FIT21, changes to digital assets regulations, House passes

(The Center Square) – Changes to regulations affecting the cryptocurrency industry passed the U.S. House of Representatives on Wednesday afternoon in legislation opposed by the White House.

Lawmakers voted 279 to 136, moving the Financial Innovation and Technology for the 21st Century Act – known colloquially as FIT21 – forward. Seventy-one Democrats were among the supporters.

Supporters of the legislation argue that consumers should be protected from the Securities Exchange Commission, which exploits regulation through enforcement. Critics say changes to the proposal introduced last year would result in massive deregulation of both cryptocurrencies and some traditional securities, weakening the strength of the U.S. capital market.

Rep. Patrick McHenry, RNC, chairman of the Financial Services Committee, described the tug of war between the SEC and the Commodity Futures Trading Commission over digital asset oversight. Rep. Maxine Waters, D-Calif., a ranking member of the committee, led the debate against the bill and at one point referenced former President Donald Trump’s theme: Make America Great Again.

“FIT21 will solidify U.S. global leadership in technology innovation, invention and adoption,” McHenry said on the House floor. “Unfortunately, our current regulatory framework prevents digital content innovation from reaching its full potential. The SEC and CFTC are currently fighting for control of these asset classes. They have created an impossible situation in which the same companies are subject to competing and conflicting enforcement actions by two different agencies, leaving consumers and innovators behind.

“FIT21 addresses this problem by creating a regulatory framework that will provide clear rules of operation and strong barriers for Americans engaging in the digital assets ecosystem. At its core, FIT21 applies time-tested consumer protections to ensure that the 20% of Americans who engage in the digital asset ecosystem can do so safely, so more Americans can also engage in the ecosystem. Today we have an opportunity to answer the calls of consumers, digital asset innovators and the Biden administration.”

McHenry called the vote “a monumental step toward ensuring regulatory clarity for the U.S. digital asset ecosystem.”

Waters said the bill removes much of the cryptocurrency industry from the purview of the Securities and Exchange Commission and allows it to operate under a “lighter regulatory regime” under the Commodity Futures Trading Commission, or as she put it, a “regulatory no man’s land.” , with no main regulator and virtually no regulation.”

She said post-cut language was added to the bill that would allow traditional securities to operate in a “regulatory no man’s land.” She cited the passage regarding “contract investment assets.”

Waters called the proposal an “extreme, MAGA, libertarian approach to regulation” and the most harmful proposal she has seen “in a long time.”

In accordance with the bill“The Commodity Futures Trading Commission must regulate digital assets as a commodity if the blockchain, or digital ledger, on which they are run, is functional and decentralized. The Act classifies a blockchain as decentralized if, among other things, no person has unilateral authority to control the blockchain or its use, and no issuer or related person has control over 20% or more of the digital asset or voting rights in the digital asset. Additionally, the Act provides the CFTC with exclusive regulatory authority over the cash or spot transactions of digital goods markets.

“The Securities and Exchange Commission must regulate digital assets as securities if the blockchain associated with them is functional but not decentralized. However, the Act establishes certain exceptions to SEC regulations for digital assets that limit annual sales, restrict access by non-accredited investors, and meet disclosure and compliance requirements. The bill also specifies requirements for transactions on the primary and secondary markets.

“The CFTC and SEC must jointly issue rules defining terms and exempting dual-registered exchanges from duplicative regulations.”

Rep. Wiley Nickel, D-N.C., supported McHenry and others. During the debate, he told the house that the rules used were written 90 years ago, before the Internet existed.

SEC Chairman Gary Gensler said Wednesday that the legislation could impact federal law and Supreme Court rulings on requirements imposed on securities issuers. He was against its passage.

Before the debate began, The White House issued a statement opposes the resolution, but has no intention of vetoing it.

The statement said in part: “The Administration is committed to working with Congress to ensure a comprehensive and sustainable regulatory framework for digital assets, building on existing authorities, that will promote the responsible development of digital assets and payments innovation and help strengthen the United States’ leadership in the global financial system. HR4763 in its current form does not provide sufficient protection for consumers and investors who engage in certain digital asset transactions.”

The Biden administration said it hopes to work with Congress to develop better legislation.