A Senate bill proposes strict ethics limits, AML obligations, and new paths for token sales, potentially reshaping how crypto firms operate in the US.
On July 22, U.S. Senate Republicans released the text of a long-awaited law designed to create a regulatory framework for cryptocurrencies as negotiations between the parties move toward a final stage before Congress adjourns in August.
The law, known as the Clarity Act, aims to clarify the jurisdiction of financial regulators over the growing digital asset sector and potentially accelerate the broader use of digital assets. Below are six key provisions:
ETHICS
The law proposes a ban for certain political figures – namely the president, the vice president, and some members of Congress – from issuing or funding a digital asset until January 2029. Leading Senate Democrats have pushed for a strong ethical provision intended to prevent possible enrichment of political figures, including President Donald Trump, through their own crypto ventures.
The ban would be enforced by the Department of Justice, though this could be a controversial move within the Democratic Party, which has expressed concerns about whether the DOJ would apply such an approach. Some participants have advocated shifting enforcement to state attorneys general if the DOJ does not act. The law explicitly states that state prosecutors would not be able to bring cases under this act.
The law requires at least eight Democratic votes to move further in the Senate.
REWARDS FOR STABLECOINS
One of the controversial provisions concerns how crypto exchanges and other market participants can pay rewards for tokens pegged to the dollar – stablecoins.
The law prohibits paying rewards on the balances of stablecoins that are close to bank deposits, but allows rewards for transactional activity, such as payments made with stablecoins.
The rules are to be joint and enforced by the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission, and the Treasury.
Banks have expressed concerns about this provision, arguing that it could pull deposits from the regulated banking system. Crypto companies say that banning third parties, including crypto exchanges, from paying interest on stablecoins would be anti-competitive.
ANTI-MONEY LAUNDERING
The law would require all digital commodity traders, brokers, and dealers to be treated as financial institutions under the Bank Secrecy Act, obligating them to comply with anti-money laundering, customer identification, and due-diligence requirements. Such entities would fall under an AML regime close to banking, whereas some crypto companies had previously argued that they did not fall under these rules.
SEC EXCEPTIONS FOR CAPITAL RAISING
Crypto companies would be able to raise up to $50 million per year – and up to $200 million in total – without SEC registration, as required for other companies when raising capital.
Tokens linked to investment contracts may be sold under this regime, but with a lower regulatory burden compared with securities regulation.
This provision limits the SEC’s ability to argue that the majority of token sales are illegal issuances of securities, a position supported by the Biden administration and many courts.
DECENTRALIZED FINANCE (DeFi)
Many popular crypto platforms describe themselves as decentralized, meaning users interact directly with one another, while traditional exchanges act as intermediaries between trades.
Decentralized platforms argue that they find it difficult to comply with banking rules, since those rules generally assume the presence of a legal entity that intermediates trades and holds customer funds.
The Clarity Act will determine when a platform is considered sufficiently decentralized. If the criteria are not met, it will be treated as a financial institution, and it will be required to report suspicious activity and monitor transactions – similar to banks.
Platforms will not be considered decentralized if they have the ability to block users or have private permissions or encoded privileges not available to other users.
TOKENIZATION
Tokenization usually means turning financial assets – such as stocks, bonds, and even real estate – into crypto assets. Companies in the crypto space are investing in trading tokenized equities ahead of regulators’ anticipated moves to allow companies to experiment with tokenized stock trading on the blockchain.
The law should clarify that issuing securities on the blockchain does not exempt them from securities laws. It also requires the SEC to further study regulatory interpretations of tokenized securities.
The law will also require that for regulatory purposes tokenized securities be treated largely the same as the underlying securities they represent.
In sum, the proposed package aims to create clearer rules for the U.S. crypto market while striving to preserve competitiveness and incentives for innovation. Further debate is expected to lead to changes, but the document already paves the way for future regulation of digital assets.
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