Since the House passed the CLARITY Act on July 17, the U.S. Senate Banking Committee, which has oversight of the Securities and Exchange Commission (SEC), has been busy working on its own version of the U.S. crypto regulatory framework. Chairman Tim Scott (R-SC), along with Senators Cynthia Lummis (R-WY), Bill Hagerty (R-TN), and Bernie Moreno (R-OH), released a discussion draft of the “Responsible Financial Innovation Act of 2025.” This comprehensive legislation aims to provide regulatory clarity, encourage innovation, and address key risks in the rapidly evolving digital asset ecosystem. This blog highlights critical elements of the draft bill, offering an overview of its major provisions and implications. Alongside the draft, the Senate Banking Committee has issued a broad Request for Information (RFI) to solicit feedback from the public, with responses due by August 5, 2025.
Key Highlights of the Draft Legislation
The Senate draft proposes a sweeping framework for digital asset regulation, building on the foundation of the Clarity Act. While the House-passed Clarity Act focused on empowering the Commodity Futures Trading Commission (CFTC) and classifying digital assets as commodities, the Senate bill provides the SEC with primary regulatory authority over “ancillary assets.” However, the draft bill requires the SEC to consult with the CFTC on certain rulemakings — such as joint rules for portfolio margining and disclosure requirements — reflecting a divergent approach from the House while still ensuring the CFTC retains a meaningful role in the digital asset market going forward.
Defined Key Terms
- Digital Asset: Means (A) any digital representation of value that is recorded on a cryptographically-secured distributed ledger; and (B) does not include any asset that (i) is not commercially fungible, including a digital collectible or other unique asset described in subparagraph (A); or (ii) represents ownership of, or control over, an asset that is not itself an asset described in subparagraph (A).
- Ancillary Asset: “An intangible, commercially fungible asset, including a digital commodity [not defined], that is offered, sold, or otherwise distributed to a person in connection with the purchase and sale of a security through an arrangement that constitutes an investment contract.” Ancillary assets specifically exclude assets that provide debt or equity interests, liquidation rights, entitlements to interest or dividends, or other express or implied financial interests in the originator.
- Ancillary Asset Originator: The person or entity that “initially offers, sells, or distributes the ancillary asset,” or controls such actions within the first 12 months.
- Related Person: Includes promoters, employees, consultants, founders, officers, or directors of the ancillary asset originator, or any person or group holding 5% or more of the outstanding units of an ancillary asset acquired from the originator.
- Investment Contract: The SEC shall adopt a final rule specifying clear criteria and definitions, which requires the following elements: (1) an investment of more than a de minimis amount of money or services; (2) investment in a business entity; (3) an express or implied agreement for the issuer to perform essential managerial efforts; (4) a reasonable expectation of profits based on the agreement and statements by the issuer; and (5) profits derived from the entrepreneurial or managerial efforts of the counterparty or its agents on behalf of the enterprise, where such efforts (i) are post-sale and essential to the operation or success of the enterprise and (ii) do not include ministerial, technical, or administrative activities.
Treatment and Exceptions for Ancillary Assets
The bill proposes that ancillary assets should not be considered securities, and secondary transactions involving ancillary assets should not be treated as securities transactions, under federal securities laws (and for purposes of the Securities Investor Protection Act of 1970). Additionally, the bill specifies that gratuitous distributions of ancillary assets — meaning distributions made in exchange for no more than a nominal value — are also not considered securities transactions.
Ancillary Asset Originator Disclosure Requirements
The bill centers extensively on ancillary asset originators’ disclosure requirements to the SEC, establishing a framework intended to promote transparency while tailoring obligations to the size and nature of the originator. The disclosure requirements, include:
- Ancillary asset originators must provide semiannual disclosures to the SEC, covering corporate information, economic details about the ancillary asset, risk factors, and more. However, disclosure is not required if the originator raises less than $5 million per ancillary asset in a 12-month period and if the average daily trading volume of the asset is less than $5 million.
- Disclosures are deemed a “prospectus” for certain liability purposes and are not considered a registration statement.
- Periodic disclosure is not required if the originator certifies to the SEC that it has not engaged in more than a nominal level of managerial efforts in the prior year.
- The SEC must consult with the CFTC in rulemaking on disclosure requirements.
- Proposed rules cannot require financial statements to be present in disclosures.
- Any disclosure rule adopted should not apply to ancillary assets if the offer or sale of said asset does not exceed either: (a) 10% of the total dollar value of those ancillary assets outstanding in the market; or (b) the asset fails to gross more than $75 million in any calendar year for a period of up to four consecutive years.
Safe Harbor for Forward-Looking Statements
The Senate draft also includes important protections for those promoting ancillary assets by providing that no liability arises for forward-looking statements made in disclosures if: (1) the statements are clearly identified as forward-looking statements, accompanied by meaningful cautionary language; and (2) the party bringing the action fails to prove that the person making the statement knew it was false or misleading at the time it was made.
Special Disposition Restrictions by Related Persons
The bill further anticipates the power dynamic between ancillary asset originators and general ancillary asset holders and provides important safeguards to address this power dynamic. Specifically, it imposes holding periods and volume limits on sales of ancillary assets by related persons, along with additional reporting requirements for significant holders. Furthermore, if a related person sells ancillary assets in violation of these restrictions, any profits realized from such sales are recoverable by other holders of the ancillary asset, ensuring accountability and discouraging improper disposition practices.
Protections from Illicit Activity
The bill includes a comprehensive approach to combating illicit finance risks associated with digital assets. It mandates new anti-money laundering (AML) and countering the financing of terrorism regulations, directing the Secretary of the Treasury to establish a risk-focused examination and review process for financial institutions engaged in digital asset activities. Additionally, the bill calls for the creation of a pilot information-sharing program that enables secure collaboration between government agencies and private sector entities to identify and address potential illicit finance violations and emerging risks. To further strengthen these efforts, the bill establishes an Independent Financial Technology Working Group to Combat Terrorism and Illicit Financing, which brings together representatives from multiple federal agencies and private sector experts. This working group is tasked with conducting research on the illicit use of digital assets and developing legislative and regulatory proposals to improve AML and countering the financing of terrorism regulations.
Application to the Banking Sector
One of the biggest challenges to establishing a robust digital asset market is defining how banks and traditional financial institutions fit into the evolving digital asset ecosystem. The bill addresses this challenge by expressly permitting banks and financial holding companies to engage in a wide range of digital asset activities — including custody, trading, lending, payment activities, node operation, and brokerage or derivatives services — subject to existing banking laws.
Regulatory Innovation
The bill takes significant steps to promote regulatory innovation and international cooperation in the digital asset space. The bill directs the SEC to pursue reciprocal arrangements with foreign regulators to maintain U.S. leadership in digital asset regulation and to advocate for the development and adoption of technology-neutral, open standards globally. To further foster responsible innovation, the bill establishes a “Micro-Innovation Sandbox,” allowing eligible firms to test innovative products and services under limited exemptions (excluding anti-fraud laws) for up to two years, with possible extension if the firm is actively pursuing permanent regulatory relief. The bill also encourages international cooperation through cross-border sandboxes and tasks the SEC with leading these international coordination efforts, reflecting a comprehensive approach to harmonizing domestic and global digital asset regulation while supporting technological advancement and market integrity.
SEC-CFTC Joint Rulemaking
Finally, the bill does strike a balance of regulatory authority between the SEC and the CFTC. It requires both agencies to jointly issue rules for portfolio margining, customer protection, and segregation requirements for entities dealing in securities, swaps, futures, options, and digital commodities. This collaborative approach ensures that both the SEC and CFTC play a meaningful role in overseeing critical aspects of the digital asset market, reflecting the bill’s intent to coordinate regulatory oversight and leverage the expertise of both commissions.
Request for Information: Shaping the Future of Digital Asset Regulation
The Committee’s RFI seeks detailed feedback on a wide range of topics, including:
- The appropriate allocation of regulatory jurisdiction between the SEC and CFTC;
- The definition and classification of digital assets;
- Disclosure requirements and investor protection mechanisms;
- The role of intermediaries, including access to digital assets and custody solutions;
- Illicit finance risks, AML compliance, and potential solutions to curb the use of digital assets in unlawful activities; and
- The treatment of new technological developments underpinning digital assets.
Final Thoughts
The release of this discussion draft and RFI join the whirlwind of legislative and regulatory developments in the digital assets this summer. The Senate Agriculture Committee, which has oversight of the CFTC, is also expected to introduce draft language focused on digital commodities in early September. The two committees will need to reconcile questions about jurisdiction between the SEC and CFTC prior to a comprehensive legislative package advancing to the Senate floor. Senate Banking Committee Chairman Tim Scott has said his goal is to get the SEC portion of the legislation voted out of the Committee by September 30.
