Senate Banking Committee Releases Digital Asset Market Structure Discussion Draft

On July 22, 2025, the US Senate Committee on Banking, Housing, and Urban Affairs released a long-anticipated discussion draft designed to establish a comprehensive regulatory framework for digital assets. The proposal, titled, “Responsible Financial Innovation Act of 2025,” marks a significant step forward in the effort to provide legal and supervisory clarity.

Building on momentum from the House-passed CLARITY Act, the now law stablecoin-centric GENIUS Act, and earlier bills like FIT21 and the Lummis-Gillibrand Responsible Financial Innovation Act, the Senate Banking draft addresses regulatory jurisdiction, investor protection, anti-money laundering obligations, and enhanced public-private coordination to counter emerging risks in the digital asset ecosystem.

Clarifying Jurisdiction: SEC vs. CFTC Oversight

The discussion draft aims to resolve the persistent ambiguity over whether digital assets are securities or commodities. It introduces a framework for classifying digital assets based on their degree of decentralization and functional characteristics. Under the proposal, assets that qualify as “restricted digital assets” would fall under the oversight of the Commodity Futures Trading Commission (CFTC), while those with more centralized governance structures would remain subject to Securities and Exchange Commission (SEC) regulation. A formal filing and disclosure process would allow issuers to propose a classification, subject to regulatory review, with the flexibility for assets to “migrate” across regulatory regimes as their decentralization evolves. This dynamic approach acknowledges the lifecycle of blockchain projects and provides an off-ramp from SEC jurisdiction as assets mature.

Regulating Digital Asset Intermediaries

The draft establishes a new class of regulated entities—digital asset intermediaries—including exchanges, brokers, dealers, custodians, and clearing agencies. These intermediaries would be required to register with either the SEC or the CFTC depending on the classification of the assets they handle. Where platforms list both securities and non-securities, dual registration may be required.

The legislation imposes a baseline set of conduct standards on intermediaries, including requirements for best execution, conflict-of-interest mitigation, capital adequacy, and customer disclosures. It also mandates protections for customer assets, especially in insolvency scenarios, to avoid the commingling issues that plagued platforms like FTX. Enhanced audit, cybersecurity, and disclosure requirements are also included to safeguard investor assets and ensure transparency in trading and custody practices.

Title II: Protecting Against Illicit Finance

While the heart of the draft is market structure—defining who regulates what and how—this blog post, in true TRM fashion, will focus primarily on the anti-money laundering provisions that sit at the core of the illicit finance section. 

While illicit finance makes up only a sliver of overall crypto activity, its impact is disproportionate and deeply consequential. TRM’s 2025 Crypto Crime Report found that illicit transactions accounted for just 0.09% of total volume in 2024—a decline from prior years—but still involved over USD 45 billion in blockchain-based crime, including scams, darknet activity, sanctions evasion, and terrorist financing. According to TRM, we have seen about USD 160 billion in illicit volume since 2022.

As digital assets scale globally and become embedded in the financial system, establishing clear regulatory frameworks is critical to preventing abuse. That means equipping law enforcement, regulators, and the private sector with the legal tools, compliance standards, and coordination mechanisms needed to act. The Senate Banking Committee’s discussion draft directly confronts this challenge—placing illicit finance risk at the center of digital asset regulation.

Title II of the discussion draft introduces some of the most robust anti-money laundering (AML) and sanctions compliance provisions seen in federal crypto legislation to date. Section 201 directs the Treasury Department—working in consultation with the Federal functional regulators—to develop a risk-focused examination framework tailored to digital assets. This new oversight process will evaluate the effectiveness of Bank Secrecy Act (BSA) programs, suspicious activity reporting, and broader compliance with AML and counter-terrorist financing mandates under Title 31 of the US Code.

The draft makes clear that BSA obligations apply to digital asset intermediaries and requires these entities to maintain strong AML programs, perform customer due diligence, and monitor for suspicious activity consistent with FinCEN and OFAC expectations.

The proposal also emphasizes the importance of blockchain analytics like TRM and other risk mitigation technologies. Regulators are instructed to consider how these tools can support compliance efforts and ensure that firms have the capabilities to detect obfuscated transactions and emerging criminal typologies. The framework aims to move beyond a static rulebook toward a more dynamic approach, incorporating real-time risk intelligence into compliance standards.

Public-Private Partnership and Information Sharing

In Section 202, the draft establishes a pilot program to enhance public-private coordination on illicit finance threats. The Attorney General is tasked with setting up the program in collaboration with Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Department of Homeland Security. At least 20 private sector entities—including money services businesses and digital asset firms—will be designated to participate, with the option to include blockchain analytics firms and information sharing and analysis centers (ISACs).

The pilot program creates a formalized mechanism for law enforcement to share real-time intelligence with industry on emerging typologies, risks, and threats. Covered agencies such as the DOJ, FBI, and DEA will be authorized to share information through secure portals, encrypted email, or monthly briefings. The goal is to foster operational collaboration and speed the identification and disruption of illicit finance networks. Importantly, the draft includes a safe harbor provision: participants that share information in good faith will be protected from liability, mirroring the protections found in Section 314(b) of the USA PATRIOT Act.

Strategic Policy Development and National Security

Section 203 creates a new Independent Financial Technology Working Group to Combat Terrorism and Illicit Financing, housed within the Treasury Department. This working group will include representatives from the IRS, DEA, FBI, State Department, and intelligence community, along with industry leaders from crypto firms, blockchain intelligence providers, traditional financial institutions, and civil liberties organizations. The group will be tasked with conducting ongoing research into the illicit use of digital assets and issuing annual policy recommendations to Congress. Its work is expected to shape future legislative and regulatory initiatives across the Treasury and national security communities.

Stablecoins: Sanctions Compliance and Future Oversight

While the Senate Banking Committee’s discussion draft does not attempt to construct a full regulatory framework for stablecoins—an issue addressed in the now law-of-the-land GENIUS Act—it does lay important groundwork for future oversight, particularly around national security and sanctions compliance.

Section 204 of the draft directs the Secretary of the Treasury to issue guidance clarifying the sanctions compliance responsibilities of payment stablecoin issuers. Specifically, the guidance must address the liability of issuers for downstream transactions involving their stablecoins—those that occur after the token has been distributed to a customer. This is a critical development, as it signals Congress’s growing concern that stablecoins—particularly dollar-backed assets—can be used to facilitate illicit finance even after leaving the issuer’s control.

For a deeper dive into compliance expectations for stablecoin issuers—including legal tools like seizure, blacklisting, and reissuance—read TRM’s in-depth analysis, “Seize, Burn, Block, Reissue: Understanding the Legal Tools Behind Crypto Asset Recovery,” available here.

The provision reflects increasing regulatory focus on the lifecycle of stablecoin transactions and the need for clear expectations regarding issuer responsibility. It also aligns with Treasury’s broader national security priorities by ensuring that stablecoin providers—particularly those offering products with global reach—understand their obligations under US sanctions laws and are taking reasonable steps to monitor how their assets are used.

In parallel, Section 203 of the draft empowers the new Independent Financial Technology Working Group to examine the role of stablecoins in terrorism financing and sanctions evasion. This structure ensures that stablecoins remain part of the broader conversation around emerging technologies and illicit finance, even as more comprehensive legislative frameworks continue to evolve separately in the House and Senate.

Alignment with the House CLARITY Act and Path to Final Passage

The Senate Banking discussion draft complements and builds upon the House’s CLARITY Act, passed last week. Like the Senate proposal, CLARITY delineates regulatory authority between the SEC and CFTC, establishes disclosure obligations for digital asset issuers, and codifies AML expectations for intermediaries. The Senate draft diverges by adding more detailed mechanisms for public-private engagement and a more expansive AML policy structure.

What comes next is the process of bringing the two bills together. The Senate Banking Committee is expected to collect stakeholder feedback before formally introducing the bill. Hearings and markups may follow this summer and fall. If the bill advances, lawmakers will need to conference with the House to reconcile differences between the Senate draft and the CLARITY Act. A unified digital asset market structure bill would then need to pass both chambers and be signed by the President before becoming law.

How TRM Can Help

TRM Labs welcomes the Senate Banking Committee’s discussion draft as a meaningful step toward building a clear, modern, and risk-informed regulatory framework for digital assets. The provisions outlined—particularly those focused on public-private collaboration, enhanced AML oversight, and sanctions compliance—closely align with TRM’s mission to support the public and private sectors in combating illicit finance. We look forward to continuing to work with policymakers as they refine this legislation, helping shape standards that provide clarity without compromising security.

TRM is especially encouraged by the draft’s emphasis on information-sharing pilots between law enforcement and industry, and we stand ready to support those efforts through trusted technical collaboration. We also remain deeply engaged with law enforcement agencies and regulators to help identify, trace, and disrupt illicit activity across the blockchain ecosystem. And as digital asset intermediaries face heightened compliance expectations, TRM will continue working closely with firms to help build the robust, risk-based controls envisioned in this draft. Together, we can help ensure the next chapter of crypto is defined by transparency, trust, and resilience.

FAQs on the Senate's Discussion Draft

‍What is the Senate Banking Committee’s digital asset market structure discussion draft, and why does it matter?‍

The Senate Banking Committee’s discussion draft, called the “Responsible Financial Innovation Act of 2025,” marks a significant step toward regulatory clarity for the U.S. digital asset ecosystem. It proposes a framework for distinguishing which tokens are securities versus commodities, assigns oversight authority between the SEC and CFTC, and introduces new investor protection standards. Most importantly for TRM and the compliance community, it embeds robust anti-money laundering provisions and recognizes the growing national security implications of digital asset misuse. The draft builds on bipartisan efforts like the House-passed CLARITY Act and reflects Congress’s growing interest in shaping a forward-looking digital finance policy.‍

How does the Senate Banking Committee's digital asset market structure discussion draft address illicit finance in the crypto ecosystem?‍

Title II of the draft, “Protecting Against Illicit Finance,” places illicit finance mitigation at the core of crypto oversight. It applies the Bank Secrecy Act to a broad class of digital asset intermediaries—exchanges, custodians, brokers, and others—and mandates the creation of a risk-focused examination framework tailored to digital assets. Treasury, working with federal financial regulators, is tasked with assessing the adequacy of existing AML and counter-terrorist financing controls. The draft also emphasizes the need for blockchain analytics and other advanced tools to monitor pseudonymous transactions, identify typologies, and detect obfuscation techniques in real time. It signals a strong desire to move beyond checkbox compliance and toward dynamic, intelligence-driven risk management.

What is the pilot program for public-private partnership in the Senate Banking Committee's digital asset market structure discussion draft and how will it work?‍

To foster greater operational collaboration between the public and private sectors, the draft creates a five-year pilot program led by the Attorney General in coordination with FinCEN and DHS. At least 20 digital asset firms and money services businesses will be designated to securely share threat intelligence with law enforcement, including DOJ, FBI, and DEA. These entities will exchange information on emerging risks and typologies using secure portals, encrypted email, or monthly in-person briefings. The draft includes liability protection for firms that share information in good faith and mirrors the intent of the 314(b) framework, but is specifically tailored to digital asset risks. This is one of the most concrete steps Congress has taken to institutionalize real-time crypto threat collaboration at scale.

Does the Senate Banking Committee's digital asset market structure discussion draft cover stablecoins?‍

While the main framework for regulating stablecoins is addressed in the separate, now-enacted GENIUS Act, the Senate Banking draft still plays an important role. It directs the Treasury Department to issue guidance on the sanctions compliance responsibilities of stablecoin issuers, with a focus on downstream transactions—those that happen after the stablecoin is issued. This provision reflects growing concern that dollar-backed stablecoins can be exploited for illicit finance even after they leave the issuer’s hands, and it ensures that providers remain vigilant about how their assets are used over time. The draft also positions stablecoins within the broader conversation on terrorism financing, sanctions evasion, and national security risk, as explored by the working group established in Section 203.

What happens next with the Senate Banking Committee's digital asset market structure discussion draft?‍

The Senate Banking Committee is currently accepting feedback on the discussion draft. Once refined, the bill could proceed to hearings and markup later this year. From there, it would need to be reconciled with the House’s CLARITY Act through a formal conference process. A unified bill must then pass both chambers before being signed into law. Together, the Senate draft, the CLARITY Act, and the GENIUS Act represent the most significant legislative push in years to build a comprehensive digital asset framework. TRM Labs will continue working with lawmakers, regulators, and industry partners to help shape that future—bringing blockchain intelligence to bear on critical decisions around financial crime, national security, and compliance.