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In a joint effort, Republican lawmakers led by House Financial Services Committee Chair Patrick McHenry and House Agriculture Committee Chair Glenn Thompson have known as upon Securities and Exchange Commission (SEC) Chair Gary Gensler to offer additional clarification on the company’s stance relating to the custody of Ethereum (ETH) by Prometheum. 

The lawmakers, together with Representatives French Hill, Dusty Johnson, Tom Emmer, and Warren Davidson, expressed issues over the dearth of transparency within the SEC’s Special Purpose Broker-Dealer (SPBD) regime and the potential ramifications of permitting Prometheum to proceed with its custody services for ETH.

Recognition Of Ethereum As Non-Security

In their letter despatched on Tuesday, the lawmakers emphasised the SEC and Commodity Futures Trading Commission’s (CFTC) earlier recognition of Ethereum as a non-security digital asset. 

Based on this precedent, they identified that the SEC’s present regulatory framework doesn’t allow SPBD custody of non-security digital belongings. The lawmakers additionally warned that permitting Prometheum to proceed beneath these circumstances might have “irreparable consequences” for the digital asset markets.

The Republican lawmakers urged Chair Gensler to make clear the SEC’s place on a number of key features, together with the flexibility of SPBDs to custody non-securities, the SEC’s method to addressing SPBD non-compliance, Ethereum’s regulatory classification, and the SEC’s particular stance relating to Prometheum’s latest announcement.

The letter additional raised issues in regards to the lack of a transparent definition for “digital asset securities” and the SEC’s failure to offer complete steering or suggest guidelines for asset classification inside the digital asset market. 

The lawmakers additionally expressed their disappointment with Chair Gensler’s refusal to acknowledge Ethereum as a non-security digital asset, stating that his “unwillingness” to make clear the therapy of ETH has contributed to the confusion and uncertainty surrounding its classification.

Lawmakers Urge Resolution

The lawmakers criticized the SEC for creating “uncertainty” amongst regulated entities by failing to determine which digital belongings needs to be thought of “digital asset securities.” 

They referenced momentary frameworks established to facilitate buying and selling and custodial companies for digital asset securities. The SEC’s Division of Trading and Markets issued a no-action letter to FINRA in September 2020 outlining circumstances for registered broker-dealers to function an Alternative Trading System (ATS) buying and selling digital asset securities. The letter additional reads:

Despite this historical past of recognizing Ethereum as a non-security digital asset, you might have persistently refused to acknowledge that ETH is just not a safety. In your March 2023 testimony earlier than the House Committee on Financial Services you declined to reply a number of questions on whether or not ETH needs to be thought of a commodity. Your unwillingness to make clear the therapy of ETH solely exacerbates the confusion and uncertainty relating to ETH’s classification as demonstrated by the Prometheum announcement.

Ultimately, the letter burdened the necessity for regulatory readability and a complete method to digital asset classification to attenuate uncertainty and foster progress inside the digital asset ecosystem. 

They known as on Chair Gensler to handle their issues promptly, contemplating the potential implications for market contributors and the broader digital asset markets. 

Chair Gensler and the SEC have but to reply to the letter formally, however the business awaits additional developments because the regulatory panorama for digital belongings continues to evolve.

Featured picture from Shutterstock, chart from TradingView.com