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U.S. Securities and Exchange Commission chairman Gary Gensler has expressed concerns that a proposed bill on how cryptocurrencies are regulated could weaken consumer protections.
The bipartisan bill, called the Responsible Financial Innovation Act, would clarify the role of various regulators in regards to cryptocurrency and shift some responsibility for the sector from the SEC over to the Commodity Futures Trading Commission (CFTC).
“We don’t want to undermine the protections we have in a $100 trillion capital market,” Gensler said on Tuesday at a Wall Street Journal event, when asked about the bill.
The dilemma over which agency should have authority over crypto comes down to the question of whether digital tokens are securities.
The Responsible Financial Innovation Act
The bill, proposed by Senators Cynthia Lummis and Kirsten Gillibrand, tries to clear up this confusion by relying on the Howey test, an approach which stems from a 1946 Supreme Court decision.
It takes the view that cryptocurrencies are “ancillary assets” and generally presumed to be a commodity, unless the asset is a debt or gives the holder a right to profit-sharing. This would place most tokens under the jurisdiction of the CFTC.
Gensler said that the SEC’s main goal was to “continue to protect people in these basic bargains” when it comes to investing.
He suggested that cryptocurrencies have some properties in common with shares.
“If you’re raising money from the public, the public’s anticipating a profit based on your entrepreneurial or other efforts,” Gensler said. “You’ve got to make basic disclosures and not mislead them.”
He also appeared to suggest that the change could provide a loophole for those who want to be outside of regulatory requirements.
“We don’t want our current stock exchanges, our current mutual funds, our current public companies to inadvertently, by the stroke of a pen, say: ‘You know what, I want to be non-compliant as well. I want to be outside of this regime’.”
He added that the existing rules have been “quite a benefit to investors and economic growth over the last 90 years”, referring to the Securities Act of 1933.
The Lummis-Gillibrand bill is not expected to pass the current Congress, but could get fresh momentum following the November 2023 midterm elections.