House Passes CLARITY Act 32-19 47-6 Redefining Crypto Regulation

The House Committees of Financial Services and Agriculture have advanced the bipartisan CLARITY Act (H.R. 3633), setting the stage for a full floor vote. The financial committee approved the measure with a 32-19 vote, while the agriculture committee passed it with a 47-6 vote. The CLARITY Act aims to resolve the longstanding jurisdiction conflict among the crypto regulatory agencies of the US by redefining the responsibilities of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

The act establishes that certain crypto assets will be regulated as commodities under the CFTC, while others will remain securities and operate under the SEC. This distinction is crucial for providing clarity in the regulatory landscape. Additionally, the CLARITY Act offers limited liability protection for blockchain developers, excluding them from money transmitter regulations. This provision is significant for the growth of decentralized finance (DeFi) platforms, as it shields developers from stringent regulatory requirements.

The act also establishes disclosure, fund segregation, and conflict of interest rules to protect investors from crypto fraud. Furthermore, it maintains decentralized finance (DeFi) by establishing consumer safeguards for non-custodial wallet providers and peer-to-peer crypto transactions. These measures are designed to foster a secure and transparent environment for digital asset markets.

Despite broad support, the CLARITY Act faces criticism from some lawmakers. Representative Maxine Waters voiced concerns, warning that certain provisions in the bill could lead to conflicts of interest. Her comments highlighted the potential ties between political leaders and the crypto industry. Brad Sherman stated that the bill could lead to industry bailouts and regulatory arbitrage. Former CFTC Chairman Timothy Massad called the CLARITY Act ‘complex,’ stating that the bill has expanded confusion rather than resolving the issues of crypto regulatory ambiguity.

If enacted, the CFTC will become the primary crypto regulator, overseeing digital commodities, covering most cryptocurrencies and tokens traded on cash markets, including DeFi activities. The CFTC will mandate the activities of exchanges, brokers, and spot markets for non-security digital assets. It will also oversee stablecoin trade and custody on a commodity exchange, while the SEC’s role will be limited to enforcing anti-fraud rules in stablecoin. This division of oversight is intended to provide a more structured and predictable regulatory environment for the crypto industry.

After seeking approval from both committees, the CLARITY Act will proceed to the full House for votes and arguments. If it is ultimately enacted, it will become the first comprehensive law in the US for a crypto and digital assets regulatory framework. While the US Senate remains uncertain, the upper chamber works on enhancing digital asset law. The progress of the CLARITY Act marks a significant step toward establishing clear crypto rules and providing a framework that encourages innovation while protecting investors.