Members of the U.S. House Financial Services Committee and the House Agriculture Committee have expressed notable concerns about the Securities and Exchange Commission's (SEC) approach to management of Ethereum (ETH).
Their arrest focuses on crypto firm Prometheum's plans to offer institutional custody services for ETH, which has prompted several calls for clarity and action from regulators.
Regulatory ambiguity
In a letter Addressed to SEC Chairman Gary Gensler on March 26, prominent lawmakers, including House Financial Services Committee Chairman Patrick McHenry and Vice Chairman French Hill, urged the Commission to oppose to Prometheum's intentions to provide custody services for ETH through its subsidiary, Prometheum Capital.
They warned that such actions could have serious and potentially irreversible implications for digital asset markets. Lawmakers' concerns revolve around the ambiguity surrounding the SEC's stance on special purpose broker-dealers (SPBDs) and their ability to hold insecure digital assets like ETH.
Despite previous assertions by the SEC and Commodity Futures Trading Commission (CFTC) recognizing ETH as an insecure digital asset, questions remain regarding the regulatory classification and activities permitted under the existing framework.
#NEW: Republicans on the House Financial Services Committee and @HouseAgGOP sent a letter to @SECGov Chairman Gensler urges his agency to clarify its position regarding the custody of SPBD Prometheum #ETH.
Read more 🔗 pic.twitter.com/1U8lqMw8Ao
– Financial Services GOP (@FinancialCmte) March 26, 2024
The letter highlights the lack of clarity in the SEC's rule regarding SPBD custody of non-securities and the agency's apparent inactivity in addressing potential non-compliance issues in this matter.
Lawmakers also expressed concern over the lack of comprehensive guidance or a defined regulatory framework for digital asset securities, thereby increasing uncertainty within the digital asset space.
Lawmakers demand clarity on ETH
Additionally, lawmakers are calling attention to Chairman Gensler's reluctance to permanently classify ETH, which has only increased confusion around its regulatory treatment. Despite the prior recognition of ETH as an insecure digital asset, the SEC's failure to provide incontrovertible clarity has left market participants facing uncertainty.
The outcome of the SEC's position goes beyond regulatory ambiguity and could impact the broader digital asset market. Lawmakers warn that classifying ETH as a digital asset security could disrupt existing commodity futures markets and put critical risk management tools at risk, ultimately stifling innovation and market growth.
The letter ends with a call to action, urging the SEC to quickly address the concerns raised and provide much-needed clarification on the regulatory treatment of ETH. Failure to do so, lawmakers warn, risks undermining the integrity and competitiveness of U.S. digital asset markets, with far-reaching consequences for investors and market participants.
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