CFTC chair to issue crypto rules if Congress stalls on CLARITY

• Key takeaway: Commodity Futures Trading Commission Chair Michael Selig said he has directed staff to explore potential rulemaking that would create a framework for crypto exchanges to offer leveraged or margin-based trading and establish a legal path for developers to offer decentralized finance protocols in the United States.
• Expert quote: "We're going to give CLARITY its breathing room for a vote. But if the Democrats cannot support a bipartisan product, which reflects compromises from both sides of the aisle, and ultimately send a fair version of the bill to the president's desk, then rest assured, I will direct CFTC staff to move swiftly to propose these rules for the industry." —CFTC Chair Michael Selig
• What's at stake: The CLARITY Act's odds of passage have become longer after failing to get a vote before the Senate's August recess. 

WASHINGTON — Commodity Futures Trading Commission Chair Michael Selig said Thursday he is hopeful Congress will pass the crypto market structure bill in the near future, but said he has directed agency staff to explore potential rulemaking.

Speaking at the inaugural meeting of the CFTC's Innovation Advisory Committee Thursday, Selig said the agency has begun exploring rules to establish a CFTC market structure for crypto assets under its existing authority. 

"We stand ready to begin immediately implementing the bill if passed," Selig said. "If CLARITY continues to stall because of Democrats, the CFTC will utilize its existing authorities to begin establishing a regime for crypto asset markets. We owe it to the American people to do so."

Specifically, Selig said the agency is exploring rulemaking that would allow registrants and nonregistrant crypto exchanges to be designated by the CFTC as a type of designated contract market known as a crypto asset market and offer crypto asset trading on a leveraged or margin basis.

Selig also said he has directed staff to engage with developers of on-chain finance protocols to establish ways for developers to offer their protocols legally in the United States, "future-proofing developer protections once and for all."

"We're going to give CLARITY its breathing room for a vote," Selig said. "But if the Democrats cannot support a bipartisan product, which reflects compromises from both sides of the aisle, and ultimately send a fair version of the bill to the president's desk, then rest assured, I will direct CFTC staff to move swiftly to propose these rules for the industry."

Congress left for August recess without a vote on the CLARITY package, a sweeping crypto market structure bill that banks have tracked closely because of provisions in it that would prevent in some cases and allow in others yield-like products offered by stablecoin companies. 

The bill would establish a long-term, comprehensive legal framework for the entire crypto market, including clarifying the responsibilities of the SEC and CFTC and creating clearer registration pathways for exchanges and custodians. 

Before the Senate's August recess, the bill was delayed for weeks because of disagreements between Republicans and Democrats over how to enforce ethics provisions and whether President Donald Trump's Justice Department could effectively police potential conflicts of interest involving the president and the crypto industry.  

During his Thursday speech, Selig highlighted the CFTC's ongoing partnership with the Securities and Exchange Commission on Project Crypto, an effort to establish a clear taxonomy for crypto assets and provide certainty over which types are securities and which are not. 

"I remain hopeful that Congress will deliver to the president's desk bipartisan crypto asset market structure legislation that codifies this jurisdictional line and establishes statutory core principles for crypto asset spot markets," he said.

The SEC has also been busy plowing ahead with its crypto agenda in the absence of the CLARITY Act. The agency proposed a rule Tuesday that would streamline how crypto companies raise money.

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The proposed rules, dubbed "Regulation Crypto Assets," include two exemptions that would allow certain crypto companies to raise capital without going through the traditional securities registration process.  

In a recorded video Tuesday, SEC Chair Paul Atkins said that the proposal "sits at the center" of the agency's agenda and is essential to providing a framework for crypto asset fundraising. He also said the agency supports passage of the crypto market structure bill but that time is of the essence.  

"The SEC continues to support congressional work on the CLARITY Act, and we expect to see the bill reach the president's desk," Atkins said. "Under our current statutory authority, we are acting. The work before us is too important."