Senate Democrats have proposed a counter to the CLARITY Act ahead of a critical vote, with ongoing negotiations and significant concerns from various stakeholders.
As the procedural vote on the CLARITY Act approaches on September 15, Senate Democrats have put forth a counterproposal to their Republican colleagues. The specifics of this counterproposal remain undisclosed, with Senator Mark Warner being the first to mention its development. Reports indicate that as of the evening of September 14, representatives from both parties had yet to finalize their stance on the bill's progression.
Details of the Proposed Legislation
Republicans have acknowledged that the current iteration of the bill incorporates 126 amendments requested by Democrats, which include heightened regulations governing the cryptocurrency activities of officials and broader authority for state attorneys general to enforce compliance.
However, disagreements have emerged over the enforcement mechanisms outlined in the bill. It designates the U.S. Attorney General as the primary authority for holding officials accountable, restricting state authorities from independently pursuing legal action against alleged violators, including the President. Instead, state attorneys general would need to initiate lawsuits in federal court against the head of the U.S. Department of Justice, contingent upon proving that the violation has caused harm to the state or its residents.
Furthermore, if the relevant ethics body deems the action permissible, a lawsuit would not be allowed. This raises concerns among Democrats that such provisions could enable the administration to obstruct state claims.
Cynthia Lummis, a co-author of the bill, stated that no further concessions would be made, asserting, "Democrats want more. They always want more. […] But this is the best we can achieve. Our bucket is empty." Meanwhile, White House cryptocurrency advisor Patrick Whitt characterized the latest proposal as the "best and final offer," suggesting that future decisions will likely be influenced more by political dynamics than by the content of the bill itself.
Reactions and Concerns
A bipartisan group of attorneys general from 18 jurisdictions, led by New York's Letitia James, has expressed strong objections to the bill. Their primary concern is that the CLARITY Act might restrict their capacity to prosecute cryptocurrency companies for breaching securities and commodities regulations. They are advocating for the preservation of existing registration frameworks and the authority of state officials to initiate legal proceedings, as regional agencies have executed over 330 actions against digital asset market participants since 2017.
In addition, eight banking associations have opposed the revised bill, particularly criticizing its proposal allowing the Treasury to limit rewards on stablecoin holdings in response to significant withdrawals from local banks. Industry advocates argue such measures would only respond post-factum to issues rather than prevent them, calling instead for a proactive ban on payments that effectively substitute interest on bank deposits.
The Indian Gaming Association has also requested amendments to the bill to safeguard state and tribal gambling laws and to prevent regulated CFTC platforms from offering contracts linked to sports and gambling outcomes.
Conversely, SEC Chair Gary Gensler has shown support for advancing the CLARITY Act, asserting that failure to pass the bill will not impede the SEC's ongoing initiatives. The SEC plans to continue refining rules on digital asset issuance, updating transfer agent requirements, and revising cryptocurrency custody regulations, including allowing investment advisors to hold assets independently and recognizing state trust companies as qualified custodians.
Notably, President Donald Trump recently agreed to impose stricter regulations on officials' cryptocurrency activities. Analysts from Bernstein have suggested that the latest concessions from Republicans have improved the likelihood of the CLARITY Act's passage, although the market has yet to reflect this optimistic outlook.
