After the CLARITY Act's defeat, Washington is writing crypto rules agency by agency
The Senate's 49-50 vote left the SEC, CFTC and OCC to fill the gap. What each agency is proposing, and why rules built this way are easier to undo.
REGULATIONETFS & INSTITUTIONSANALYSIS
Lukas Brenner
10/27/20263 min read
On September 15 the Senate voted 49 to 50 on a motion to begin debate on the Digital Asset Market Clarity Act, eleven votes short of the 60 it needed. With the House away until after the November 3 midterm elections and a crowded year-end calendar ahead, most legal analysts now treat the bill as finished for this Congress. Six weeks on, what stands out is how little the defeat has slowed rulemaking. Washington's crypto framework is still being built. It is simply being built by regulators rather than by legislators.
What failed, and why
The bill did not collapse over its central idea of dividing oversight between the SEC and the CFTC. It collapsed over the edges. According to a summary by the law firm DLA Piper, Democratic opponents objected to ethics provisions they considered too narrow, to enforcement resting solely with the Justice Department, and to a sunset on those provisions in January 2029. Others feared the bill would preempt state enforcement, a concern shared by 18 state attorneys general. Three Republicans, Susan Collins, Josh Hawley and Jerry Moran, also voted no. Stablecoin rewards and protections for DeFi developers had been sticking points for months before the vote.
The agency map in late October
The SEC is moving on several fronts. In August it proposed Regulation Crypto Assets, which includes a two-tier fundraising exemption of up to $20 million and $75 million over 12 months, a separate $5 million exemption for startups and a conditional safe harbor; the comment period closed on October 20. In September it granted five years of conditional relief to venues trading tokenized stocks through permissioned automated market makers. On October 1 it proposed custody rules that would let investment advisers and funds keep crypto with state trust companies and, under strict conditions, self-custody assets that no qualified custodian will hold.
The CFTC is working in parallel. On October 5 it published an advance notice of proposed rulemaking covering two frameworks, Regulation CTX and Regulation CAM. The first would define which retail crypto transactions involving leverage or financing fall under CFTC jurisdiction, relying on existing retail commodity provisions in the Commodity Exchange Act. The second would create a tailored category of regulated exchange for venues that list only such transactions. An advance notice contains no rule text, and the law firm Troutman Pepper Locke does not expect a binding rule before late 2027.
Banking regulators are furthest along because they have a statute to implement. The OCC finalized its GENIUS Act stablecoin rule on October 21, covering reserves, redemption, capital and supervision, with an effective date of January 18, 2027. Anti-money laundering requirements for issuers are being handled in a separate rulemaking with the Treasury.
The durability problem
Rules made this way carry a weakness that statutes do not. A future commission can rewrite them through the same notice-and-comment process that created them. An exemption granted by one SEC majority can be narrowed by the next, and court challenges can stall rules that stretch existing authority. The CFTC's plan rests on a reading of the Commodity Exchange Act that a later commission, or a judge, might interpret differently. For firms deciding how much to invest in US compliance, that uncertainty means higher costs and shorter planning horizons.
There is also a gap in coverage. Each agency can define its own jurisdiction, but agencies cannot formally divide authority between themselves the way Congress can. Tokens that sit between securities and commodities, and DeFi protocols without a clear operator, remain the hardest cases, and they are exactly where the CLARITY Act would have drawn the lines.
Three scenarios after the midterms
In the first scenario, the agency track simply continues. Rules are finalized through 2027, the industry adapts, and legislation returns later as a way to lock in what regulators have already done. This is the base case most practitioners describe.
In the second, the lame-duck session or the new Congress revives a narrower bill, perhaps covering market structure without the contested ethics and DeFi sections. Bills that die in this Congress must be reintroduced and go back through committee in the 120th, so even an optimistic timeline points to the second half of 2027.
In the third, a shift in congressional control brings tougher scrutiny of the agencies themselves, through hearings, funding riders or attempts to overturn finalized rules. That would not repeal the GENIUS Act, but it could slow the SEC and CFTC proposals that are still in draft. For now, the most useful signals are the comment files on the SEC and CFTC dockets and the November 3 results, which will set the pace for everything that follows.