SEC Chair Gary Gensler denounces crypto market bill ahead of House vote

U.S. Securities and Exchange Commission Chair Gary Gensler publicly expressed his dissent against the Financial Innovation and Technology for the 21st Century Act, or the FIT21 Act, in a statement released Wednesday.

“[FIT21] would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk,” said Gensler in the statement.

The SEC chair’s main argument centers on his belief that the act, H.R. 4763 , undermines the classification of crypto assets as investment contracts, which would remove them from the SEC’s oversight and hinder investor protection efforts.

Gensler argued that FIT21 could allow crypto firms to self-certify their crypto investments and products as “decentralized” and under a “special class” of “digital commodities” and thereby avoid scrutiny by the SEC. The agency's ability to challenge these self-certifications would be limited by resource constraints, potentially leaving a vast majority of the crypto market unregulated, Gensler said. 

“The self-certification [process] risks investor protection not just in the crypto space; it could undermine the broader $100 trillion capital markets by providing a path for those trying to escape robust disclosures, prohibitions preventing the loss and theft of customer funds, enforcement by the SEC, and private rights of action for investors in the federal courts,” Gensler said.

“What if perpetrators of pump and dump schemes and penny stock pushers contend that they’re outside of the securities laws by labeling themselves as crypto investment contracts or self-certifying that they are decentralized systems?” he added.

The SEC leader said that the bill excludes crypto trading platforms from the definition of an exchange and gets rid of historically tested frameworks such as the Howey test, which would ultimately put investors at risk.

Crypto market structure bill

FIT21, led by the U.S. Republican Party, takes a comprehensive approach to regulating the larger crypto ecosystem and aims to entrust more responsibility to the Commodity Futures Trading Commission. 

Last week, 60 crypto organizations including Gemini, Kraken, Coinbase and the Digital Currency Group signed a letter in support of the bill, which said that digital asset firms are currently being tied to securities laws designed nearly 100 years ago. 

Republican candidate and former U.S. President Donald Trump and his advisors are also in support of the crypto market structure bill, according to Forbes . Trump recently said that he would start accepting campaign donations in crypto. House Speaker Nancy Pelosi (D-CA) is also considering a vote for the crypto bill, The American Prospect reported Tuesday.

The U.S. House of Representatives plans to vote on FIT21 later on Wednesday, Forbes reported.

“The crypto industry’s record of failures, frauds, and bankruptcies is not because we don't have rules or because the rules are unclear,” Gensler said in his statement. “It’s because many players in the crypto industry don’t play by the rules.”