During a Financial Services Committee oversight hearing, Chairman Patrick McHenry challenged U.S. Securities and Exchange Commission Chairman Gary Gensler on the agency’s regulatory approach to crypto, including the inconsistent terminology used to describe them. McHenry, alongside other committee members, expressed concerns over the agency’s handling of crypto regulation. This particularly concerned the agency’s use of enforcement actions over clear guidance, which impacted companies like Ripple.
Patrick McHenry Grills SEC Chair Gary Gensler
McHenry highlighted the lack of clarity in the regulator’s approach to digital assets, pointing out that the agency uses various terms, such as crypto tokens, crypto securities, and digital asset securities, without a clear distinction between them. “Does the SEC differentiate between crypto tokens and tokenized securities?” McHenry asked.
He added that “different terms and words have meaning” and emphasizing the confusion created by the agency’s inconsistent language. In response, Gensler stated that the terminology was less important than the economic reality of the asset.
“It really goes down to a Supreme Court test, which is the law of the land, called the Howey test,” Gensler said. For context, the Howey test is the legal standard that determines whether a transaction qualifies as an investment contract under U.S. securities law. He stressed that “the labels matter less than what the economics are.”
However, McHenry criticized the agency’s reliance on broad enforcement actions and questioned its unwillingness to clarify its regulatory stance. He said, “The laws are clear but what we’re seeing from the SEC is a lack of clarity. That’s what I’m trying to ask you about.”
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He also noted that the regulator’s ambiguous use of terminology raised questions about whether the agency was deliberately avoiding regulatory precision. In addition, he went on to label it as a “rogue agency” in the opening statement of the oversight hearing.
Hester Peirce’s Statement
Commissioner Hester Peirce echoed McHenry’s concerns, arguing that the agency’s approach has been legally imprecise, which has further complicated regulatory efforts. “We’ve taken a legally imprecise view to mask the regulatory lack of clarity,” Peirce stated.
She added that this imprecision has allowed the agency to suggest that the token itself, rather than its sale in a contract, is a security. “By using imprecise language, we’ve been able to sort of suggest that the token itself is a security apart from that investment contract,” she said. Moreover, she stressed that this consideration had serious implications for secondary sales.
McHenry also raised concerns about the 5regulator’s focus on enforcement rather than capital formation, an issue Peirce addressed directly. “Nothing on the positive side,” Peirce responded when asked about the agency’s efforts to boost capital formation in recent years.
She emphasized that the regulator has instead diverted its resources toward crypto regulation, often at the expense of other mission-critical work. Hence, Peirce suggested that a statutory definition from Congress could help. “We certainly have authority where we can provide guidance,” Peirce said, “but a statutory definition would help.”
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