Key Takeaways
- The bill received bipartisan support in the House with a vote of 279-136 but now faces an uncertain future in the Senate.
- Proponents of the bill argue that it will provide the necessary regulatory clarity that has been lacking, potentially fostering greater growth and innovation within the cryptocurrency industry.
- SEC Chair Gary Gensler strongly criticized the bill, stating it would undermine existing financial regulations and protections.
In a significant legislative move, the U.S. House of Representatives approved a bill on Wednesday that could reshape the legal landscape for digital currencies, passing the Republican-sponsored Financial Innovation and Technology for the 21st Century Act by a bipartisan vote of 279-136. The bill, which seeks to provide a new legal framework for digital currencies, now faces uncertainty in the Senate.
The legislation has garnered support from various lawmakers who believe it will offer much-needed regulatory clarity and foster growth within the cryptocurrency industry. This House approval aligns with a positive shift in the U.S. Securities and Exchange Commission (SEC), which recently indicated a potential green light for applications for spot ether exchange-traded funds (ETFs), signaling a boost for the sector.
“The bipartisan passage of H.R. 4763, the Financial Innovation and Technology for the 21st Century Act (“FIT21 Act”), is a welcome step to build our next generation of financial infrastructure,” said Nicole Valentine, FinTech Director, Milken Institute.
“Regulatory certainty and clarity for financial innovation are critical to the United States financial system’s growth, competitiveness, and resilience. The FIT21 Act supports the responsible innovation of digital assets and provides the clarity and guidelines necessary to innovate, build, and invest with a degree of certainty,” Nicole mentioned.
“We see promise in the growth of digital assets and blockchain technology to promote financial inclusion and economic mobility. The US House passage of the FIT21 Act signals to the world that the United States is ready to take the lead in setting global standards in this evolving frontier of finance,” Nicole added.
However, the bill has not been without its critics, most notably SEC Chair Gary Gensler, who issued a detailed warning about the potential risks the legislation poses to both investors and the broader financial market.
Gensler criticized the bill for creating “new regulatory gaps” and undermining “decades of precedent” in financial oversight, suggesting that it could place both investors and capital markets at significant risk.
Detailing his concerns, Gensler highlighted that the bill proposes to exempt blockchain-recorded investment contracts from the traditional definition of securities. This exemption would strip away many of the federal securities laws’ protections. Furthermore, the bill introduces a self-certification process for crypto issuers, labeling their products as “decentralized” and classifying them as “digital commodities,” which would not fall under SEC oversight.
One of the most controversial aspects of the bill is its departure from the Supreme Court’s established Howey test, which assesses the economic realities of an investment to determine its regulatory status. Instead, the bill opts for a system that bases such determinations on the labels and accounting ledgers used in transactions.
Gensler expressed alarm over the broader implications of this self-certification process, warning that it could potentially undermine the entire $100 trillion capital market by allowing entities to evade stringent regulations designed to protect investors.
He raised the possibility that this loophole could be exploited by actors involved in fraudulent schemes, such as pump and dump operations or penny stock promotions, who could avoid securities laws by labeling their activities under the guise of crypto.
The bill now heads to the Senate, where its fate remains uncertain. As the cryptocurrency industry watches closely, the broader implications of this legislative effort could redefine the balance between innovation and regulation in the burgeoning digital asset space.
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