CLARITY Act revised draft: Ethics rules added, anti-CBDC section dropped, and more

Senate Republicans have just released a revised version of the CLARITY Act, which combines market rules that until now have been dealt with by subcommittees, as well as new regulations for crypto markets.

In sum, the draft will stay faithful to its central intent: dividing the responsibility between the SEC and CFTC. However, it is likely to tack on tougher regulations for officials and exchanges, as well as to bring change to protections for providers and developers.

Officials face restrictions on crypto interests

Most importantly, there is a new ethics division on senior governmental officials, elected politicians, and their spouses.

Individuals to whom the rule applies would no longer be able to accept payments to issue or sponsor a digital asset. Individuals who have a material interest in a crypto company would generally be required to sell their interest in it or place it in a blind trust.

State attorneys general could enforce the restrictions. Violations may attract a penalty of at least $500,000 or 20% of the money or financial interest involved, whichever is higher.

Exchanges would also be prohibited from listing assets issued or sponsored in breach of the rules.

Stablecoin rewards receive temporary safeguard

The old draft bill prevented paying interest just by having a stablecoin. Paying interest as a reward payment connected to loyalty programs, etc., remains permitted.

This new text gives temporary power to the Treasury secretary to restrict those rewards if stablecoins cause substantial withdrawals of deposits from community banks.

That authority would run out 18 months after the bill is passed, and as such, it does not permanently ban these moves.

The draft legislation includes changes related to stablecoin issuers and regulatory oversight under the GENIUS Act.

Developers gain protection as exchanges face limits

Republicans also expanded legal protections to developers who do not control their customers’ funds. Miners and validators now get the same protection, preventing them from being classified as money transmitters or financial institutions by default. 

Rules to avoid conflict of interest would be put in place for crypto exchanges. In exceptional circumstances, such as hedging, handling of default, and where necessary to provide liquidity, trading on the same platform for its own benefit by exchanges/its affiliates normally would not be allowed. 

The existing state consumer protection, fraud, and anti-money laundering laws would continue to apply.

Notably absent as a stand-alone piece of legislation in the June Senate version is the Anti-CBDC Surveillance State Act. The text of the new bill still restricts digital currencies issued by central banks in its introductory language; however, the anti-CBDC sections are not reflected in the bill’s language.

The unrelated Build Now housing measure has also been removed.

Final Summary

• The new CLARITY Act draft adds enforceable crypto-ethics and exchange conflict rules.
• The new version removes the anti-CBDC title and alters aspects of stablecoin rewards and developer protections.