Senate Committee Proposes Framework to Regulate Digital Assets
Senate Committee Proposes Digital Asset Regulations to Enhance Market Oversight
The U.S. Senate Committee on Banking, Housing, and Urban Affairs has released a Discussion Draft outlining a proposed regulatory framework for digital assets. Though still in its preliminary stages, the draft signals a major step toward formalizing federal oversight of cryptocurrencies, stablecoins, and digital asset service providers. While drawing on earlier bipartisan proposals, this version adopts a more cautious approach—emphasizing consumer protection, financial system integrity, and regulatory clarity.
Key Provisions of the Draft Framework
Clear Definitions for Digital Assets and Intermediaries
The proposal begins by defining key terms such as “digital assets,” distinguishing among payment stablecoins, digital commodities, and digital securities. It also introduces a broad definition of “digital asset intermediaries,” covering exchanges, custodians, brokers, and wallet providers. These entities would be brought under formal regulatory oversight, with new compliance and reporting obligations.
Clarifying the Roles of the SEC and CFTC
A central feature of the draft is its effort to resolve longstanding confusion over which federal agency oversees which parts of the digital asset market. Under the proposed framework, the Commodity Futures Trading Commission (CFTC) would oversee digital commodities, while the Securities and Exchange Commission (SEC) would retain authority over assets structured to generate returns from the efforts of others—essentially classifying them as securities. This division aligns with recent initiatives such as the Digital Commodity Exchange Act and the Financial Innovation and Technology for the 21st Century Act.
New Regulatory Structure for Stablecoins
Stablecoin issuers would be required to register with federal authorities and meet prudential standards, including holding 100% reserves in approved assets. They would also undergo regular audits and implement robust anti-money laundering (AML) and risk management controls. The draft reflects an ongoing debate: whether stablecoins should be regulated like banks or as standalone digital payment systems. Its approach bears similarities to the Lummis-Gillibrand Payment Stablecoin Act.
Consumer Protection and Disclosure Standards
To address growing concerns around retail investor safety, the draft mandates enhanced disclosures. This includes clearly communicating risks, fees, and customer rights. A standardized disclosure form—modeled after mutual fund prospectuses—would help investors make informed decisions. These provisions echo themes in recent SEC enforcement actions and reflect a broader push for transparency across the crypto space.
Tighter Custody and Asset Segregation Rules
Preventing another FTX-style collapse is a recurring theme. Under the draft, intermediaries would be strictly barred from commingling customer funds with their own and would face rigorous custody and recordkeeping standards. These measures are consistent with Financial Stability Oversight Council (FSOC) recommendations and come in the wake of high-profile bankruptcies in the digital asset sector.
Industry and Regulatory Reactions
Initial reactions from the digital asset industry have been cautiously optimistic. Many market participants welcome the move toward regulatory clarity, something they’ve advocated for over several years. However, concerns remain—particularly around how broadly federal authority might be interpreted, especially regarding decentralized protocols and open-source developers.
Regulators have also responded with mixed signals. The SEC continues to push for a broad reading of its jurisdiction, while the CFTC supports legislation that would enhance its authority over spot digital commodity markets.
This article originally appeared on Kelman.law.
