Latest discussion draft takes a pro-innovation and pragmatic approach toward crypto market structure legislation
On September 5, 2025, the Senate Banking Committee released a 182-page discussion draft of the Responsible Financial Innovation Act of 2025 ("RFIA draft") outlining a proposed digital asset market structure. The Senate Banking Committee previously issued a shorter 32-page initial discussion draft in July, which had built upon the Digital Asset Market Clarity Act of 2025 ("CLARITY Act") passed by the House of Representatives. The Senate Banking Committee's latest RFIA draft expands upon the initial discussion draft and covers a number of new areas. While the Senate Banking Committee focuses on SEC-related issues, the Senate Agriculture Committee is widely expected to release its discussion draft covering CFTC-related areas later this month. Twelve Senate Democrats also released a framework on September 9, 2025, which signals bipartisan support for crypto market structure legislation.
Ancillary Assets and Definitions
The RFIA draft sets forth a number of proposed definitions that are not in the House's CLARITY Act. For example, the RFIA draft defines an "Ancillary Asset" as "an intangible asset, including a digital commodity, that is offered, sold, or otherwise distributed to a person pursuant to the purchase and sale of a security through an arrangement that constitutes an investment contract." An "Ancillary Asset Originator" is a person who initially offers, sells, or distributes the ancillary asset. The RFIA draft subsequently notes that ancillary assets are not securities and that ancillary assets are not considered securities when traded on secondary markets. Section 101 inserts new language into Section 4B of the Securities Act of 1933 that would address required disclosures for transactions with ancillary assets by the ancillary asset originator. The SEC would be required to issue guidance on the disclosure responsibilities for those considered joint and several ancillary asset originators within 360 days from enactment.
The RFIA draft takes on the CLARITY Act's definition of a "Decentralized Governance System," but proposes a definition of "Distributed Ledger," which would mean the technology through which data is shared across a network that creates a public digital ledger of verified transactions or information among network participants and in which cryptography is used to link the data to maintain the integrity of the digital ledger and execute other functions.
The RFIA draft also adds a proposed definition "Gratuitous Distributions" of crypto assets, which was not in the CLARITY Act. Gratuitous distributions include self-staking, third-party custodial staking, liquid staking, custodial and ancillary staking services, and air drops. Such distributions would continue to be subject to the anti-fraud and anti-manipulation rules of SEC, CFTC, and state regulators. Nonetheless, the RFIA draft would require the provision of certain basic corporate information regarding the ancillary asset and its originator, such as the experience of the ancillary asset originator in developing ancillary assets and the use of the relevant digital network, promotional activities undertaken by the originator to facilitate the creation or maintenance of a trading market for the ancillary asset, a summary of ancillary asset transactions by the originator for the four-year period preceding the furnishing of the disclosure, and other economic and technical information relating to the ancillary asset.
The RFIA draft would also provide certain protections beyond those typically associated with forward-looking statements. For example, the failure of an originator to comply with a provision of the legislation would not cause the ancillary asset to be a security under applicable law. And, while it is unlawful for an ancillary asset originator to make a false statement in their disclosures, nothing in Section 101 would be construed as creating a private right of action. Further, neither the SEC nor any private plaintiff would be permitted to initiate any action arising from any offer, sale, or distribution of ancillary assets occurring before the effective date of RFIA provided the ancillary asset originator complies with the disclosure requirements noted above.
Regulation Crypto
The RFIA draft would require the SEC to promulgate rules to implement various exemptions, to be collectively referred to as "Regulation Crypto." Much of this activity is likely underway given SEC Chair Atkins' earlier announcement of "Project Crypto." Such rules would not apply to an offer or sale of an investment contract involving an ancillary asset if the offer or sale does not exceed the greater of $75 million or 10% of the total dollar value of outstanding ancillary assets. The RFIA draft sets forth conditions for such exemptions, including that the applicable ancillary asset originator may not be a development stage company without a specific business plan or purpose or has indicated that the company's business plan is to merge with or acquire an unidentified company. The originator may also not be an investment company under the Investment Company Act of 1940 or otherwise a statutorily disqualified person. If an originator seeks an exemption, it must furnish the SEC with a notice of reliance on Regulation Crypto 30 days before the date of the offering. These disclosures may be deemed to be a "prospectus" or a "statement" for limited purposes, but shall not be deemed to be a "registration statement" for purposes of Section 11 of the Securities Act of 1933.
The SEC would also be required to implement regulations providing that an ancillary asset will not be a disqualifying financial interest under the '33 Act when the market value of the asset is primarily derived, or is reasonably expected to be primarily derived, from its system-based utility on a digital network, or from the broader adoption and use of such a system within one year from enactment. This would appear to exempt utility tokens from the coverage of the RFIA.
Rules regarding investment contracts would also be required to be promulgated by the SEC within two years of enactment, including a final rule specifying clear criteria and definitions governing the term "investment contract." While the SEC previously argued that "contracts" were not required for an "investment contract" to exist, the RFIA draft provides "that a contract shall be considered an investment contract only if the contract meets the following elements":
- Investment of money (more than a de minimis amount) by an investor;
- An investment made in an enterprise or venture;
- An express or implied agreement arrangement is required whereby the issuer makes, directly or indirectly, certain promises to perform entrepreneurial or managerial efforts on behalf of the enterprise;
- The investor reasonably expects profits such as a direct share or participation in the income of the enterprise, return on investment and capital appreciation based on the terms of the agreement, or the totality of the statements made by the counterparty and its agents; and
- Profits are derived from entrepreneurial or managerial efforts of the counterparty or its agents on behalf of the enterprise where such efforts are post-sale and essential to the operation or success of the enterprise and are not ministerial, technical, or administrative.
In addition, the rules requiring an investment in an enterprise should not require commonality and such rules shall clarify what constitutes more than a nominal level of entrepreneurial or managerial efforts.
The RFIA draft also includes provisions relating to the SEC's exemptive authority and the modernization of the SEC's mission. The SEC's books and records requirements should allow a person to consider records from a distributed ledger system to satisfy such requirements. The SEC is called upon to tailor those regulations to only what would be reasonably necessary in the public interest or for the protection of investors.
In a similar vein, Section 109 is one of the most far-reaching sections of the RFIA draft and would enact reforms which the industry has been asking for, that is, the modernization of securities regulations for digital asset activities. The RFIA draft defines various additional terms (such as digital asset receipt, liquidity provider token, and vault token) and would require the SEC to take appropriate action to ensure that its regulations, forms, and statements are no longer outdated, unnecessary, or unduly burdensome in light of the unique technological characteristics of digital assets. This replacement activity would include provisions governing custody, transfer agents, clearing and settlement, net capital and customer protection requirements, broker-dealers, alternative trading system and exchange registration or conduct standards, issuer disclosure, and reporting requirements.
Protecting Against Illicit Finance
The RFIA draft also seeks to protect against illicit finance. Digital asset service providers would be treated as financial institutions for purposes of the Bank Secrecy Act and subject to all laws related to economic sanctions, prevention of money laundering, customer identification, and due diligence. The Treasury Secretary would be required to establish risk-based examination standards for financial institutions relating to digital assets.
The RFIA draft also addresses the prevention of illicit finance through partnership with the private sector. The Attorney General would be required to designate 10 private sector entities that are money services businesses and 10 private sector entities from the digital asset industry to participate in a pilot program designed to share information about potential illicit finance violations, threats, and emerging risks.
To address financial technology protection, an "Independent Financial Technology Working Group to Combat Terrorism and Illicit Finance" comprised of senior-level representatives from across the government as well as individuals from the industry would be created. The Working Group will conduct research regarding terrorist and illicit use of digital assets and other emerging technologies and develop proposals to improve anti-money laundering and counterterrorist efforts in the United States. The Working Group will submit a report with their recommendations to Congress and will sunset within four years after enactment.
Not later than 120 days after enactment, the Treasury Secretary will be required to issue guidance "clarifying sanctions compliance and responsibilities and liability of an issuer of a payment stablecoin with respect to downstream transactions relating to the stablecoin that take place after the stablecoin is first provided to a customer of the issuer." The guidance will relieve a payment stablecoin issuer from strict liability as long as the stablecoin issuer maintains processes to conduct due diligence on its primary customers on a risk-based basis, processes and controls to prevent digital addresses listed on an applicable sanctions list from accumulating the payment stablecoin, and the technological ability to freeze or prevent the transfer of payment stablecoins upon discovery that the digital asset address holding the payment stablecoin is owned by a sanctioned person.
Responsible Banking Innovation
Under the RFIA draft, financial holding companies and national banks could "use a digital asset or distributed ledger system to perform, provide, or deliver any activity, function, product or service that the financial holding company is otherwise authorized by law to perform, provide or deliver." Obviously, if this language were to become law, it would remove any question about the ability for financial holding companies and national banks to engage in a broad range of digital asset activities. Section 301 lists certain activities that would be authorized as part of, or incidental to, the "business of banking."[1]
The RFIA draft also calls for joint rules for portfolio margining determinations and requires the Federal Reserve, the OCC, and the FDIC to develop risk-based and leverage capital requirements for insured depository institutions that address netting agreements that provide for termination and closeout netting across multiple types of financial transactions in the event of the default of a counterparty not later than 360 days after enactment.
Responsible Regulatory Innovation
The RFIA draft also embraces regulatory innovation. Section 401 would establish the "CFTC-SEC Micro-Innovation Sandbox" allowing eligible participants to test and potentially develop innovative financial products. The CFTC and SEC would have to maintain and publish a list of eligible activities to be periodically updated and reasonably tailored to include activities furthering the purpose of the section and sufficiently flexible to accommodate evolving technological developments. An eligible firm could participate for a period of not more than two years with the possibility of a one-year extension upon permission from one of the Commissions. The Commissions would have joint jurisdiction and could take appropriate steps to facilitate a participant's exit from a sandbox by, for example, providing exemptive, interpretive, or no-action relief, issuing responsive rulemaking, or providing conditional or time-limited relief to bridge final Commission action.
Additionally, the SEC and CFTC would be tasked with conducting a comprehensive joint study on the regulatory treatment of tokenized real-world assets, to be completed not later than 360 days after enactment. After the study, notice and comment rulemaking could be undertaken by the Commissions to establish "tailored regulatory pathways for tokens that represent real world assets." However, any instrument that is a security would not be deemed to be a security because it has been tokenized.
On the banking front, within two years of enactment, the Comptroller General would report to Congress on the landscape of existing distributed ledger-based compliance tools, anti-money laundering practices, sanctions screening, and customer identification checks. The goal is to evaluate the possibility of registrants satisfying regulatory obligations through on-chain, code-based mechanisms. Federal financial regulators would also be required to report on the implementation of the RFIA and amendments, as well as any legislative recommendations for further implementation, no later than one year after enactment and every three years thereafter (for a total of not fewer than 12 years).
Protecting Software Developers and Software Innovation
Software developers would be exempted from the RFIA based on the developer participating directly or indirectly in relation to the operation of a distributed ledger system or application or in relation to a decentralized finance trading protocol when the developer is providing technical assistance. Federal preemption protections for such developers are also provided by the RFIA draft.
Additionally, the RFIA draft establishes a safe harbor for non-fungible tokens (NFTs) where the offer or sale of an NFT would not be deemed to constitute an offer or sale of a security or investment contract unless the transaction involves all the elements of an investment contract. There are a series of exceptions to this protection such as a mass-minted series of items (this seems to apply to memecoins) or a fractionalized interest in an NFT. Within one year, the Comptroller General is to conduct a study of NFTs relating to the size and nature of the NFT market, their various use cases, intellectual property rights, and their cybersecurity and market risks.
Another safe harbor is provided for decentralized physical infrastructure networks ("DePINs"). DePINs are systems that use distributed ledger technology to coordinate and administer the contribution, operation, or maintenance of physical resources, including devices, data storage, computing power, connectivity, or infrastructure. They often use network tokens, which this section would exempt from being considered an offer or sale of a security, subject to certain conditions.
Under the RFIA draft, non-controlling developers would not be treated as money transmitter businesses or engaged in money transmitting or otherwise be subject to any registration requirements. Non-controlling developers or providers refers to those who, in the regular course of operations, do not have the legal right or independent ability to control, initiate, or effectuate transactions involving digital assets to which users are entitled without the approval, consent, or direction of a third party.
Finally, federal agencies would be prohibited from restricting or otherwise impairing "the ability of a user to self-custody digital assets using the self-hosted wallet or other means to conduct transactions for any lawful purpose."
Bankruptcy and Effective Date
As with other legislation, the RFIA draft provides protections for customers who have claims in bankruptcy and ensures that their assets are segregated from those of the bankrupt's estate.
Finally, regulations implementing the RFIA, and any amendments thereto, would have to be promulgated not later than one year after enactment through appropriate notice and comment rulemaking. And, the RFIA, and amendments made by it, would take effect on the date that is 360 days after its enactment, except that if a provision requires a rulemaking, that provision would take effect on the later of the date that is 360 days after enactment or 60 days after publication in the Federal Register of the final rule implementing the provision—meaning that the regulators may have a substantial amount of time to put final rules in place.
Senate Democrat Market Structure Framework
On September 9, 2025, 12 Senate Democrats released a framework for market structure legislation that would close regulatory gaps, create clarity for digital asset businesses and consumers, incorporate digital asset platforms into the regulatory framework, and address opportunities and risks created by digital assets. The Senate framework sets forth the following seven principles:
- Closing the gap in the spot market for non-security digital assets by granting the CFTC exclusive jurisdiction;
- Clarifying the legal status of digital assets and regulatory jurisdiction by providing clarity to digital asset developers, investors, and platforms while ensuring efficient markets;
- Incorporating digital asset issuers into the regulatory framework;
- Incorporating digital asset platforms into the regulatory framework;
- Preventing illicit finance;
- Preventing corruption and abuse; and
- Ensuring fair and effective regulation.
Conclusion
The RFIA draft takes a pro-innovation and pragmatic approach with minimal regulatory burden (i.e., by requiring only such information as is necessary and appropriate to protect investors) but calls for significant regulatory innovation and industry and regulatory harmonization, as well as intra-regulator harmonization. While the RFIA draft will have to be reconciled with the Senate Agriculture Committee's discussion draft and conformed with the House's CLARITY Act, it is clear that there is an enormous effort being put into establishing crypto market structure legislation which ultimately will be game-changing for the digital asset industry in the United States.
[1] The permitted activities listed in subsection 301(f) include: providing custodial, fiduciary, or safekeeping services for digital assets; providing related custodial services for digital assets and distributed ledgers, including staking, facilitating digital asset lending, distributed ledger governance services, and advancing funds for the purchase of digital assets or in respect of distributions on digital assets, whether as principal or agent; facilitating customer purchases and sales of digital assets; making loans collateralized by digital assets; engaging in payment activities involving digital assets; holding digital assets as principal or agent for any investment or trading purpose, including to make a market in digital assets; operating a node on a distributed ledger; providing self-custodial wallet software; engaging in derivatives transactions, including related hedging activities; providing brokerage services, including clearing and execution services, whether alone or in combination with other incidental activities; facilitating transactions in the secondary market for all types of digital assets on the order of customers has riskless principal; holding as principal digital assets to the extent of incidents to an otherwise permissible activity, including in order to pay fees arising from interactions with the distributed ledger system; underwriting, dealing in, or making a market in digital assets; and exercising all such incidental powers as are necessary to carry out any of the activities described above. Subsection (h) notes that nothing in Section 301 may be construed to exclude other permissible activities not specifically listed.
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