The pronouncements made by Gary Gensler during the contentious five-hour hearing before the House Financial Services Committee were noncommittal if Ether is either a security or commodity.
SEC Proposed Rules and Enforcement Action Questioned
The Tuesday session had the US Securities and Exchange Commission chair refusing to indicate whether the second-ranked crypto by market capitalization – Ether is security. The marathon session revealed Gensler’s efforts to fend off queries on the securities watchdog regarding the proposed rules and latest enforcement action.
The committee members questioned Gensler concerning SEC’s failure to offer adequate time for feedback on the proposed rules. Also, the HFSC members desired to know SEC’s preparedness in handling crypto firms eyeing US operations. The heated session saw the members demand clarity on the proposed climate change and audit disclosure requirements.
The widely televised appearance by Gensler before the HFSC was the inaugural sitting for this Congress and the pioneer in 2023. The HFSC chair Patrick McHenry observed the need for Congress to moderate on proposed rules to guide the journey toward a digital asset ecosystem. He observed that regulators tasked with the mandate were at loggerheads.
The HFSC chair opened the session by admitting that regulating through enforcement is insufficient and unsustainable. McHenry lamented that the enforcement approach would ultimately drive innovation overseas and endanger US competitiveness. Although noncommittal, the chair contrasts the US with the devotion of Hong Kong and Singapore to becoming crypto innovation hubs.
Unresolved Debate on Real Nature of Ether as Security
Maxine Waters from California criticized the approach for losing direction to focus on Gensler rather than tackle pressing issues. The democrat cited bank failures, debt ceiling default, and housing crisis as priority issues.
Waters lauded the efforts undertaken by SEC chair Gensler for enforcement actions and resources allocated towards pursuing crypto criminals.
The session became contentious, particularly when McHenry tasked Gensler to clarify his perspective on whether Ether satisfied the requirements to consider it a security. The chair cited the pronouncement by SEC Corporation Finance head Bill Hinman who in 2018 ruled out Ether as security.
McHenry indicated that the CFTC chair Rostin Behnam considered Ether a commodity in a March update. Also, the chair waded into the ambiguity of the real nature of Ether by indicating that a recent court filing by the New York attorney general termed its security.
McHenry expressed dissatisfaction since the regulators cannot classify the asset as both. Gensler dodged the question instead, indicating that the contrasting views varied relative to the facts and law applied.
Fintech head Joshua Klayman indicated that the Tuesday hearing portrayed a positive sign for the digital assets industry. The executive who also heads the Linklaters’ blockchain and digital assets division suggested that Gensler was justified in not terming the token as a security. He added that the refusal by the SEC chair yields cover for ETH and other altcoins.
Gensler’s Response Termed Inconclusive
Michigan Congressman Bill Huizenga asked Gensler if SEC would furnish the internal staff memo on enforcement undertaken against FTX and embattled chief Sam Bankman-Fried.
Huizenga expressed disappointment that Gensler’s response only echoed the information available to the public concerning FTX. He questioned Gensler’s attitude by failing to disclose details involving charges levied against the Bankman-Fried.
Gensler termed the investigative documents confidential, prompting Huizenga to pursue the matter later.
Brad Sherman from California led other members to express concerns about the need for regulatory clarity to guide crypto firms. Gensler indicated that the firms dealing in crypto-related issues should comply and register. Doing so would portray their preparedness to safeguard the investors.
Congressmember Warren Davidson from Ohio echoed McHenry’s statement that SEC failed to offer clarity desired by the existing firms in the industry and new entrants. Davidson noted the failure is evident in Gensler’s responses that needed more definitive answers.
Congressman Stephen Lynch differed with colleagues by indicating sufficient clarity and guidance offered by the existing laws.
He stated that the joint statements conveyed by federal regulators and the SEC’s enforcement actions would provide the necessary clarity sought by the industry. However, the crypto firms denied SEC such space by continually criticizing the rulemaking efforts.
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