Regulatory Clarity Arrives Piece by Piece as US Fails to Deliver
The recent failure of the CLARITY Act in the US Senate has left the digital asset industry without clear guidance on market structure, custody, and regulatory jurisdiction. However, while lawmakers debate, regulators, banks, and financial institutions elsewhere are continuing to build the financial infrastructure underpinning the sector.
Ryan Kirkley, co-founder and CEO of Global Settlement (GSX), argues that the US faces a specific risk: regulatory clarity will arrive piece by piece, while the rest of the world legislates and builds.
The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are advancing work within their existing mandates, including the SEC's Crypto Task Force, which is working on custody rules. These rules could provide investment advisers, broker-dealers, and other securities intermediaries with clearer parameters for holding and transacting digital assets.
Custody is particularly important for institutional adoption, as large financial institutions need clarity over who can hold digital assets, where those assets can be held, how client property is protected, and how transactions settle.
However, regulatory action has limits. Agency rules can be narrowed, reinterpreted, or overturned. The underlying question of which assets fall under the SEC or CFTC remains a matter for legislation.
Kirkley notes that 'none of that is a substitute for law.' A bank or asset manager committing multi-year capital to digital asset infrastructure needs statutory footing that survives an election cycle.
Canada provides an example of how regulators can clarify how existing law applies to new technology. Six of the country's largest banks are jointly exploring tokenised Canadian-dollar deposits for interbank payments.
The banking regulator has clarified that tokenised deposits remain deposits under existing law, even when blockchain technology is used to represent them. This demonstrates one way regulators can facilitate innovation without creating an entirely new legal framework.
The US faces a more complicated problem because the classification of many digital assets and the division of responsibility between regulators remain unresolved.
The CFTC has warned platforms about so-called 'mention markets', in which contracts depend on whether a named individual says or does something. Such contracts can create manipulation concerns where the person involved may be able to influence the outcome or where results are difficult to verify independently.