April 19, 2024
Policy & Regulation

US Lawmakers Advocate Legislation over ‘Regulate by Enforcement’ for Digital Assets

Two members of the United States House of Representatives have joined the ranks of lawmakers criticizing Gary Gensler, the chair of the Securities and Exchange Commission (SEC), concerning his approach to regulating digital assets.

Representatives French Hill and Dusty Johnson expressed their concerns in a letter addressed to Gensler on July 19. They proposed that legislation would be a more effective means of addressing regulatory issues in the digital asset space than the SEC’s current stance of “regulating by enforcement.” The two lawmakers hold significant roles as chairs of subcommittees on Digital Assets, Financial Technology, and Inclusion, and Commodity Markets, Digital Assets, and Rural Development, respectively, within the House Financial Services Committee and House Agriculture Committee.

According to the letter, “Legislation would do far more to prevent future collapses of digital asset firms than enforcement actions.” They argued that a statutory framework could establish a process for firms to adhere to regulatory guidelines and consumer protections rather than solely relying on enforcement actions to penalize wrongdoers after the damage has already occurred.

Reps. Hill and Johnson also raised concerns about certain actions taken by the SEC, which they felt were strategically timed to garner maximum publicity and political impact, seemingly coinciding with related Congressional activity. Similar sentiments have been echoed by other members of Congress who questioned the timing of the SEC’s charges against former FTX CEO Sam Bankman-Fried, given his scheduled testimony before the House Financial Services Committee in December 2022.

In addition, the lawmakers referred to a recent legal ruling regarding crypto regulation, likely alluding to the SEC v. Ripple case, wherein it was indicated that XRP might not be considered a security. This ruling has prompted other House Representatives to call for a reconsideration of the commission’s current approach to crypto regulation. Gary Gensler expressed his disappointment with the ruling due to its potential impact on retail investors, and he stated that the commission would be assessing the situation.

The House Financial Services Committee is currently reviewing a draft market structure bill aimed at clarifying the respective roles of the SEC and the Commodity Futures Trading Commission in regulating cryptocurrencies. The bill has not yet been officially introduced and may undergo amendments based on input from lawmakers and industry leaders.

Image by 3D Animation Production Company from Pixabay

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