Digital Regulatory Framework Bill Clears Senate Banking Committee

The Senate Committee on Banking advanced the Digital Clarity Act in a 15-to-9 vote after a contentious hearing that underscored the uncertainty about the bill’s future when the full Senate considers it.

The legislation would provide a regulatory framework for digital assets, with the banking committee’s version focusing on the Securities and Exchange Commission’s responsibilities. The Commodity Futures Trading Commission section of the bill was cleared in January on a party line vote in the Senate Committee on Agriculture, Nutrition and Forestry, which has jurisdiction over commodity trading.

Updated Language

The latest version of the bill, released shortly before Thursday’s hearing, would classify certain “network tokens” as commodities, rather than securities, while creating new disclosure requirements for issuers and a “regulation crypto” exemption allowing companies to raise capital through token sales, with streamlined SEC oversight.

The bill also includes investor protections designed to curb insider trading and market manipulation, while directing regulators to modernize securities and recordkeeping rules for blockchain-based activities. In addition, the measure imposes new anti-money-laundering and sanctions-compliance requirements on digital asset exchanges, brokers and certain decentralized finance activities, alongside fraud prevention rules for cryptocurrency ATMs.

Last year, Congress passed the GENIUS [Guiding and Establishing National Innovation for U.S. Stablecoins] Act in a bipartisan vote. That law established oversight of issuers of stablecoins—dollar-pegged digital tokens.

During Thursday’s vote, all the Republicans on the committee, and two Democrats—Senators Angela Alsobrooks, D-Maryland, and Ruben Gallego, D-Arizona—voted to pass the bill. The two supporting Democrats, however, insisted—as did the other Democratic committee members—that they would not support the bill in the full Senate vote, unless it included specific changes, such as ethics provisions to limit government officials from profiting off of cryptocurrency.

“My vote today is a vote to keep working in good faith,” said Alsobrooks. “We still have so much work to do.”

Republicans insisted the ethics provision was not “germane” to the banking committee, similar to treatment of the same provision by the Senate Committee on Agriculture, Nutrition and Forestry.

Democrats have particularly objected to President Donald Trump’s business ties to the industry. The Trump Organization, which consists of most of the president’s business ventures, has millions of dollars invested in digital assets.

Impending Drama

The hearing, delayed since January after industry pushback arose regarding the original Senate bill, underscored the challenges the bill faces. In addition to the ethics provisions, sections on stablecoin yield and legal protections for decentralized finance developers remain potential sticking points.

Senator Bernie Moreno, R-Ohio, for example, mentioned that Section 301, which focuses on illicit finance in the decentralized finance ecosystem—which includes cryptocurrencies and other digital assets—still needs work.

More consequently perhaps, the Senate markup hearing was marked by partisan divisions. Chairman Tim Scott, R-South Carolina, sparred with Ranking Democrat Elizabeth Warren, D-Massachusetts, over Democratic senators’ amendments that were not voted on. Warren objected to the committee ignoring those amendments, even as several other Democratic amendments failed along party lines. It was unclear why Scott blocked the amendments, as his staff members’ explanation was not caught on the stream’s microphone.

Amendments on several other issues—including investor protections, permissible banking activities and when a decentralized finance project is truly decentralized—passed. Unlike earlier proposals that were passed along partisan lines, these amendments passed with broad bipartisan support.

The bill will now be merged with the version governing the CFTC’s role. A final version will go before the full Senate for a vote. Should it pass, it will be sent back to the House for a last vote there on the Senate-passed version.

The bill can likely afford few more delays since the calendar is running short, and election season kicking into gear. With Republicans worried about potentially losing control over either branch of Congress, they are motivated to pass the legislation in this Congress.