Capping Crypto Week: All You Need To Know About The Three Crypto Bills Passed By Congress

On Thursday, July 17, capping off what was dubbed “Crypto Week” by Congress, the US House just passed three digital assets related bills. Here is a breakdown of all that was passed:

The GENIUS Act:

The Senate’s stablecoin bill, by a vote of 308-122.  By bringing regulatory clarity to the asset class, the law is expected to stimulate the growth of the stablecoin industry. The GENIUS Act first passed the Senate on June 17 by a vote of 68-30, with 18 Democrats supporting the bill and 2 Republicans (Senators Hawley and Paul) voting against it. Two Senators were not present (Senators Cotton and Kelly). Broadly, the GENIUS Act creates a regime for the issuance and regulation of U.S. dollar-backed payment stablecoins. By bringing regulatory clarity to the asset class, the legislation, if passed into law, is expected to stimulate the growth of the stablecoin industry.

What the bill does

• The bill sets forth standards for regulatory oversight, striking a balance between federal and state authorities.

• The bill allows payment stablecoins to be issued by subsidiaries of banks and non-bank entities. Banks would be overseen by their primary federal regulator, while non-bank entities would be overseen at a federal level by the Office of the Comptroller of the Currency (OCC) or under qualifying state regimes.

• Sets up reserve requirements, supervision and enforcement, ie at least 1 to 1 backing with U.S. dollars, short-term Treasuries (93 days or less), or similarly liquid assets.

• Requires Bank Secrecy Act (BSA)/Anti-money Laundering (AML) compliance for issuers.

• Mandates insolvency requirements with customer protections.

Other Key Provisions of the bill

• Bank Permissibility:

  • Banks can issue stablecoins and act “as a principal or agent with respect to any payment stablecoin and payment of fees to facilitate customer transactions.”

  • Preserves current custody practices, allowing banks to hold stablecoin reserves under existing rules.

  • Carves out tokenized deposits from the legislation.

• Federal licensing preemption: Federal licensing supersedes and preempts any state licensing requirement for any federally chartered payment stablecoin issuer.

• Bank Secrecy Act / Anti-Money Laundering Requirements: Issuers shall be treated as a financial institution for the purposes of the Bank Secrecy Act; Issuers (domestic and foreign) must demonstrate the ability to freeze or burn tokens.

• “SAB 121” prevention clause: Prevents federal regulators from requiring custodied digital assets to be held on balance sheet.

• Capital treatment: A non-permitted stablecoin can NOT be treated as a cash or cash equivalent for accounting purposes. 

• Fed Master Accounts: The bill stays neutral on Fed account access and does not alter who is currently legally eligible for Federal Reserve services or deposit access.

• Interest Payments: Prohibits domestic and foreign issuers from offering interest to holders, although it does not address 3rd parties or affiliates.

• Licensing: Provides both a state and federal (OCC) licensing path for non-bank issuers, although state issuers must get federal license once over $10B in assets.

• Reserve Authentication: Monthly public disclosures of reserve composition; Annual financial audits for issuers with market capitalizations exceeding $50 billion.

• Activity Limits: Creates limits on the types of activities a non-bank stablecoin issuer can conduct (ie issue & redeem stablecoins; manage reserves; and custody stablecoins).

• Non-Security clarification: Payment stablecoins are explicitly excluded from being classified as securities.

• Marketing restrictions: Prohibits the use of “USG”, “United State Government” or “legal tender” as part of materials and naming conventions; allows the use of “USD”.

• International Stablecoins: Non-compliant foreign issuers may be barred from U.S. markets unless they comply with U.S. regulations and/or are licensed by an approved similar regime.

• Conflict of Interest: Clarified that financial conflict of interest standards apply uniformly to both regular and special government employees, although the referenced statute in the bill carves out the President and Vice President. 

• Big Tech company issuance: Restricts issuance by large U.S. public or foreign companies not primarily engaged in financial services, unless they meet certain standards (TBD by the Stablecoin Certification Review Committee (SCRC), which is made up of the Treasury Secretary, FDIC Chair, and Fed Chair or Vice Chair) and are unanimously approved by the SCRC.

The CLARITY Act:

The House’s digital assets market structure bill, by a vote of 294-134. This vote total is notable because it received 78 Democratic votes, a larger number than market structure legislation received in last Congress’ FIT21 bill. 

• The CLARITY ACT establishes the framework to define digital assets and related technology and establishes the regulatory regime for digital asset exchanges and intermediaries. 

• With the vote total, there is perceived momentum for market structure legislation going into the Senate, which is working on its own market structure bill.

Key provisions of the CLARITY Act:

• Bank Permissibility: The bill provides clarity for bank permissibility to trade and custody spot digital commodities by defining these activities as “financial in nature.” 

• Custody in a Broker-Dealer: The bill prevents a future SAB 121 approach from the SEC. Although SAB 121 has been rescinded by the SEC in recent months, it forced public companies to hold custodied digital assets on balance sheet, which for banks would mean punitive capital treatment and in essence a strong disincentive to custody digital assets.

• Portfolio Margining: The bill includes a directive for the SEC and CFTC to provide for portfolio margining across securities, repo, securities lending / borrowing, futures, options, swaps and digital assets. This is a priority for both the traditional and digital assets markets.

• Capital Netting: The bill also directs the banking agencies to provide for cross-product netting in the risk-based capital and leverage rules, which has been an issue in traditional markets for quite some time and will be important for both traditional and digital assets markets.

• Deference to regulators:  Considerable amount of policy development is left to future rulemakings by the SEC and CFTC.

• Intermediary Regulation Focused on Retail:  Dealer registration is only required for off-exchange with retail; broker registration is only required for soliciting / accepting retail orders.

• Trading through SEC Broker Dealers, ATS, exchanges:  Digital commodities can be traded through Broker-Dealers, ATS or national exchanges, granting SEC significant jurisdiction over the spot crypto markets.

• Digital Commodity Exchange Verticals:  Exchanges are vested with SRO authority;  no prohibitions on affiliations to traditional exchanges, CCPs or intermediaries; requires exchange to write conflicts of interest rules.  Prohibited from having an affiliate that trades on the exchange for its own account. 

• Direct Access:  No requirements for exchange trading to occur through brokers or dealers. 

• Speed to Market:  Through provisional and notice registration processes and self-certification by exchanges of products to list, the bill provides an expeditious process to bring new products to market.

The Anti-CBDC Surveillance State Act:

By a vote mostly along party lines. 

• This stand-alone bill attempts to prevent the Fed from issuing a retail CBDC, although it will be an uphill battle to move forward in the Senate, due to strong Democratic opposition. 

• The House activity this week included a series of delays and last-minute internal GOP negotiations to get to yesterday’s floor vote, which were reported publicly, including involvement of President Trump, which ended with an internal GOP agreement to include anti-CBDC language in a future must-pass defense spending bill (the National Defense Authorization Act) (link). 

Next steps: 

• The GENIUS Act is slated to be signed into law by President Trump on Friday (7/18) at a White House ceremony. 

• The CLARITY Act will now move to the Senate for consideration, although, as noted above, the Senate is working on its own market structure legislation. With the momentum from the CLARITY Act, including the relatively strong number of Democrats in support, though, Senate Banking Committee Chair Tim Scott (R-SC)’s goal of a September markup has increased potential, although still an uphill battle to get strong bipartisan support, which is required to get the 60 votes necessary to avoid a filibuster. The Senate Agriculture and Banking committees will work together on drafting legislation. 

• The Treasury Department’s long-awaited Digital Assets report, mandated by the WH Executive Order earlier this year, is expected to be released soon. This report will likely push for market structure legislation, as well as touch on additional issues at the banking and regulatory agencies that are needed to meet the President Trump’s stated goal of making the U.S. the “crypto capital of the world.”