Senate Banking Minority Staff Claims Digital Asset Market Clarity Act Fails to Meet Five Minimum Standards
Commentary by Steven Lofchie
The minority Democratic staff of the Senate Banking Committee released a fact sheet arguing that the current draft of the Digital Asset Market Clarity Act fails to meet five minimum standards for a crypto framework and is not ready for committee markup.
The five standards the minority staff says the draft fails, along with its principal contentions under each, are as follows:
- securities law loopholes - the bill would create a two-tiered system letting assets offered on a blockchain escape SEC authority, including by allowing companies to self-certify that they are issuing "ancillary assets" or "network tokens" rather than securities, and would strip disclosure and supervision tools, putting pensions and retirement accounts at risk;
- national security and illicit finance - the bill fails to close the Tornado Cash loophole for crypto "mixers," fails to adopt the Financial Action Task Force standard developed under the first Trump Administration, exempts businesses tied to DeFi platforms from illicit finance requirements, and lets foreign persons evade U.S. sanctions by paying in stablecoins rather than dollars;
- financial stability and taxpayer risk - the bill would let banks hold otherwise impermissible assets, such as penny stocks and junk bonds, simply by recording them on a distributed ledger, and would permit banks to conduct risky crypto activities with insured deposits;
- conflicts of interest - the bill does not prohibit President Donald Trump or his family from controlling, promoting for value, or affiliating with issuers of covered cryptocurrencies or their custodians, and the staff asserts the family has realized over $1.2 billion in crypto-related gains; and
- consumer and investor protections - the bill would hamstring SEC anti-fraud enforcement, including by barring the SEC from collecting disclosures needed to detect fraud; would block state authorities from enforcing their securities, consumer protection, digital asset, and crypto ATM laws; and fails to establish an enforceable private right of action or to address the use of forced arbitration.
These are the contentions of the minority staff about a draft bill; the committee has not adopted them, and the bill's sponsors dispute them.
Commentary
Notwithstanding the varied list of complaints from the Democratic staff, it is not clear what the end intent of the report is: (i) to stop passage of the bill and maintain the current legal limbo; (ii) to fail to stop passage but to be able to say "we told you so" if something goes wrong; or (iii) to improve the bill?
The current state of limbo under U.S. law does not seem an ideal stopping point. If it is the intent of the Democratic staffers to improve the bill, then it would seem more productive to suggest amendments. As it is, it is simply unclear what the staffers are suggesting.
It does appear that much of the staffers' list may have been borrowed from a group called Transparency International U.S., which also released a report identifying five supposed loopholes in the Clarity Act. That is actually a better think piece than the Democrats' report, as it at least takes a stab at suggesting some improvements, although it too would benefit from significant further specificity.
Related Articles
-
Senator Elizabeth Warren urged Senate leaders to bar the President, other senior administration officials, Congress members, and their families from profiting off the crypto industry in pending market-structure legislation.
-
The Crypto Council for Innovation, Blockchain Association, and The Digital Chamber strongly urged the Senate to bring the Digital Asset Market Clarity Act to a floor vote, arguing the legislation would establish a comprehensive federal regulatory framework for digital assets.