US Senator Elizabeth Warren has expressed concern that the ongoing CLARITY Act could potentially destabilize the financial system by allowing companies to evade long-established regulations. The proposed legislation could enable firms to transition specific tokens to a mature blockchain, transferring oversight from the Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC).
Warren has warned that the Act’s provisions might allow any company listed on the New York Stock Exchange (NYSE) to put its stock on an approved blockchain. This could potentially enable firms to avoid SEC registration, leading to a reduction in investor protections and potentially destabilizing the NYSE.
Moreover, under the new draft, token sales using a functioning chain would still be considered as fundraising, but tokenized shares might evade SEC scrutiny.
Warren’s concerns indicate that companies might be able to raise funds without filing the same forms or sharing audited reports, thus bypassing proxy rules. This could expose retail investors to hidden risks if renowned stocks suddenly transition to the blockchain.
The House Agriculture Committee and the House Financial Services Committee have both approved the CLARITY Act. The Act now proceeds to the Senate, where its approval is not assured.
While the crypto industry eagerly watches these developments, Ripple CEO Brad Garlinghouse has urged for a clear regulatory framework to safeguard the industry’s future. In contrast, Americans for Financial Reform warn that the Act could diminish the SEC’s ability to protect retail investors, thus increasing the risk of scams and theft.
