On May 22, SEC Chairman Gary Gensler expressed strong opposition to the Financial Innovation and Technology for the 21st Century (FIT21) Act.

The FIT21 Act is praised for providing regulatory clarity to the crypto industry. However, Gensler criticized it, arguing it would weaken current consumer protections in the crypto market.

The Biden administration also opposes the bill but indicated a willingness to work with Congress to create a comprehensive and balanced regulatory framework for digital assets, building on existing authorities.

The US House of Representatives is set to vote on the bill later today, May 22.

Gensler's Concerns

Gensler warned that the bill would create significant regulatory gaps, undermining decades of precedent in overseeing investment contracts and putting investors and capital markets at substantial risk.

He pointed out that the regulation would prevent blockchain-based investment contracts from being classified as securities, allowing issuers to self-certify their products as decentralized and removing them from SEC oversight. Gensler added that the SEC would only have 60 days to review and challenge such certifications, with those successfully challenged being reclassified and subjected to a lighter-touch oversight regime excluding many core protections.

Moreover, Gensler criticized the bill for abandoning the Howey Test, a key method for determining if an investment qualifies as a security. He argued that this would reduce protections for investment contracts considered securities and pointed out the risks of excluding crypto asset trading platforms from being classified as exchanges.

Gensler emphasized that the bill threatens the American capital market and its investors by making it easier for firms to evade enforcement actions.

Support for FIT21

Despite Gensler's opposition, the proposed legislation enjoys strong support from Congress and the crypto community.

On May 21, Congressman French Hill, Chairman of the Subcommittee on Digital Assets, Financial Technology, and Inclusion, stated that the bill grants the SEC authority over digital assets not certified under the legislation and provides adequate securities to protect against another FTX-like situation.

Several crypto companies, including Coinbase, Circle, Kraken, Gemini, and advocacy group Stand With Crypto, have urged lawmakers to support the bill. The Crypto Council for Innovation (CCI) stated that FIT21 would introduce new compliance challenges but argued that regulatory clarity is more responsible, safer for consumers, and preferable to the current situation.

As the bill awaits today's vote, the White House confirmed it will not veto it if it passes, despite its opposition. The vote is expected to be one of the most important pieces of crypto legislation considered by Congress.