US lawmakers reintroduce crypto regulation bill but uphold the SEC’s infamous Howey Test

The United States has been the center of regulatory controversy for a long time now, but lawmakers every now and then attempt to change that. With another attempt in line, the crypto community should be optimistic, but one aspect of the proposed regulations continues to be a matter of debate.

The crypto market could get new regulations

Senators Cynthia Lummis and Kirsten Gillibrand stated that they would be reintroducing the Responsible Financial Innovation Act of 2023 in an effort to bring about regulations in the crypto market in the US. The proposed legislation is being revived almost a year after being tabled in Congress.

As noted by Senator Lummis, 

“[The] federal regulatory framework that allows crypto businesses and investors to prosper here in America while protecting consumers from bad actors.

One of the key features of the Act will be to clarify the responsibilities and scope of regulations that would fall within the jurisdiction of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). At the moment, both regulatory bodies are rampantly charging toward the crypto market, with the former holding a far worse history.

SEC’s regulation by enforcement tactic has been criticized by many, but the agency continues to rely on it. This is because the company’s Chair, Gary Gensler, believes that the crypto market needs no new set of regulations as the ones already defined in the Securities Act are sufficient.

Now the reintroduced Act does specify that the crypto exchanges would be required to register with the CFTC. Additionally, an interagency law enforcement working group would be established under the legislation to combat the use of crypto in illicit finance.

One major criticism from the community, however, was the fact that the Act intends to uphold the Howey test. The test is used to determine whether a transaction qualifies as an investment contract in the US which in turn labels the assets involved in the process as Securities. 

This test has been criticized by many for being outdated and is also the subject of controversy in the ongoing SEC vs. Ripple lawsuit. A member of the community responded to the potential legislation by saying,

“Upholds the Howey Test governing presence of crypto? NO! It is clear you have no comprehension that there is NOT nor has there been any investment contract made. The Howey Test and crypto do NOT fit together. Shame on you.

Whether the Act goes through or gets tabled in Congress again is yet to be seen.