Senate Weighs SEC-CFTC Split in Digital Asset Regulatory Overhaul

DWT Blogs, Financial Services Law Advisor (2025), ^[1]

The U.S. Senate Banking Committee has advanced its efforts to establish a comprehensive regulatory framework for digital assets with the release of the Responsible Financial Innovation Act of 2025 (RFIA) draft. This 182-page proposal aims to clarify the legal status of digital assets, define regulatory jurisdictions, and mitigate risks such as illicit finance. The draft introduces the concept of "ancillary assets," which are intangible, commercially fungible assets tied to securities transactions but explicitly excluded from securities law. Ancillary assets would not be classified as securities in secondary markets, and their originators would face tailored disclosure requirements, including information on business plans, network development, and historical transactions. The SEC would be tasked with issuing guidance on these disclosures within 360 days of enactment.

Consumer Financial Services Law Monitor (2025), ^[2]

A key component of the RFIA is Regulation Crypto, which would exempt certain ancillary asset offerings from registration if they meet specific criteria, such as raising less than $75 million or 10% of the asset’s total value. The draft also proposes a redefinition of "investment contract," requiring all five elements: investment of money, enterprise participation, managerial efforts by the issuer, profit expectation, and post-sale entrepreneurial efforts. Additionally, the bill mandates modernization of SEC rules to accommodate digital asset activities, including custody, clearing, and settlement processes. The CFTC-SEC Micro-Innovation Sandbox is another highlight, allowing firms to test innovative products under limited exemptions for up to two years.

CNBC (2025), ^[3]

On September 9, 2025, 12 Senate Democrats released a separate seven-principle framework to address gaps in the current regulatory landscape. This framework emphasizes granting the CFTC exclusive jurisdiction over non-security digital assets in spot markets, incorporating digital asset platforms into the regulatory system, and preventing illicit finance through enhanced anti-money laundering (AML) measures. The Democrats’ proposal also includes ethics provisions banning elected officials from profiting from crypto projects during their tenure, a move targeting perceived conflicts of interest. While overlapping with the RFIA’s goals, the Democrats’ framework diverges in its stricter treatment of decentralized finance (DeFi) and emphasis on bipartisan rulemaking to avoid regulatory capture.

The Block (2025), ^[4]

Bipartisan negotiations are ongoing as the Senate Agriculture Committee prepares its own draft focusing on CFTC-related rules, including portfolio margining and commodity derivatives. The RFIA draft and the Democrats’ framework reflect a shared aim to balance innovation with investor protection but differ in their approaches to jurisdictional splits between the SEC and CFTC. The RFIA retains the SEC’s primary role in regulating ancillary assets, while the Democrats’ plan grants the CFTC broader authority over spot markets. These differences must be reconciled before the bill can advance to the Senate floor.

The RFIA also addresses financial technology risks by establishing an Independent Financial Technology Working Group to combat illicit use of digital assets. It mandates risk-based AML standards for financial institutions and creates a pilot program for information-sharing between regulators and private sector entities. Additionally, the bill proposes protections for software developers and decentralized protocols, exempting them from liability for activities such as staking or DeFi trading. These provisions aim to foster innovation while curbing misuse, though critics argue they may create loopholes for unregulated activity.

With the House having passed the Clarity Act in July, which focuses on CFTC oversight of digital commodities, the path to comprehensive legislation remains uncertain. Senate Banking Committee Chairman Tim Scott has expressed optimism about advancing the SEC portion of the RFIA by September 30, but Democratic support is crucial for final passage. The bill’s success will depend on resolving jurisdictional disputes, aligning with international regulatory standards, and addressing concerns about enforcement and compliance. If enacted, the RFIA could mark a turning point for U.S. digital asset markets, providing clarity for investors, developers, and institutions while reinforcing the country’s leadership in global crypto regulation.