By Elena Eyber, J.D.
In a letter to House leaders, Better Markets expressed numerous concerns with the Financial Innovation and Technology (FIT) for the 21st Century Act that passed out of the House Financial Services Committee in July 2023. Better Markets believes multiple key issues should be considered before any action is taken on the bill. According to Better Markets, adding more mandates on the currently underfunded CFTC will compromise the CFTC’s ability to fulfill its vital roles, and only after fully funding the CFTC there can be any consideration of additional mandates.
The first issue Better Markets pointed out is the CFTC’s lack of the necessary investor protection mandates to effectively regulate cryptocurrencies and the bill’s failure to provide them. Second, Better Markets believes that the CFTC’s resources proposed in the bill are insufficient and main street consumers, commodity markets, farmers and other commodity producers will pay the price. Third, Better Markets is concerned that manipulative wash trading will still run rampant in crypto markets with adverse consequences for investors. Fourth, Better Markets believes that the digital commodity exchange requirements lack meaningful investor protections. Fifth, Better Markets is concerned that the provisional safe harbor will be used as a license to rip off investors.
Additionally, Better Markets believes the SEC digital asset framework lacks requirements for audited financial statements and ensures no crypto tokens will be governed by the SEC. Next, Better Markets is concerned that the exceptions to the prohibition against commingling customer assets in the bill are going to become industry standard. Further, Better Markets is concerned that the proposed self-certification process is a rubber stamp for the transition of cryptocurrency from security to commodity that will foreclose meaningful SEC review. Better Markets also views the broad CFTC authority to exempt any digital commodity exchange or broker-dealer from any provision of the bill, including commingling requirements and other customer protections, as problematic. Lastly, according to Better Markets, the bill would preempt state securities and blue-sky laws, negating a state’s ability to protect their own citizens from financial products that meet the state definition of an investment contract or security.
“Unfortunately, the bill threatens to create new market structures that are not well-regulated if regulated at all. Enacting weak, loophole-ridden regulation (including reintroducing the discredited and failed concept of industry self-regulation that prevailed before the 2008 crash) rather than genuine regulation that prioritizes the public interest virtually guarantees a disaster” said Dennis Kelleher, President of Better Markets.