Securities Regulation Daily Wrap Up, BLOCKCHAIN—Senate Banking Committee minority staff analysis finds major flaws in CLARITY Act, (Aug 6, 2026)

By Justin Marcus Smith, J.D.

Minority staff expanded on previously-stated warnings that changes to the CLARITY Act still do not do enough to protect consumers and the country from systemically-risky and illicit uses of cryptocurrency products.

The Minority Staff of the Senate Banking, Housing, and Urban Affairs Committee released a new analysis of the current text of the Digital Asset Market Clarity Act of 2025 (CLARITY Act) on Aug. 5, 2026. The analysis highlighted perceived risks to pensions and the financial system, national security, and potential for conflicts of interest. An accompanying press release said the “gaps” identified in the analysis “mirror the concerns raised by labor unions, law enforcement, ethics experts, and tribal nations.”

In May 2026, the Senate Banking, Housing, and Urban Affairs Committee voted 15-9 to advance a version of the CLARITY Act establishing a framework for cryptocurrency regulation (see Banking and Finance Law Daily, May 15, 2026). Most Democrats objected at the time, but Democrats Ruben Gallego (D-Ariz.) and Angela Alsobrooks (D-Md.) joined committee Republicans in voting for the bill, with each saying they voted in favor so that work could continue on it. They stressed they did not commit to voting for the bill on a floor vote.

Prior to the markup in May, Committee Ranking Member Sen. Warren (D-Mass.) and Sen. Jack Reed (D-R.I.), the ranking member of the Senate Armed Services Committee, sent a letter to Treasury Secretary Scott Bessent and acting Attorney General Todd Blanche requesting an investigation into World Liberty Financial, a crypto company founded by President Trump’s family. Committee Democratic staff also released a “detailed national security advisory” claiming that the CLARITY Act would worsen the problem of digital assets used for illicit activities.

The present Democratic Minority Staff fact sheet summarized five purported deficiencies in the current bill text:

1. Failure to close loopholes to securities laws that could risk Americans’ pensions;

2. Failure to close loopholes that enable illicit use of crypto by cartels, terrorists, and criminals, and jeopardize our national security;

3. Failure to protect the economy and taxpayers from bailouts and crashes while potentially pulling deposits away from community banks;

4. Failure to eliminate the potential for conflicts of interest with special attention aimed at alleged Trump family involvement with and benefit from crypto asset products;

5. Failure to preserve consumer and investor protections that exist for other financial products and services.

Pension risk. The Fact Sheet said the bill creates a new, two-tiered “self-certification” system that lets assets offered on the blockchain escape SEC authority. This would ostensibly undermine basic protections for investors, pensions, and retirement accounts, and cause new market volatility. The Fact Sheet said the purported “fix,” parity in regulatory treatment, allows too much room for the SEC to make exceptions for crypto that are “likely to swallow the rule.”

National security. The Fact Sheet said a number of national security experts, law enforcement organizations, and anti-human trafficking organizations, including the National Association of Assistant United States Attorneys, have called for changes to the bill to protect national security. Again, in the minority view, the bill worryingly “exempts” businesses tied to decentralized finance (DeFi) platforms from AML/CFT responsibilities. DeFi businesses are thought to be “less likely to implement anti-money laundering measures,” thus inviting abuse by bad actors. According to the Fact Sheet, the Treasury Department has noted that some DeFi services have “affirmatively touted a lack of AML/CFT controls as one of the primary goals of decentralization.” Among other stated concerns, the bill presently fails to close the “Tornado Cash” loophole and would thereby allow some of the worst crypto “mixers” to obscure and thereby facilitate money laundering.

The Minority Staff issued a discrete press release further emphasizing the perceived decentralized mixing services threat to national security. Among the concerns stated, other countries might follow the U.S. example and weaken their own law enforcement tools.

An accompanying “one pager” elaborated about how the U.S. Secret Service has warned that criminals and terror groups are increasingly using cryptocurrency mixers, also known as tumblers, to “commingle illicit funds with monies from other sources which makes any investigation and potential seizure more difficult for law enforcement.” More specifically, Section 10303 does not restore U.S. Treasury Department sanctions authority to effectively isolate decentralized mixers known for laundering hundreds of millions for criminals and national adversaries. Section 10604, meanwhile, purportedly removes the requirement to register the businesses behind decentralized mixers with Treasury, thus raising informal money transfer network risks Congress specifically attempted to address after 9/11.

Systemic risk. As for potential economic and bailout risk, the Fact Sheet contended the present version of the CLARITY Act bill does not prevent the payment of interest or yield on stablecoins, which could drain deposits from community banks needed to operate basic banking services and community development funding. According to the Fact Sheet, even the 1999 repeal of key Glass-Steagall Act provisions did not permit the range of contemplated DeFi activities, for example, lending against crypto as collateral, that many fear are likely to create systemic risk and leave taxpayers exposed to bailouts.

Conflict concerns. The Fact Sheet continued that the bill does not prohibit the President and his family members from benefiting personally from growth in crypto products while the President is in a position to exert “unprecedented influence over regulators setting the rules for regulating them.” Among other more specific concerns stated, the bill “categorically precludes state attorneys general” or anyone other than the U.S. Attorney General from bringing an action to enforce the law.

Consumer protection. The Fact Sheet also alleged the bill “fails to preserve commonsense legal protections” against fraud, market manipulation, and insider trading, again by creating SEC enforcement carve-outs and by failing to include an “enforceable private right of action or to address crypto’s abuse of forced arbitration.” According to the Fact Sheet, the bill also “[b]locks state and tribal authorities from enforcing many of their own laws and state police powers” thereby trampling states’ and tribal rights cutting off avenues for redress.

LegislativeActivity: Blockchain ExchangesMarketRegulation FinancialIntermediaries