On May 22, the Financial Innovation and Technology for the 21st Century Act (FIT21), led by the Republican Party was passed in the U.S. House of Representatives with 71 Democratic Party representatives and 208 Republicans. SEC Chair Gary Gensler opposed FIT21, citing new regulatory gaps and potential capital market instability. He believed it would undermine decades of investment oversight, put investors and capital markets at risk, and threaten the stability of U.S. capital markets.
What’s in the FIT21 Act?
The FIT21 Act, driven by the U.S. Republican Party, proposes a shift in regulatory authority from the Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC). This move is intended to modernize the regulatory framework to better fit the unique characteristics of digital assets. The bill suggests that crypto firms could self-certify their products as “decentralized” or as belonging to a “special class” of “digital commodities,” thus potentially bypassing stringent SEC oversight.
Why Gary Gensler Criticizes the Bill?
Gensler’s criticism is based on his belief that the FIT21 Act would require removal the classification of crypto assets as investment contracts, ultimately removing them from SEC oversight and weakening investor protection efforts. He argues that allowing crypto firms to self-certify could leave a significant portion of the crypto market unregulated due to limited SEC resources.
This could also provide a loophole for entities seeking to avoid disclosures and regulations that safeguard against customer fund loss and theft. Gensler expressed concerns that this could impact the broader $100 trillion capital market creating an easy path for scammers involved in schemes like pump and dump or penny stocks.
Prominent Figures Supporting the Bill
The FIT21 Act has gained support from various quarters, including 60 crypto organizations like Gemini, Kraken, and Coinbase. Additionally, influential political figures such as former U.S. President Donald Trump and current House Speaker Nancy Pelosi have shown support. Trump, in particular, has highlighted his interest by announcing the acceptance of campaign donations in cryptocurrency.
Benefits Of FIT21
FIT21 creates clear and functional government regulations for digital asset markets. It offers the strong consumer protections and regulatory certainty required for the digital asset ecosystem to thrive in the United States. This will establish American leadership of the future global financial system and reaffirm our status as an innovation powerhouse.
FIT21 strengthens the market by safeguarding digital asset projects:
- Digital asset developers will have a mechanism to raise funding.
- Participants will have a transparent methodology for determining which digital asset transactions are within the jurisdiction of the SEC and the CFTC.
