A crucial hearing took place earlier this week in the House Financial Services Committee, where all five SEC commissioners, including Chair Gary Gensler, testified about the agency's regulatory approach to crypto. This session prompted significant discussions about the SEC's stance on crypto in an evolving financial landscape.

Pro-crypto Commissioner Hester Peirce argued that the SEC should have long acknowledged that many tokens do not qualify as securities. She criticized the agency’s handling of crypto, suggesting it adopted a legally imprecise view to mask a lack of clarity in regulations.

Peirce was also asked whether physical art pieces are considered securities, to which she replied no, pointing out inconsistencies in how digital assets are treated compared to physical ones. She also noted that it’s difficult for firms to register with the SEC, as few have successfully done so.

In his testimony, Gensler reiterated the SEC's reliance on the Howey test to determine whether crypto tokens fall under securities regulations. He emphasized that the SEC remains "merit neutral" regarding blockchain tech, asserting that placing an asset on a blockchain does not change its economic value.

Several lawmakers expressed concerns about the SEC’s "regulation by enforcement" strategy. House Committee Chair Patrick McHenry accused Gensler of transforming the SEC into a "rogue agency," acting outside established norms.

Congressman Brad Sherman questioned the need for new laws to clarify crypto’s status as securities. He highlighted crypto's unique ability to obscure the origins of funds, particularly in relation to campaign finance laws, posing risks to transparency and accountability.

Tom Emmer took the opportunity to challenge Gensler’s leadership, asserting that Gensler’s direction has been destructive for the crypto industry.

Wiley Nickel asked if the commissioners supported Vice President Kamala Harris’s call to promote innovation in the U.S., suggesting that Gensler’s actions have set back progress in Web3 technology.

Meanwhile, Republican Congressman Warren Davidson scrutinized Gensler’s practices, proposing the SEC Stabilization Act to address what he termed the “Gary Gensler problem.”

Maxine Waters expressed her goal to reach a "grand bargain" on stablecoin legislation by the end of 2024. In my opinion, she just wants a green light to start pushing a CBDC, which we know is coming soon.

Shortly after Waters’ comments on stablecoin legislation, the SEC announced lawsuits against TrustToken and TrueCoin for fraud related to their stablecoin offering.

Before the hearing, Republican lawmakers, led by Patrick McHenry and Cynthia Lummis, called for the repeal of SAB 121. This SEC guidance mandates that public companies, primarily banks, classify customer crypto assets as liabilities on their balance sheets. Critics argue that this rule discourages banks from offering crypto custodial services, stifles innovation, and lacks transparency since it bypassed the formal rulemaking process.

Although a bipartisan repeal passed Congress, Biden vetoed it in June over financial stability concerns. An attempt to override this veto in July failed to secure the necessary two-thirds majority. During the hearing, Mike Flood questioned the SEC's practice of granting exemptions to certain firms under SAB 121, suggesting it undermines regulatory consistency. Commissioner Peirce noted that the rule complicates custodianship for exchange-traded products and expressed skepticism about its investor protections, advocating for a review to foster competition and innovation while safeguarding investors.