The U.S. Senate Committee on Banking, Housing, and Urban Affairs has released a Discussion Draft aimed at clarifying the regulatory landscape for digital assets. While still in early stages, the proposal signals a significant shift in how Congress may approach oversight of crypto markets, stablecoins, and digital asset intermediaries. The draft echoes several bipartisan efforts but adopts a more cautious tone aligned with consumer protection and financial stability concerns.

The following opinion editorial was written by Alex Forehand and Michael Handelsman for Kelman.Law.

Key Components of the Draft

1. Defining Digital Assets and Intermediaries
   The draft begins by setting foundational definitions for “digital assets,” distinguishing between payment stablecoins, digital commodities, and digital securities. It also defines “digital asset intermediaries” broadly to include exchanges, custodians, brokers, and wallet providers, all of which would be subject to new oversight requirements.
2. Jurisdictional Clarity Between SEC and CFTC
   One of the most critical elements is the proposal to establish clear jurisdictional boundaries between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Under the draft, digital commodities would fall under CFTC supervision, while digital assets offering profit expectations based on the efforts of others would remain within the SEC’s remit. This bifurcation aligns with recent efforts like the Digital Commodity Exchange Act and the Financial Innovation and Technology for the 21st Century Act.
3. Stablecoin Framework and Federal Oversight
   Stablecoin issuers would face new registration requirements, subject to federal approval and prudential standards. Issuers must maintain full reserves in eligible assets, undergo routine audits, and comply with operational risk and anti-money laundering (AML) controls. Notably, the draft reflects ongoing debate over whether stablecoins should be regulated as bank-like instruments or bespoke digital payment mechanisms, mirroring recent developments such as the Lummis-Gillibrand Payment Stablecoin Act.
4. Consumer Protections and Disclosure Requirements
   The proposal mandates enhanced disclosures to retail customers, including detailed explanations of risks, fees, and legal rights. It also proposes creating a standardized “digital asset disclosure form,” potentially similar to mutual fund prospectuses, to aid investor understanding. This section dovetails with broader regulatory concerns raised in SEC enforcement actions and guidance regarding crypto platforms.
5. Guardrails on Commingling and Custody
   A key theme throughout the draft is the prevention of FTX-style failures. Intermediaries would be prohibited from commingling customer and corporate assets, with strict requirements on custody practices and recordkeeping. These reforms echo recommendations from the Financial Stability Oversight Council (FSOC) and follow on the heels of bankruptcy-driven scrutiny of digital asset firms.

Industry and Regulatory Response

The draft has drawn cautious optimism from industry participants, many of whom have long called for regulatory clarity. However, some stakeholders worry about the scope of federal authority, especially over software developers and decentralized protocols. Meanwhile, regulators have offered mixed reactions. The SEC continues to pursue an expansive interpretation of its jurisdiction, while the CFTC has supported efforts to obtain greater statutory authority over spot markets in digital commodities.

What Comes Next

The release of this discussion draft does not guarantee legislative action but marks a pivotal moment in crypto regulation. It opens the door for formal hearings, amendments, and potential bipartisan negotiation. If advanced, the bill could complement or compete with other pending legislation such as the CLARITY Act and the GENIUS Act, each of which seeks to modernize the legal treatment of digital assets.

As lawmakers continue to balance innovation with consumer and financial protections, the crypto industry should prepare for a new regulatory paradigm—one increasingly shaped by federal statute rather than regulatory enforcement alone. Kelman PLLC continues to monitor developments in crypto regulation across jurisdictions and is available to advise clients navigating these evolving legal landscapes. For more information or to schedule a consultation, please contact us.

This article originally appeared at Kelman.law.

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