Lummis Proposes Legislation to Secure Customer Assets in Crypto Exchange Failures

Senator Cynthia Lummis has proposed legislation to secure customer assets in case of exchange failures. The CLARITY Act would categorize digital commodities as customer property within the US Bankruptcy Code, ensuring crypto customers have rights comparable to those of stock or commodity holders.

The current system leaves individual users competing with institutional creditors for remaining assets after an exchange goes bankrupt. This was evident in the collapse of FTX and other platforms like Celsius, Voyager, and BlockFi.

The proposed legislation would require exchanges and brokers to hold client assets at specialized custodians, separate from their operating funds. Any commingling of client and company assets would be prohibited, similar to traditional securities law.