functional and decentralized.”
If their blockchain was “functional but not decentralized,” they would be considered securities and fall under the SEC’s jurisdiction.
Gensler argued in a statement released Wednesday that the legislation would “create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts.”
“The cryptocurrency industry’s record of failures, fraud, and bankruptcy is not due to a lack of regulation or unclear rules,” the SEC chairman said before the House vote. “It’s due to many cryptocurrency industry players not playing by the rules.”
“We should make the political choice to protect the investing public rather than facilitate the business models of non-compliant companies,” 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 assets and exempting them from SEC oversight.
That would allow much of the cryptocurrency industry to operate under “a light-touch regulatory regime” with the CFTC, Rep. Maxine Waters (D-Calif.), the ranking member of the House Financial Services Committee, argued on the House floor Wednesday.
“This is a bill where cryptocurrency companies decided they didn’t like the SEC, they didn’t want to be regulated, and they were going to go to the United States Congress and use their power and use their employees to change the rules of the game,” Waters said.
Gensler is a unpopular figure in the industry due to its frequent enforcement actions against cryptocurrency firms and its hesitation in approving new cryptocurrency-based assets.
The SEC finally approved several exchange-traded funds (ETFs) that held bitcoin in January, but only after a federal court ruled that the agency had improperly rejected an application for a spot bitcoin ETF.
Rep. French Hill (R-Ark.), who testified Tuesday before the House Rules Committee in favor of the legislation, argued that it “does not create a ‘light touch’ regime for cryptocurrency scammers or prevent the SEC from being able to police its markets.”
“This bill does not create a securities loophole. This bill does not deregulate cryptocurrency,” said the chairman of the House Financial Services Subcommittee on Digital Assets, FinTech, and Inclusion.
Instead, House Financial Services Chairman Patrick McHenry (R-C.) argued Wednesday that the bill helps resolve confusion in the current regulatory framework, in which the SEC and CFTC are “in a tussle for control of these asset classes.”
“FIT 21 solves this problem by creating a regulatory framework that will provide clear rules of the road and strong protections for Americans interacting with the digital asset ecosystem,” McHenry told the House.
While the White House said in a statement Wednesday that it opposes FIT 21 because it lacks “sufficient protections for consumers and investors,” it did not specifically threaten to veto the legislation.
“The Administration looks forward to working with Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities, that will promote responsible digital asset development and payments innovation and help strengthen U.S. leadership in the global financial system,” he said.
Sheila Warren, CEO of the Crypto Council for Innovation, called Wednesday’s vote a “defining moment for the cryptocurrency industry.”
“The permafrost is thawing, and there is a sense of positive momentum across Washington, D.C.,” Warren said in a statement.
Kristin Smith, CEO of the Blockchain Association, emphasized the bipartisan nature of the vote.
“This bipartisan vote signals that lawmakers from both parties recognize the immense potential of blockchain technology and digital assets, while also recognizing the need for regulatory guidance to enable responsible innovation and prioritize consumer protections,” Smith said.
Updated at 6:12 PM EDT.