New crypto bill could undermine existing protections

SEC Chair Gensler speaks on new crypto regulations

Gensler again

The recent Bipartisan Responsible Financial Innovation Act would put some of the responsibility of the crypto sector away from the SEC and transfer it to the CFTC. As usual U.S Securities and Exchange Commission chairman Gary Gensler speaks on crypto and its regulation. He expressed concerns about the new proposed bill on the regulation of crypto and how that bill may weaken protections for consumers of crypto.

The bill is bipartisan meaning the bill is being cooperated on by the two main political groups of America. Named the Responsible Financial Innovation Act the legislation seeks to clarify roles of various regulatory entities in regards to cryptocurrency and DeFi. This would see the responsibility for the sector moved from the SEC over to the CFTC- The Commodity Futures Trading Commission.

At a Wall Street Journal event the SEC chair spoke on how important current protections of consumers are and that an undermining of those current protections is something that preferably can be avoided. The question is still whether digital assets are securities or not.

The Responsible Financial Innovation Act

Proposed by Cynthia Lummis and Kirsten Gillibrand, two American senators, the act relies on the Howey test to clear up this confusion.The Howey Test refers to the U.S. Supreme Court case for determining whether a transaction qualifies as an “investment contract,” and therefore would be considered a security and subject to disclosure and registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 19349( 2022)This would mean that cryptocurrencies can be viewed as “ancillary assets.”

Ancillary Assets

An ancillary asset is a non-core asset of a company. Ancillary assets are often related to the business, but they do not directly contribute to the core function of the business. Ancillary assets can include things like real estate, equipment and/or vehicles. Ancillary assets are usually presumed to be a commodity unless the asset is a debt or gives the right to profit shares. That would mean that most of the tokens out now are under the eye of the CFTC.

The Goal of the regulations is the same as always- to protect the consumer when making a purchase. Gensler suggests that crypto has some of the same properties as shares in stock. He spoke on not misleading the customer and that each customer that makes an investment into crypto is expecting some form of return. There was also some suggestion of loopholes for those wanting to be on the outside of the regulation. These loopholes were of the main concern for Gensler who stated that the SEC does not want to see public companies take advantage of new ways to perform unsavory business. The existing rules have been beneficial to consumers for at least 90 years since the Securities act of 1993.

At the time of this writing it is expected that the new regulations proposed by the Lummis-Gillibrand bill may not see the light of day with the current Congress but there are thoughts that the November 2023 midterms will provide the avenue needed for the reforms to take place.