Congress Splits Crypto Oversight: CFTC vs. SEC Battle for Control

The U.S. Congress has moved to address the regulatory ambiguity in the digital asset market by advancing the Digital Asset Market Clarity Act of 2025, commonly referred to as the CLARITY Act. This legislation is intended to clarify the jurisdictional boundaries between the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), addressing the long-standing regulatory challenges in the cryptocurrency sector. The bill is seen as a major step toward resolving the uncertainty caused by overlapping enforcement actions by both agencies [1].

Under the CLARITY Act, digital assets are categorized into three distinct classes: digital commodities, investment contract assets, and permitted payment stablecoins. Each category comes with its own set of regulatory obligations and oversight responsibilities. Digital commodities, defined as assets intrinsically linked to blockchain systems, would fall under the exclusive jurisdiction of the CFTC. These include tokens that derive value from blockchain functionality such as payments, governance, and access to services [1].

Investment contract assets, on the other hand, are digital commodities that are sold as part of capital-raising activities. Such assets are treated as securities during the initial offering phase and are subject to SEC oversight. However, once these assets are transferred in secondary market transactions, they are no longer classified as securities and shift under the CFTC’s regulatory purview. This framework aims to provide clarity to market participants while balancing investor protection and innovation [1].

The CLARITY Act also outlines specific provisions for the regulation of intermediaries, including the requirement for digital commodity exchanges and brokers to register with the CFTC and comply with core principles such as trade surveillance, capital adequacy, and customer fund segregation. It mandates that digital commodity custodians must be regulated by appropriate state or federal banking authorities and outlines safeguards to prevent conflicts of interest [1].

Critics, however, have raised concerns about potential regulatory arbitrage and the CFTC’s capacity to handle the expanded oversight. They argue that the Act may weaken investor protections and create new systemic risks, particularly due to the shift of regulatory responsibility from the SEC to the CFTC after initial fundraising. Furthermore, the CFTC has limited experience in supervising retail-facing platforms, raising questions about its readiness to enforce a comprehensive regulatory regime for spot digital commodities [1].

Political dynamics continue to influence the legislative process. The CLARITY Act was passed by the House of Representatives in July 2025 but faces competition in the Senate, where the Senate Banking Committee has introduced an alternative framework. This alternative, the Responsible Financial Innovation Act of 2025 (RFIA), proposes a different approach by focusing on the SEC’s regulatory authority and introducing the concept of “ancillary assets.” The RFIA also calls for the SEC to modernize its securities regulations for digital assets and engage in rulemaking related to investment contracts [1].

Industry stakeholders are closely watching the development of these legislative proposals. The CLARITY Act and the RFIA represent key opportunities to shape the regulatory landscape, with implications for both traditional financial institutions and new market entrants. As Congress works to finalize a unified framework, the input of industry participants, investors, and regulators will be crucial in determining the final shape of the legislation and its impact on the evolving digital asset market [1].

Source: [1] Clarifying the CLARITY Act: What To Know About ... (https://www.arnoldporter.com/en/perspectives/advisories/2025/08/clarifying-the-clarity-act) [2] CFTC Announces Latest Crypto Sprint Initiative (https://www.dwt.com/blogs/financial-services-law-advisor/2025/08/crypto-sprint-cftc-digital-asset-clarity)