‘jumping Around Congress’: Democrats Brace For Wall Street Regulators’ Coming Crypto Plans

Wall Street’s chief regulators are readying new cryptocurrency rules after lawmakers punted on a landmark digital assets bill before heading home for summer recess.

Democrats are gearing up to take them on.

The so-called Clarity Act’s setback has put the Securities and Exchange Commission and Commodity Futures Trading Commission in position to drive crypto policymaking in Washington. SEC Chair Paul Atkins and CFTC Chair Michael Selig are ready to go with a slate of crypto-focused plans — the first of which could come Friday at an SEC meeting. But they risk a backlash from the left as lawmakers fear they’re too cozy with the industry.

“Should the Trump Administration go down this path — putting the crypto industry before everyday investors and consumers — you can be sure we’ll fight back,” Sen. Chris Van Hollen, a Maryland Democrat who sits on the Senate Banking Committee that oversees the SEC, told POLITICO.

The coming clash will offer a glimpse of the challenge that Atkins and Selig could face if Republicans lose control of the House, Senate or both in November.

Sen. Elizabeth Warren of Massachusetts, who could be in line to lead the Banking Committee next year in a Democratic-controlled Senate, said in an interview that “of course” she’s concerned about the agencies’ forthcoming efforts. “Both the head of the CFTC and SEC have made clear that they’re in crypto’s pocket and want to do whatever they can to facilitate whatever it is that crypto wants to do,” she said.

Others say Atkins and Selig are pursuing an end-run around Congress after lawmakers on both sides of the aisle spent months haggling with each other, the White House and the crypto industry over how to best regulate the $2 trillion market. The SEC and CFTC chairs, meanwhile, are set to launch their crypto efforts with no Democrats atop either agency. And their rules and guidance aren’t expected to be just about crypto — but also U.S. stocks, futures products and much more.

“They’re jumping around Congress with the biggest overhaul of our capital markets since the 1930s,” said Tyler Gellasch, a former SEC official who now leads the institutional investor advocacy group Healthy Markets Association. “These are the really big policy decisions that people — including the Supreme Court — typically expect the 535 members of Congress to make.”

Atkins and Selig, as President Donald Trump’s top financial markets watchdogs, have already ushered in a sea change to the regulatory landscape for crypto firms — often drawing fire from congressional Democrats. And while both have backed the legislative efforts, their crypto sprints could prove central to making the U.S. the digital assets utopia that Trump has promised the industry if the bill doesn’t come to fruition.

Their to-do lists include a push to consider around-the-clock trading in the markets; an SEC plan to set up new rules for transfer agents, or those who manage stock-ownership records; and a proposed overhaul of 2005 stock-trading rules. The SEC's Friday vote will center on whether to propose a new tailored offering regime for certain crypto assets, a push known as Regulation Crypto Assets, according to a notice for the meeting.

The SEC could also soon release its long-awaited innovation exemption, which is likely to offer firms cover from existing rules as they wade into crypto-based markets. Several traditional financial players, including GOP megadonor Ken Griffin’s Citadel Securities, have sounded the alarm about the plan over concerns that it would create an uneven playing field in the market.

Van Hollen, who recently raised concern about the exemption, said in a statement the financial industry broadly needs “a level playing field — not special carveouts from the rulebook that gut investor protections and undermine the markets businesses rely on.”

An SEC spokesperson said in a statement the agency will continue to support the bipartisan push around the legislation. "In the meantime, the Commission will work to advance a regulatory framework — within our authority and in line with market structure legislation — that will help ensure the United States remains the crypto capital of the world," the spokesperson, Kurt Hopfenspirger, added.

CFTC spokesperson Brooke Nethercott said the agency “stands ready to protect America’s leadership in financial markets and ensure we remain the crypto capital of the world. We’ve seen firsthand under previous administrations the consequences of regulatory uncertainty.”

Yet even those who have been willing to play ball on the industry’s wishlist aren’t going to give Trump’s regulators a free pass to regulate however they see fit. Sen. Adam Schiff, a California Democrat, said in a statement that “the problem with a regulatory-only approach is that it doesn’t give any long-term solidity and it doesn’t institute strong and enforceable ethics standards.”

“Rulemaking could potentially poison the well,” said a Senate Democratic aide, who was granted anonymity to speak freely. “The focus should be on passing Clarity.”

For Atkins and Selig, the bill is crucial, too. In recent weeks, the pair have warned that even if they are able to wrap up their crypto rulemaking before the 2028 presidential election, their efforts could be short-lived. That’s because, without legislation backing them up, the SEC’s and CFTC’s rules could be at risk of being ripped up in the courts or, eventually, by a Democratic chair at the agencies — a rattling prospect to crypto executives.

“Getting this in statute — that’s going to be the most future-proof way to lock this industry into the United States,” Selig said last week at a conference in Lincoln, Neb.

The Clarity Act isn’t dead yet. Lawmakers are due to pick the bill back up as soon as they return to town next month, after Senate Majority Leader John Thune on Saturday moved to tee it up for a vote after the August recess.

But Atkins and Selig may not be able afford to hold off on their rules much longer, more than half a dozen former officials at the agencies and industry executives said.

Finalizing new regulations historically takes well over a year, from start to finish. Some giants of traditional finance, concerned about the reach of the agencies’ crypto initiatives, have hinted that they may be willing to go to court over them. At the same time, the agencies are dealing with other priorities, such overhauling the reporting rules for corporate America or fending off state oversight of the prediction markets.

“The SEC and CFTC are capable of doing much of what would be needed to regulate crypto. But there are only two years left for the agencies to get this done,” said Lucas Moskowitz, who served as chief of staff at the SEC during the first Trump administration and is now general counsel at the brokerage giant Robinhood.

Brett Redfearn, another former top SEC official from the first Trump administration, said the threat of litigation is “very real” for both agencies.

“That can take up to two years, and, if that happens, the next thing you know we have another administration in place, said Redfearn, who is now president of the financial technology firm Securitize.”

The SEC and CFTC have plenty of fans in the GOP and industry willing to cheer them on. Sen. Bill Hagerty of Tennessee said he doesn't think there’s been a “more talented pair of leaders” at the agencies in recent memory than Atkins, his law-school roommate, and Selig.

Helping Atkins and Selig speed through their to-do lists will be the fact that neither of their agencies has any Democratic commissioners, who could jam up new rules and proposals before they are released. But that could also fuel scrutiny from Democrats on Capitol Hill, many of whom have called for additional members on the SEC’s and CFTC’s top panels as part of the Clarity Act negotiations.

As a former top Wall Street regulator, who was granted anonymity to speak candidly, put it: “People are misjudging how much the Democrats hate everything in the Trump administration.”

“If they were to take over the agencies after the next election, the effort to undo everything that was done during the Trump administration is going to be monumental,” the former regulator said.

Jasper Goodman contributed to this report.