Senate Banking Committee Releases Proposed Clarity Act and Summary
The Senate Banking Committee summarized provisions of the Digital Asset Market Clarity Act. The Committee is scheduled to markup the bill on May 14.
In a section by section breakdown, the Banking Committee described the following:
The Scope of Securities and Commodities Regulations. The bill defines which aspects of a digital product are subject to the securities laws ("ancillary assets") and which are to be treated as commodities. For ancillary assets that are to be generally treated as securities, the bill provides substantial exemptions from Securities Act registration subject to dollar limits on the amounts that can be raised and disclosure requirements. The bill provides for the possibility that an ancillary asset that was originally a security would no longer be deemed to be such, and that no further SEC disclosures would be required. The bill proposes that tokenized securities would remain securities for all purposes but that NFTs would be generally outside the scope of the Securities Laws. The bill also recognizes the legal status of "decentralized autonomous organizations" ("DAO") and provides that a DAO would not be treated as a single person for purposes of the control provisions of the Securities Laws.
Anti-Money Laundering. The bill treats digital commodity brokers, dealers, and exchanges as financial institutions under the Bank Secrecy Act, subjecting them to anti-money laundering programs, customer identification, and customer due diligence. Treasury, in consultation with federal bank regulators, would set risk-based examination standards for digital asset compliance, and the title would create a federal floor for digital asset kiosks covering fraud prevention, transaction limits for new customers, and customer service. The bill requires Treasury to publish sanctions and AML/CFT guidance for "distributed ledger messaging systems" - DeFi front-ends owned or operated by U.S. persons - and would be empowered to prohibit or condition specified digital asset fund transfers when those transfers involve foreign jurisdictions, institutions, or transaction types designated as primary money laundering concerns.
Powers of Banks and Bank Holding Companies. The bill amends banking laws to provide that regulated institutions can use digital assets and blockchain technology for activities they are already permitted to conduct, including payments, lending, custody, and trading.
Extensions of Credit and Bankruptcy of the Customer. The bill requires "the SEC and CFTC to jointly issue rules enabling portfolio margining across securities, swaps, futures, and digital commodity accounts held by registered dealers, FCMs, or brokers." There would be a "bankruptcy safe harbor" for digital commodity transactions, which would be deemed "commodity contracts" and receive similar protection as "conventional derivatives and securities."
Bankruptcy of the Custodian. The bill treats ancillary assets and digital commodities as customer property under Chapter 7 of the Bankruptcy Code, which would provide protection for investors holding their digital assets at a financial institution. However, "digital assets" would not be protected by the insurance provisions of SIPA. The bill deems digital commodity transactions as commodity contracts for purposes of an insolvency safe harbor, allowing counterparties to close out positions and access collateral outside standard bankruptcy proceedings.
Preemption. The bill preempts "certain" state securities laws, but not state anti-fraud authority.
Self-Hosted Wallets. The bill states that federal agencies could not prohibit or restrict the use of self-hosted wallets to custody digital assets, and preserves existing Treasury, SEC, CFTC, banking regulator, and other agency enforcement authority over illicit finance, money laundering, terrorism financing, and sanctions.
Stablecoins. The bill bars digital asset service providers and their affiliates from paying U.S. customers passive, deposit-like interest or yield on payment stablecoin balances, although bona fide activity-based or transaction-based rewards would be allowed under joint rules to be issued by the SEC, CFTC, and Treasury.
Sandboxes. The bill empowers the CFTC/SEC to create sandboxes for eligible firms to test products for up to two years, subject to extension. It would explicitly state that tokenized securities remain securities for regulatory purposes and direct the SEC to study their regulatory treatment, including custody standards and consumer protection.
Broker-Dealer Regulation. The SEC is required specifically to provide in its rules that records may be maintained in a distributed ledger and more generally to update its rules to account for digital asset activities.
Protection of Developers. The bill protects software developers and decentralized finance network participants from federal and state securities laws for compiling network transactions, providing computational work for distributed ledgers, or other activities related solely to software development.
Cybersecurity. Provides for the creation of a federal cybersecurity program run by the NIST that would assist in the protection of DeFi trading protocols.
Development of Rules. The bill directs the SEC and the CFTC would be directed to establish a joint rulemaking committee.