A new bill introduced in the US Congress last week by Sen. Cynthia Lummis and Sen. Kirsten Gillibrand on crypto regulation is not sitting well with US Securities and Exchange Commission Chairman Gary Gensler.
According to Gensler, the impact of the proposed crypto legislation could have ramifications on the regulation of the capital markets. He highlighted the likely implications that could hit the $100 trillion market, in this case cascading to stock exchanges or mutual funds.
He opined that “like behaviors should have like treatment,” ostensibly referring to the regulation of securities.
The SEC chair noted this in comments made during a Wall Street Journal interview on Tuesday.
What’s in the Lummis-Gillibrand bill?
In brief, the Lummis and Gillibrand’s bill seeks to have a clear demarcation of what qualifies as securities and thus falls under the purview of the SEC. It also seeks to have the Commodities Futures Trading Commodities (CFTC) regulate those cryptocurrencies not deemed as securities.
According to the SEC, this has the backflip effect of creating new meanings in a securities law that has been around for nearly a century. Simply, if the bill passes into law, it would see crypto token issuers not face stringent disclosure requirements as those applied to public companies.
Tokens are ‘securities’
Commenting on why this should not be the case, Gensler said tokens offer an “investment contract” and that the public expect returns on these investments. These, he added, are the “the characteristics of an investment contract.”
Accordingly, the tokens are securities and fall under the SEC’s regulatory purview just as companies do. A regulatory loophole as a result of the legislation will impact the rest of the market.
One of the longest running battles between the SEC and a crypto issuer is the 2020 lawsuit the watchdog brought against Ripple Labs and its top executives. The regulator maintains that XRP is a security, while Ripple says that’s not the case.
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