Crypto regulation after the CLARITY Act stalls

December 2026 | SPOTLIGHT | FINANCE & INVESTMENT

Financier Worldwide Magazine

December 2026 Issue

The Digital Asset Market Clarity Act of 2025 (CLARITY Act) was widely viewed as establishing a long-overdue regulatory framework to resolve jurisdictional ambiguities over cryptoassets.

For the preceding decade plus, there had been an absence of comprehensive regulation specifically addressing cryptoassets. Comprehensive legislation was missing as were meaningful administrative rule-making alternatives from the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).

Instead, these agencies haphazardly proscribed conduct and imposed sanctions drawing on statutes first drafted before the internet had even been a thought. What emerged was a digital currency landscape where key market stakeholders could not predict what instruments or transactions would ultimately be subject to, often stifling enforcement scrutiny and penalties.

This atmosphere of ‘regulation by enforcement’ was decried throughout the industry. Market participants responded to this uncertainty and potential regulatory scrutiny from Congress and both agencies in many instances by electing to operate offshore. Mainstream finance was hesitant to invest in crypto and expand its growth.

Against this backdrop, the crypto industry rallied in lobbying efforts and as a result, the CLARITY Act was introduced with much fanfare in May 2025. Proponents of the CLARITY Act argued that the bill was a historic step to bring certainty and stability to the industry which, in turn, would further unlock the promise and economic gain of cryptoassets.

In July 2025, the bill passed the US House of Representatives with broad bipartisan support. However, on 15 September 2026, the Senate rejected cloture by a vote of 50 to 49, ending the prospect of the CLARITY Act becoming law. As this political defeat came into focus, both the SEC and the CFTC began developing and have since implemented or proposed measures intended to fill the gap left by the Act’s failure in the Senate.

These agency initiatives, summarised in part below, are only a partial solve. Without the stability that accompanies congressionally mandated statutory framework, these measures may not bring lasting comfort to stakeholders despite the agencies’ best intentions.

Digital asset categorisation under the CLARITY Act

A central but unanswered question has asked simply whether a particular digital asset qualifies as a security subject to SEC regulation or a commodity subject to CFTC regulation. The CLARITY Act sought to resolve the years of ambiguity by categorising digital assets into digital commodities and investment contract assets to better define agency jurisdiction.

Under the Act, digital commodities were to be defined as digital assets whose value was “intrinsically linked” to the use of the blockchain. Digital commodity spot or cash markets would have been subject to CFTC jurisdiction under the Act.

Investment contract assets would have been defined under the Act as digital commodities that could be exclusively held and transferred peer-to-peer without intermediaries, were recorded on the blockchain, and were sold or transferred, or intended to be sold or transferred, pursuant to an investment contract. As they are sold to raise capital like traditional securities, investment contract assets would have been subject to SEC jurisdiction.

These distinctions were intended to eliminate ambiguities over asset classification and regulatory jurisdiction that discouraged the crypto industry from conducting business in the US, as well as to provide institutional investors with the comfort needed to invest in crypto markets.

Where the Senate’s rejection leaves the regulatory landscape

The failed vote shook the industry. Following the cloture rejection, Bitcoin dropped by approximately 5 percent and Coinbase Global Inc. closed approximately 10 percent lower. The industry had viewed the CLARITY Act as the vehicle for stable, clear crypto enforcement and as a pathway to mainstream finance, which needed regulatory certainty to invest. The legislative defeat foreclosed that route in the near term.

As the prospect of a failed cloture vote came into focus, the SEC and the CFTC moved to fill the anticipated gap, likely a byproduct of the crypto industry lobbying efforts during this second Trump administration. In August 2026, Michael Selig, chairman of the CFTC, directed his staff “to begin exploring rules to codify a CFTC market structure for crypto assets”, while the SEC proposed Regulation Crypto Assets, which would create fundraising exemptions (also proposed in the CLARITY Act) and a conditional safe harbour for certain cryptoassets.

The SEC and the CFTC have taken further steps following the failed cloture vote to make regulations clearer to the industry, expressly describing circumstances under which crypto market participants are not subject to certain regulations, signalling a more accommodating posture toward crypto than under previous administrations. These actions also laid the groundwork for formalised rules clarifying the obligations of market participants in connection with specified crypto transactions and products.

SEC actions. On 17 September 2026, the SEC granted tokenised securities venues (TSVs) temporary, conditional exemptive relief from the definition of “exchange” in the Securities Exchange Act of 1934, allowing TSVs to trade tokenised versions of publicly listed US stocks on blockchain-based pools without registering as traditional stock exchanges. These TSVs are subject to certain criteria centred around transparency and equitability with respect to rights and notice vis-à-vis the respective traditional stock.

The order also temporarily exempts, on a conditional basis, liquidity providers that supply tokenised stock to a TSV’s automated market maker and liquidity pool from the definition of ‘dealer’, even if they engage in other activities typically treated as dealing.

On 1 October 2026, the SEC proposed new rules and amendments establishing a new cryptoasset custody framework for registered investment advisers and regulated funds. Under the proposed rules, under certain circumstances, advisers and regulated funds could self-custody cryptoassets, and client or regulated fund cryptoassets could be maintained with a state trust company.

Recordkeeping, disclosure and audit requirements would also be amended under the proposed rules to address current industry practices. As described by the SEC, the proposal is intended to remove regulatory barriers that would otherwise inhibit an adviser’s ability to provide crypto-related advice.

CFTC actions. On 17 September 2026, the CFTC issued CFTC Staff Letter 26-25, under which the CFTC took a no-action position in response to a request from a software developer that passively enabled trading in CFTC-regulated derivatives products, including through self-custodial crypto wallet software, and expanded this position to other “passive software providers” (PSPs).

Thus, the CFTC will not recommend enforcement against certain PSPs for failing to register as introducing brokers despite these PSPs providing access to CFTC-regulated derivatives markets.

Moreover, on 5 October 2026, the CFTC published an Advance Notice of Proposed Rulemaking (ANPR) in connection with its “intent to establish a comprehensive regulatory framework comprised of fit-for-purpose rules” for certain retail commodity transactions involving cryptoassets, seeking public comment on the same. Mr Selig explicitly stated that the ANPR was part of the CFTC’s efforts to provide “clarity, certainty and consumer protections in the crypto asset markets”.

Outlined below are a few key regulatory frameworks under consideration by the ANPR.

First, Regulation Crypto Asset Transactions subjects certain leveraged or potentially leveraged crypto transactions offered to retail participants to Commodity Exchange Act section 2(c)(2)(D).

Second, Regulation Crypto Asset Markets creates a new subcategory of designated contract markets (DCMs) for DCMs designed to list only cryptoasset transactions, called cryptoasset markets (CAMs). If a CAM elects to register with the CFTC, it would be subject to core principles designed to meet existing DCM core principles. Additionally, existing DCMs could list cryptoasset transactions under their current registration.

Lastly, retail leveraged crypto transactions would be routed through futures commission merchants, and derivatives clearing organisations would clear trades, subject to modified rules.

The ANPR explicitly notes that it is intended to complement the SEC’s proposed Regulation Crypto Assets, recognising the need to define agency jurisdiction.

Outlook

The CLARITY Act held the promise of long term, comprehensive legislative reform in the crypto space. In the aftermath of its collapse, the CFTC and SEC have attempted to bridge the gap, in part at the direction of the Trump Administration, which does mark progress for the industry addressing the prior complaints of “legislation by enforcement”.

The CFTC’s and SEC’s recent actions and coordinated proposals demonstrate the agencies’ recognition of the crypto industry’s need for regulatory certainty – that is, which transactions are subject to CFTC or SEC regulation. These actions are intended to provide needed clarity, at least in the immediate term, and spur crypto investment in the US.

Taken together, however, these measures are piecemeal. Rather than the single statutory taxonomy the CLARITY Act would have established, the agency actions taken thus far address discrete products and market participants one at a time.

Moreover, agency rulemaking cannot fully solve the issues that the CLARITY Act had intended to address. Although agency measures provide the industry with clarity over what regulations it faces, this clarity may only last as long as the administration in office at the time.

While the Trump administration has embraced an industry-friendly regulatory approach, crypto market participants may face increased regulatory scrutiny should the next administration take a more conservative view of the crypto industry.

The crypto market is already aware of this, having seen enforcement actions brought during the Biden administration and subsequently dismissed under the Trump administration. Thus, while the SEC and the CFTC have taken their own actions to provide clarity and encourage industry growth, these agency actions fail to bring the long-term stability the industry is ultimately seeking.

Only legislation can bring stability and durable clarity the industry requires – efforts to enact it may resume once the new Congress convenes in January 2027.

Kan M. Nawaday and Samidh Guha are partners and Franchesca D. Verendia is an associate at Venable. Mr Nawaday can be contacted on +1 (212) 307 5500 or by email: kmnawaday@venable.com. Mr Guha can be contacted on +1 (212) 307 5500 or by email: sguha@venable.com. Ms Verendia can

be contacted on +1 (212) 307 5500 or email: fdverendia@venable.com.

Kan M. Nawaday, Samidh Guha and Franchesca D. Verendia

Venable