The “21st Century Financial Innovation and Technology” Act aims to share responsibility for the sector between the two main American agencies responsible for regulating financial markets.

The lower house of the United States Congress adopted on Wednesday, May 22, a legal framework intended to regulate the cryptocurrency market, arousing enthusiasm among defenders of these assets but fears of increasing potential risks for financial markets.

The law for “financial innovation and technology of the 21st century” (FIT21), carried by Republican elected officials in the House of Representatives, aims to share responsibility for the sector between the two main American agencies responsible for regulating financial markets , the SEC (Securities and Exchange Commission) and the CFTC (Commodity Futures Trading Commission).

The CFTC would focus on decentralized assets, which is the case for the vast majority of cryptocurrencies, while the SEC, whose mission is to protect small holders, would see its power weakened with its responsibility for cryptocurrencies which largely remain controlled by their creators.

The head of the SEC opposes this text

“The SEC and the CFTC are currently engaged in a tug-of-war for control of this asset class,” quipped Patrick McHenry, chairman of the Financial Services Committee of the House of Representatives.

“They have created an impossible situation in which the same companies are subject to competing and contradictory measures from two different agencies,” he lamented in a press release. For defenders of the sector, neither agency is really capable of controlling the markets, due to an approach that they consider outdated and unsuitable rules.

For Republican elected officials, FIT21 will strengthen supervision, while the use of cryptocurrencies has developed rapidly, with more transparency and accountability of the exchange platforms and the agents involved.

But SEC boss Gary Gensler is opposed to this text, which could have difficulty passing the Senate, with a Democratic majority. In a press release, Gary Gensler estimated that the law “will create new regulatory gaps and weaken several decades of know-how in the regulation of investment contracts, putting investors and financial markets at great risk.” According to him, investment contracts recorded in the blockchain would no longer be considered securities, which would, in fact, remove them from SEC supervision and reduce investor protection.

No “sufficient protections”

With this law, companies in the sector could then self-certify investments and products in a particular category of “digital goods”, which would allow them to avoid SEC supervision, insisted Gary Gensler. Concerns brushed aside by elected French Hill, who heads the subcommittee responsible for digital assets: “Contrary to what some detractors claim, this bill does not create a system that is “a little light” for cryptocurrency crooks and does not prevent the SEC from controlling its markets.”

If it said it was ready to work with Congress to “guarantee a comprehensive and balanced regulatory framework for digital assets”, the administration of President Joe Biden opposes the bill, believing that it does not offer no “sufficient protections for consumers and investors”. Around sixty companies, for their part, supported the bill, which also received the favor of Joe Biden’s Republican presidential rival, Donald Trump, who has also started to accept donations in cryptocurrencies.

Sébastien Bordry with AFP


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