U.S. Representative Tom Emmer has introduced a new bill, the Securities Clarity Act, to provide more clarity on the classification of digital assets and to specify the jurisdiction of each regulator. The bill would amend the securities laws to include “investment contracts asset” and enable crypto projects to operate in a compliant manner. Emmer believes that the bill will allow the United States to compete globally in the next iteration of the internet.
The need for the distinction between digital assets and securities contracts was explained by Emmer in a Twitter thread on May 18. He stated that if there is no distinction between the asset and the securities contract, token projects that raise capital to fund development cannot move out of the securities framework once the project is decentralized. The Securities Clarity Act would provide more regulatory clarity on the kind of assets that can be labeled as securities.
Under the leadership of Gary Gensler, the Securities and Exchange Commission (SEC) has classified several crypto projects as securities. The SEC has stated that these projects meet the definition of the term under the Howey Test due to the presence of an “investment contract.” The US laws define an investment contract as a transaction where an individual invests their money in a common enterprise with the expectation of profit from the efforts of a third party.
Crypto projects have consistently maintained that the current Securities Act is inadequate to cater to the needs of the industry. Therefore, several crypto community stakeholders, including organizations like the Coin Center, Chamber of Digital Commerce, Crypto Council for Innovation, and Blockchain Association, have supported the bill.
According to pro-crypto lawyer Jake Chervinsky, there is a crucial difference in securities law between a digital asset and an investment contract by which a digital asset is sold. The SEC fails to grasp that difference, and therefore, a bill like this is necessary.
This is not the first time that U.S. lawmakers have tried to introduce new legislation for the crypto industry. Last year, Sen. Cynthia Lummis and Kirsten Gillibrand introduced a bipartisan crypto bill to the Senate.
If passed, the Securities Clarity Act would provide more regulatory clarity and allow crypto projects to operate in a compliant manner. It would also provide more clarity on the classification of digital assets and specify the jurisdiction of each regulator.