The House passed legislation establishing a new framework for regulating cryptocurrencies despite opposition from the SEC

On Wednesday, the House passed legislation establishing a new framework for regulating cryptocurrencies by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).

The lower house passed the Financial Innovation and Technology for the 21st Century Act (FIT 21) by a vote of 279 to 136, despite opposition from SEC Chairman Gary Gensler. Seventy-one Democrats joined the 208 Republicans in supporting the measure.

FIT 21 would classify digital assets such as cryptocurrencies as CFTC-regulated goods if the blockchain on which they operate is “functional and decentralized.”

If their blockchain is “functional but not decentralized,” they will be considered securities and fall under the SEC’s jurisdiction.

Gensler argued in a statement Wednesday that the legislation “would create new regulatory gaps and undermine decades of precedent for the supervision of investment contracts.”

“The crypto industry’s history of failure, fraud and bankruptcies is not due to a lack of rules or because the rules are unclear,” the SEC chairman said before the House vote. “This is because many players in the cryptocurrency industry are not following the rules.”

“We should make a policy choice to protect investors rather than facilitate the business models of non-compliant companies,” he added.

Gensler noted that FIT 21 would abandon the Supreme Court’s long-standing securities classification test and allow issuers to self-certify that their products are decentralized, making them digital goods and removing them from SEC oversight.

This would allow most of the crypto industry to operate under a “lenient regulatory regime” with the CFTC, Rep. Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee, argued on the House floor Wednesday.

“This is a bill where crypto companies decided they didn’t like the SEC, they didn’t want to be regulated, and they were going to come to the United States Congress, and they were going to use their power, and they were going to use their employees to change the rules of the game,” Waters said.

Gensler is an unpopular figure in the industry due to his frequent enforcement actions against crypto companies and his hesitance to approve new cryptocurrency-based assets.

The SEC finally approved several bitcoin ETFs in January, but only after a federal court found that the agency improperly rejected an application for a bitcoin spot ETF

Rep. French Hill (R-Ark.), who testified before the House Rules Committee on Tuesday in favor of the bill, stated that it “does not create a ‘soft’ regime for crypto fraudsters or prevent the SEC from policing its markets.”

“This bill does not create legal loopholes in securities. This bill does not deregulate cryptocurrencies,” said the chairman of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Social Inclusion.

Instead, House Financial Services Committee Chairman Patrick McHenry (R-N.C.) argued Wednesday that the bill helps resolve confusion in the current regulatory framework in which the SEC and CFTC are engaged in a “food fight for control of these asset classes.”

“FIT 21 addresses this problem by creating a regulatory framework that provides clear rules of operation and strong barriers for Americans engaging in the digital asset ecosystem,” McHenry said on the House floor.

While the White House said in a statement Wednesday that it opposes FIT 21 because it lacks “sufficient protections for consumers and investors,” it did not explicitly threaten to veto the legislation.

“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,” it said. .

Sheila Warren, CEO of the Crypto Council for Innovation, called Wednesday’s vote “a defining moment for the cryptocurrency industry.”

“The permafrost is melting and there is a positive feeling across Washington,” Warren said in a statement.

Blockchain Association CEO Kristin Smith emphasized the bipartisan nature of the vote.

“This bipartisan vote signals that lawmakers on both sides of the aisle recognize the enormous potential of blockchain technology and digital assets, while recognizing the need for regulatory guidance to enable responsible innovation and prioritize consumer protections,” Smith said.

Updated at 6:12 PM EDT.

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