SEC Must Clear Path for Smaller CFTC Under Crypto Market Bill

A cryptocurrency market structure bill advancing through Congress stands to resolve a turf fight between Wall Street regulators, but it presents risks for investors if the perennially overmatched CFTC becomes the industry’s cop on the beat.

Most tokens would be defined as commodities rather than securities and removed from the Securities and Exchange Commission’s purview under the “CLARITY Act” (H.R. 3633), which made it through the House in a July 17 vote.

Intended to clarify which agency is responsible for policing parts of the $4 trillion market, the measure would simultaneously solidify a crypto retreat under President Donald Trump’s SEC and pose acute challenges for the Commodity Futures Trading Commission.

“The SEC’s ability to police crypto markets would be much diminished,” said Lee Reiners, a lecturing fellow at Duke University who has taught courses in crypto law.

Reiners has called for merging the two agencies, a proposal SEC Chairman Paul Atkins backed during an interview with Fox Business last week, but for now the CFTC appears poised to take the reins as the crypto industry’s primary regulator.

The SEC in Trump’s second term wiped out most leftover litigation from a digital asset crackdown mounted by Biden-era Chair Gary Gensler, who filed enforcement actions that applied securities law standards to crypto offerings and exchange activity and targeted industry giants including Coinbase Global Inc. and Ripple Labs Inc. Atkins has instead teased new industry-friendly rulemaking during a series of roundtables with industry players.

The House-passed legislation would formally require the SEC to abdicate much of its jurisdiction to the CFTC, handing a win to crypto groups that often did battle with Gensler. The CFTC will likely be helmed soon by Trump nominee Brian Quintenz, the head of policy at Andreessen Horowitz’s a16z crypto arm who could initially run the agency by himself after Democratic commissioners leave.

Meanwhile, the Senate Banking Committee released a draft of its market structure legislation Tuesday and Chairman Tim Scott (R-S.C.) has pledged to finish work on the measure by Sept. 30.

An SEC spokesman declined to comment. A CFTC spokesperson didn’t respond to requests for comment.

‘Flypaper for Scammers’

The “CLARITY Act” would invert the traditional power imbalance between the two Wall Street watchdogs.

The CFTC’s fiscal 2026 budget request calls for 650 full-time equivalent staff, while the SEC seeks a budget to support more than 4,000 staff members, even after both agencies took steps to pare down headcount through firings and voluntary resignations.

“The CFTC is not currently equipped to be able to do the same thing the SEC is doing,” said Eric Sibbitt, co-chair of the fintech and securities practices at Paul Hastings LLP. “It’s classically an agency focused on enforcing the secondary markets, market manipulation, and those types of transactions.”

Retail investors will likely suffer from bill provisions exempting “mature” blockchain systems and related digital commodities from SEC jurisdiction, a consumer advocate said.

“The CFTC brings no person-power, history, or decades of honing specific rules to deal with retail investors,” Bart Naylor, financial policy advocate at Public Citizen’s Congress Watch division, said in an email. “Now, the understaffed CFTC will begin from scratch to oversee an arena that’s flypaper for scammers.”

Crypto, Then and Now

Regulatory approaches to crypto have relied on older statutory definitions that rarely map cleanly onto the way investors use digital tokens or the types of violations that may occur.

The House-passed legislation will provide a much-needed update, some industry lawyers said.

“For so long now, the prevailing regulatory regime for a crypto exchange or crypto broker-dealer in the US has been the money transmitter statutes,” said Meagan Griffin, a partner in Paul Hastings’ fintech practice. “To the extent that you’re trying to fit any sort of sophisticated trading firm into that structure, you’re going to have a lot of heartburn.”

With the “CLARITY Act” now awaiting Senate action, its passage would push the SEC to pursue joint rulemaking with the CFTC, while also finalizing a transition that kicked off when the securities regulator refashioned its crypto unit into a cyber and emerging technologies team early in Trump’s second term.

The SEC’s division of trading and markets would likely take on certain digital asset oversight tasks, while any staff still focused on crypto would see their responsibilities shift, according to Reiners.

“The SEC seems set on giving the industry everything they always wanted anyway,” he said. “Long-term, I don’t think we are going to see any more crypto-related enforcement actions.”

Once confirmed at the CFTC, Quintenz would take on the immediate challenge of setting up the agency to handle its new workload and kickstart rulemaking, with the ultimate goal of extending the regulator’s reach far beyond traditional commodity futures.

“He’ll be hitting the ground running and implementing CLARITY in a way that it’s fair to assume will be most favorable to the industry’s interest,” Reiners said.