A week before a procedural U.S. Senate vote on crypto regulation, compliance professionals and consumer protection advocates alike are looking ahead, weighing what happens if the bill passes (or, as is increasingly possible, fails).
On Sept. 15, the Senate will take a vote to advance the CLARITY Act, touted as a regulatory framework for the crypto sector that specifies which agencies (including the Securities and Exchange Commission and the Commodity Futures Trading Commission) would be responsible for oversight.
Next week’s vote is a step in the longer process toward the bill becoming law, but it requires a filibuster-proof 60 votes to pass, a threshold that has become more difficult to reach as Republicans and Democrats alike have expressed reservations about the legislation.
The Trump administration supports the legislation, and crypto firms financially backed the president, spending $18 million on his inauguration alone. (Trump and his family have also become increasingly ingratiated in the space during his second term, including through co-founding World Liberty Financial, a cryptocurrency firm.)
The House passed its own version of the bill last year, and the Senate Banking Committee released legislative language in May, but its prospects have dimmed largely due to Democrats’ demand for stronger ethics provisions regarding Trump’s involvement in the crypto space. Some Republicans are pessimistic that the bill will pass, according to reporting by Semafor.
In an interview with Wealth Management, Michael Bixby, the president of the Public Investors Advocate Bar Association, and the managing attorney for Bixby Law, said he has heard the bill’s chances are dimming, but he isn’t taking anything for certain; he recalled when PIABA first advocated for changes a year ago, the association was told it was too late, and that the legislation would undoubtedly move forward.
“I’m very cautious of it, because, frankly, of the amount of money that’s been spent on it and if something will come together at the last minute to get people to change their mind,” he said.
PIABA’s been an outspoken critic of the bill, sending a letter to U.S. Senate leadership in July requesting that it include mandatory anti-fraud policies with compliance staff, consumer protections and a provision protecting state authority to enforce anti-fraud laws and to regulate crypto as needed.
According to Bixby, the bill hasn’t changed much, saying consumer protection provisions “don’t exist” in the legislation as is. Additionally, there’s little evidence that the organization’s state enforcement concerns have been addressed.
To Bixby, the bill makes little sense, given how volatile crypto allegedly remains and how vulnerable its users may be to financial exploitation.
“Why are we going to reduce the entire infrastructure of a regulatory regime for dealing with financial stuff? Why are we going to reduce the consumer protections that exist in that?” he asked. “I think you’d say, ‘Well, whose interest is it serving? Is it serving the crypto industry or is it serving the consumers?’”
Grazia Gatti, a senior principal consultant with the consulting firm ACA Group, still thinks the legislation would survive in some form, citing the many years of effort put into it thus far. Regardless, even if the bill passes, implementation will take time, meaning advisors would still have to rely on the current interpretive guidance issued by the SEC.
“Obviously, for investment advisors, this would be a great disappointment. It would be a frustration to an extent,” Gatti said about the legislation possibly failing. “But with having the SEC and CFTC committed to providing clarity, investment advisors may have a dialogue with the regulators. That could be the way forward.”
Particularly, if legislation remains stalled, Gatti expected more regulatory action like the SEC’s recent move to exempt some digital asset offerings from securities regulations, allowing offerings up to $5 million and $75 million four-year and one-year exemptions, respectively, in what the agency framed as an attempt to help companies at the startup stages.
The rule also created a “safe harbor” from the “investment contract” definition for securities regulators once issuers completed certain requirements, potentially making it easier for digital assets to fall under the CFTC’s jurisdiction.
Despite the move, SEC Chair Paul Atkins said legislation remained “indispensable to enacting ‘future-proofed’ rules of the road that are durable enough to protect the work we are undertaking today from being unwound by a future rogue regulator.”
Gatti expected the commission would continue down a similar road if the legislation remains stuck in the Senate.
Supporters of the bill are already weighing the possibility of its failure. While Coinbase CEO Brian Armstrong (an ardent supporter of the legislation) told CNBC he still expected the bill to pass, he said it would still be “a good outcome” given the SEC and CFTC’s plans to publish rulemaking to establish “regulatory clarity.”
Bixby hesitated to say the bill was “so far gone” as to be unsalvageable, but he said it required such “a substantial remodel” that would be difficult to revise. While Bixby acknowledged the need for a legislative response in the crypto space, he wouldn’t be so quick to believe (as others have posited) that it is better to have the CLARITY Act than nothing.
“I think in these circumstances, there’s so little actual benefit from a consumer protection standpoint that it would just really be problematic, because I think it would spur inaction on fixing these issues for years,” he said.