23/05/24

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On May 22, the U.S. administration published a statement noting that it opposes passage of H.R. 4763, the Financial Innovation and Technology for the 21st Century (FIT21) Act, as it would affect the nation’s regulatory structure for digital assets. The statement came before the House of Representatives approved the bill.

Similarly, the chair of the U.S. Securities and Exchange Commission (SEC) Gary Gensler published a statement on the same day, noting that the legislation would bring about new regulatory gaps and undermine age-long precedence in terms of oversight of investment contracts, removing protections for investors and capital markets.

According to the administration, the bill currently does not have adequate protections for consumers and investors engaging in specific transactions related to digital asset transactions. Hence, the plan is to sustain collaboration with Congress to develop legislation for digital assets and provide solid guardrails for consumers and investors, as well as create what is required for innovation. However, the government said it needs more time for such collaboration.

In the words of Gensler, investment contracts recorded on a blockchain will be removed from the statutory definition of securities and the protections provided by the federal securities laws if the bill becomes law. This will negate the courts’ repeated rulings that numerous crypto assets are being offered and sold as securities under existing law.

It will allow issuers of crypto investment contracts to claim that their products are a “decentralized” system and should be considered a special class of “digital commodities”, thereby not subject to SEC oversight.

The legislation does not include crypto asset trading systems in the definition of an exchange, thereby removing protections for investors on crypto asset trading platforms. “These crypto trading platforms would be able to legally comingle their functions in a way that fosters conflicts of interest, may allow trading against their customers, and reduces custody protections for their customers,” said Gensler.

The chair concluded that the failures, frauds, and bankruptcies seen in the crypto industry are not due to the absence of rules or unclear rules, but due to numerous players within the industry not playing by the rules.