US House greenlights FIT21 crypto bill amid bipartisan agreement

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The US House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21) on May 22. The legislation, primarily driven by House Republicans, aims to establish a regulatory framework for the U.S. crypto markets. It includes consumer protections, appointing the primary regulator of digital assets and the overseer of non-securities spot markets—the Commodity Futures Trading Commission (CFTC)—and clarifying the distinctions between crypto tokens as securities or commodities.

71 Democrats and 208 Republicans voted in favour of the bill, while 3 Republicans and 133 Democrats opposed it. President Joe Biden opposed the bill in a policy statement but did not indicate he would veto it, unlike his recent stance when Congress tried to overturn an SEC effort to set a crypto accounting policy.

In statements released on Wednesday, the White House and SEC Chair Gary Gensler opposed the FIT21 bill. If enacted, the bill would potentially shift regulatory oversight, proposing that crypto assets deemed sufficiently decentralised should come under the jurisdiction of the CFTC, not the SEC.

Gensler expressed concerns that the FIT21 Act might introduce new regulatory gaps and potentially undermine longstanding precedents related to the oversight of investment contracts, posing significant risks to investors and capital markets. He highlighted that the bill proposes removing investment contracts recorded on a blockchain from the statutory definition of securities, which would exclude them from many of the established protections under federal securities laws.

Despite the limited Democratic backing, the crypto sector has praised bipartisan approval. Crypto exchange Coinbase highlighted the “strong bipartisan support,” CLO Paul Grewal referred to the 71 Democratic votes as “real progress” against the resistance to legislate. The bill is not yet law and awaits a Senate vote at a later date.

Despite broad bipartisan support, some lawmakers and regulators have opposed FIT21. Democratic Representative Maxine Waters criticised the bill, stating it would enable crypto companies to evade accountability after unlawfully earning billions through issuing or facilitating crypto securities trading.
FIT21 is designed to enhance consumer protection in the digital asset market by improving transparency and accountability among market participants. Digital asset developers will be required to provide accurate and relevant disclosures, including information about their project's operation, ownership, and structure. Institutions serving digital asset customers, such as exchanges, brokers, and dealers, will also have obligations.

FIT21 aims to strengthen the market by protecting digital asset projects. It will provide digital asset developers with a pathway to raise funds and establish a clear process for determining which digital asset transactions fall under the SEC and CFTC jurisdictions.

FIT21 seeks to protect institutions serving digital asset customers. It will establish clear lines between the SEC and CFTC jurisdictions and create comprehensive registration regimes to enable these institutions to lawfully serve customers in digital asset markets.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist.
Twitter: @bhardwajshash