- Key insight: One of the benefits of the Clarity Act is that it would codify much of digital asset firms' anti-money-laundering responsibilities. This is good news for banks that have been understandably nervous about counterparty risk.
- What's at stake: The absence of clear and durable statutory requirements may lead banks to retreat from digital asset relationships rather than attempt to price an immeasurable risk.
- Forward look: If passed, CLARITY would solve a lot of problems, closing the gap between banks and crypto firms while giving them enshrined statutory requirements to follow rather than having to rely on guidance.
The 1970
The digital assets ecosystem is an area where the financial system
Since 2013, Fincen has used interpretive guidance to explain how existing BSA requirements apply to crypto firms. This has given the industry a framework to work from, but it's not as durable as statutory requirements, and the level of interpretation required could cause banks to feel uncertain about where the regulatory baseline sits.
Investment advisors know how long that uncertainty can last. Fincen first proposed AML requirements for certain advisors in 2003. More than two decades later, a final rule has been issued, but its effective date has now been pushed back to 2028. When important obligations depend on interpretation of regulatory guidance, rather than a clear statutory requirement, uncertainty can persist for years.
This has created a problem for banks dealing with counterparties in the digital asset space. Because digital asset companies have had to determine how existing BSA rules apply to them through Fincen guidance, when an institutional compliance officer tries to judge how far they can trust the controls of their digital asset counterparty, the honest answer is often that they can't.
The absence of clear and durable statutory requirements may lead banks to retreat from digital asset relationships rather than attempt to price an immeasurable risk. Distributed ledger technology will make the financial system more efficient: faster settlement, stronger security and lower cross-border friction. But every time banks step back, those efficiency gains get left on the table.
The CLARITY Act would bring both sides more clearly under one framework. If it passes, it would clarify that digital asset firms must maintain AML programs, retain transaction records, monitor and report suspicious activity, and undertake rigorous customer due diligence. That is a helpful baseline for a bank doing counterparty diligence, or an examiner reviewing third-party risk.
Despite its positives, CLARITY doesn't solve everything. The framework works best where there are identifiable, accountable intermediaries. DeFi protocols and self-custody wallets, which operate without clear intermediaries, raise a different set of challenges. Banks will need to direct special attention here. Information sharing between banks and regulators, combined with blockchain analytics tools that can trace the money's journey, will help banks assess and manage that risk.
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The bill also proposes a transaction hold: the ability for crypto companies and stablecoin issuers to pause suspicious transactions for up to 30 days, stretching to 180 with a formal law enforcement request, built in with liability protection for firms acting in good faith. This proposal hasn't received as much attention as it deserves. Crypto transactions settle in minutes, but the legal process to freeze funds can take days. This means that the money is already gone by the time anyone can act.
These powers, while welcome, raise a different set of concerns. What happens to an innocent customer whose money gets frozen? Companies will need clear internal standards from the beginning so this only becomes a last resort.
CLARITY is U.S. legislation, but digital asset markets are global. It remains to be seen how well the legislation's AML considerations travel across borders. Take the Travel Rule, for example: an AML requirement that forces crypto companies to share identifying information about the sender and receiver of funds over a certain threshold. The Financial Action Task Force found this year that 83% of surveyed jurisdictions now have legislation implementing it, but significant gaps remain in how those rules are put into practice and enforced. A compliant U.S. exchange could still end up dealing with a foreign counterparty that can't or won't provide the information required for domestic regulations. CLARITY can't fix that.
What the act can do is give the United States a credible negotiating position. The GENIUS Act already gives Treasury a route to pursue reciprocal arrangements with comparable overseas stablecoin regimes. CLARITY could give the U.S. a broader domestic baseline from which to push for greater alignment.
The core issue remaining is interoperability — whether rules, data, and enforcement connect across regulatory regimes and borders. Domestically, if passed, CLARITY would solve a lot of problems, closing the gap between banks and crypto firms while giving them enshrined statutory requirements to follow rather than having to rely on guidance. Banks should support it because it opens the door to domestic innovation.
There is still an international regulatory gap, however, but banks in the U.S. shouldn't wait for everyone else to catch up. FATF already publishes country-by-country reports grading how each country enforces crypto rules. Banks should use these to formulate their counterparty risk strategies.
The Basel Committee's capital rules for crypto exposure will also need to be relaxed if banks are to use digital assets more frequently. SIFMA and others have pushed for updates, with an update from the Basel Committee expected later this year.
The BSA has been rewritten before — every time, the financial system moved faster than the rules. This is one of those moments. Banks have a stake in getting it right.
