Members of the House Financial Services Committee, led by Chairman Patrick McHenry, questioned Securities and Exchange Commission (SEC) Chair Gary Gensler in a recent hearing for his approach to digital asset regulation and rulemaking.
In a letter sent to Gensler prior to the hearing, members of the committee expressed concerns about the SEC's push for digital asset trading platforms to "come in and register" under the existing national securities exchange (NSE) framework. They wrote, "Without clear rules of the road, your push for firms to ‘come in and register’ is a willful misrepresentation of the SEC’s non-existent registration process." They urged Gensler to work with Congress to develop clear rules for digital assets that foster innovation and protect investors.
During the hearing, McHenry questioned Gensler's contradictory views on whether Ethereum's token, Ether, should be considered a security or commodity. Gensler repeatedly declined to provide a clear answer while insisting that adequate laws exist to regulate and define digital assets.
In his opening remarks, McHenry highlighted Gensler's approach to digital assets: "Under your leadership, the SEC has brought nearly 50 separate enforcement actions against digital asset firms. And now your agency is requesting an additional $78 million to expand your enforcement agenda. At the same time, you have refused to provide clarity on whether digital assets offered as part of an investment contract are subject to securities laws. And, more importantly, how these firms should comply with those laws."
House Majority Whip Tom Emmer labeled Gensler "the incompetent cop on the beat" for his role in the turmoil surrounding the collapse of FTX and Terra Luna as Chair of the SEC. Emmer emphasized that Gensler's SEC lacks the tools to regulate the digital asset ecosystem and needs Congressional authority to do so.
Furthermore, Republicans accused Gensler of rushing the rulemaking process and undermining the quality of securities laws. The SEC has proposed 53 new rules under Gensler's tenure, twice as many as his predecessors, Mary Jo White and Jay Clayton, in the same amount of time.
McHenry criticized Gensler's refusal to provide clarity on digital asset regulation.
“You’re punishing digital asset firms for allegedly not adhering to the law when they don’t know it will apply to them. That’s nonsensical,” McHenry said. “Regulation by enforcement is not sufficient nor sustainable.”
In his closing remarks, McHenry expressed dissatisfaction with Gensler's responses to Congressional inquiries and emphasized the Committee's constitutional duty to conduct aggressive oversight of agencies under its jurisdiction. He stated, “Your approach is driving innovation overseas and endangering American competitiveness. The Administration has said it, the Fed has said, and I’ll say it again: Congress must provide clear rules of the road for the digital asset ecosystem.”
