Discussion on the Cryptocurrency Market Structure Act brings the SEC role back into the spotlight

It is reported that Democrats in the U.S. House of Representatives have begun discussing a bill regarding the structure of the crypto market for the next Congress. This bill would grant more regulatory powers to the U.S. Securities and Exchange Commission (SEC) and reinstate the investor protection provisions proposed by Representative Maxine Waters.

• Democrats are discussing a market structure proposal that is centered around the investor protection amendment proposed by Waters in 2025 but which was rejected at the time.
• The proposals under discussion include strengthening the supervision of SEC and reducing the role of the Commodity Futures Trading Commission ( CFTC ).
• Ethical guidelines may restrict encryption activities involving President Donald Trump and other federal officials.
• Waters Previous proposals included withdrawal time limits, custody guarantees, and monthly reserve certification reports.

Eleanor Terrett reports that the discussions involved expanding an amendment to the Waters 'Cryptocurrency Investors and Consumers Rights Act' into a market structure proposal. Her report cited three industry insiders who have had contact with Democratic Party staff.

The proposal will draw on the amendments proposed by Democrats during the House of Representatives' deliberation of the 2025 CLARITY Act, as well as the provisions that were negotiated between Senate Democrats and Republicans before they failed to pass a procedural vote in September.

According to Terrett, Republicans describe this effort as an "information dissemination bill." Her report mentions that the legislative discussions are aimed at the next Congress, and the allocation of regulatory powers as well as restrictions on officials' financial interests are among the issues being considered.

Discussion on the structure of the crypto market: Re-examining SEC permissions

One of the ideas mentioned in the Terrett report is to give SEC a greater supervisory role, while reducing the scope of authority of the Commodity Futures Trading Commission (CFTC). Further ethical provisions may also involve the crypto activities of Trump and other federal officials.

The Republican-led CLARITY framework will grant CFTC regulatory authority over the covered spot digital commodity markets, while retaining SEC jurisdiction over securities and investment contracts.

Before the September vote, the final Republican proposal included establishing registration pathways for digital commodity exchanges, brokers, and traders. The initiators stated that the revised text incorporated 126 substantive changes requested by Democratic negotiators.

Ethical negotiations include requiring covered officials to divest themselves of certain significant crypto-related interests or place those interests in a blind trust. Republican sponsors stated that these restrictions will apply to federal elected officials, federal judges, and their spouses.

Despite these concessions, Democrats are still seeking stricter restrictions. The latest discussions described by Terrett will bring ethical provisions back into the drafting process.

The investor protection provisions of Waters previously encountered procedural setbacks.

Official records from the House Rules Committee show that the investor protection scheme for Waters is Amendment 31 to the CLARITY legislation of 2025.

A motion to qualify the amendment for consideration was rejected by a vote of 4 to 8. The vote was regarding whether the amendment could be considered, rather than the final adoption of an independent investor protection law.

The terms listed in the committee summary include 24/7 customer service, insurance or protection equivalent to that provided by the Securities Investor Protection Corporation ( SIPC ), fiduciary duties, and best execution requirements.

Other measures also include pre-emptive trading, bankruptcy isolation custody, withdrawals within 24 hours, and monthly reserve reports accompanied by auditor certifications. The amendment also proposes to provide funding for SEC and CFTC.

Another amendment with the number 30, identified as Waters, has been incorporated into the Stop TRUMP in Crypto Act, targeting potential conflicts of interest in encryption involving the President, Vice President, members of Congress, and their immediate family members.

The committee records also listed more Democratic proposals, which involve restrictions on the president's holding of tokens, endorsements, and transactions, all of which were submitted as separate amendments.

Text listing customer deadlines for 2025

The 9-page amendment text, designated as Waters, makes more specific provisions regarding the consumer protection clauses outlined in the committee's summary.

Covered enterprises must process cash withdrawals or digital asset transfers within 24 hours, unless there are documented and bona fide concerns regarding fraud. Manual telephone or online chat support will be available around the clock, with a maximum waiting time of 5 minutes to get through.

Customer assets will be isolated and held in a bankruptcy isolation account. Any lending, pledging, or reutilization of these assets requires the explicit consent of the customer, and such consent can be revoked by the customer.

Enterprises that hold customer assets are required to disclose at least once a month the reserves that can be verified through encryption, along with a certificate from a licensed certified public accountant.

Text requirement: Once a security vulnerability that endangers the safety of customer assets or personal information is discovered, notification must be given within 48 hours. The definition of covered entities includes exchanges, brokers, traders, and custodian institutions that provide digital asset services to retail investors under the jurisdiction of any institution.

CLARITY The bill failed to pass the vote, but there is still a possibility of reconsideration.

According to previous reports by crypto.news, the vote to terminate the debate in September failed with a ratio of 49 to 50, falling short of the 60 votes required for the Senate to begin deliberations.

Senator Thom Tillis changed his vote to opposed for procedural reasons, thus retaining the option to seek reconsideration. This vote does not constitute a final veto of the bill already passed by the House of Representatives.

Thereafter, the former chairperson CFTC, J. Christopher Giancarlo, stated that SEC and CFTC could continue to utilize the existing authorities to establish a digital asset framework.