Crypto regulatory affairs: SEC and CFTC push cryptoasset rulemaking in wake of failed CLARITY vote

In this third edition of crypto regulatory affairs, we will cover:

• SEC and CFTC push cryptoasset rulemaking
• UK issues guidelines on new cryptoasset regime
• Hong Kong continues tokenization and stablecoin push
• South Korea aims to reignite stalled cryptoasset legislation efforts
• ECB flags potential crypto AML gaps
• ESMA will prioritize opportunities and challenges of tokenization in 2027

SEC and CFTC push cryptoasset rulemaking in wake of failed CLARITY vote

Regulatory agencies in the United States are pushing ahead with efforts to bring clarity and confidence to cryptoasset markets following Congress’s failure to progress the CLARITY Act.  

On September 17, the Securities and Exchange Commission (SEC) issued its long-awaited “Innovation Exemption.” The SEC’s order grants temporary and conditional relief from US securities laws for Tokenized Securities Venues (TSVs) engaging in secondary market trading of tokenized stocks using permissioned automated market maker (AMM) liquidity pools. For the first time, it will be possible for certain market participants to trade tokenized US-listed stocks on-chain via decentralized finance protocols (DeFi) without having to register with the SEC as securities exchanges or broker dealers. 

TSVs – which bring together buyers and sellers of tokenized stocks – will be able to make use of the exemption for a period of five years, subject to a number of conditions. TSVs must verify that the tokenized stock offered for trading gives holders the same rights as traditional stock and must provide notice to the issuer of the underlying stock that the stock has been tokenized, allowing the issuer an opportunity to object to the tokenization sale. 

All tokenized stock must be issued on public ledgers that ensure the auditability of the smart contracts the TSV relies on, and the TSV must also provide information to the public about its operations, business activities and those of its affiliated entities. Participants in the AMM liquidity pools must only include permissioned buyers and sellers verified by, and subject to trading standards set by, the TSV. 

TSVs must also ensure compliance with rules designed to guard against market manipulation fraud and must ensure compliance with sanctions measures implemented and enforced by the US Treasury’s Office of Foreign Assets Control (OFAC). 

The Innovation Exemption also applies to liquidity providers in the AMM pools, who will be exempted from registering with the SEC as “dealers,” subject to similar sets of conditions ensuring their transparency and adherence to certain standards of conduct. 

In a statement on the Innovation Exemption, SEC Chairman Paul Atkins described it as an effort to “resolve challenges that have prevented responsible innovation from taking root in the United States while providing investor protections and market integrity standards.” He noted that the exemption, which is open to public comment, is designed to provide space for market participants to innovate with tokenization while the SEC continues to identify longer-term solutions via rulemaking enabling digital asset innovation in US markets. 

One week later, on September 25, the SEC issued a set of FAQs on how securities laws apply to certain cryptoasset activities and transactions, which builds upon more comprehensive interpretive guidance the SEC issued in March of this year. In that interpretation from March, as we noted at the time, the SEC clarified that most cryptoassets are not securities, and set out a taxonomy for helping to identify those instance digital assets may classify as securities. The follow-up FAQs aim to provide further clarification for market participants and offer more detailed consideration of matters including the implications of token buyback arrangements, marketing and promotional activities, and staking for assessing the potential application of securities laws to cryptoasset arrangements. 

The SEC’s activities across September form part of a broader strategic push known as Project Crypto driven by its Crypto Asset Task Force to facilitate digital asset innovation in US markets. The actions also follow on the heels of the “Regulation Crypto Assets” proposed rule the SEC issued in August that aims to create a framework for the offering of investment contracts involving cryptoassets. 

The SEC’s counterpart agency in cryptoasset market regulation, the Commodity Futures Trading Commission (CFTC), has also had a busy September. On September 24, the CFTC, which regulates commodities spot markets and markets for derivatives trading, issued its own set of FAQs providing clarity to CFTC-registered firms regarding the permissibility of investing customer funds in tokenized investments, as well as standards for using public blockchains to satisfy the CFTC’s recordkeeping requirements. 

On September 17, the CFTC also submitted a proposal the White House’s Office of Management and Budget (OMB) to consider draft rules on cryptoassets that the CFTC wishes to progress to bring further clarity to market participants. That same day, the CFTC issued a no-action letter indicating that it will not take enforcement action against passive software providers, including providers of self-hosted cryptoasset wallets, that do not register as introducing brokers with the CFTC – a clarification that aims to give assurance to software wallet developers that they can innovate without fear of regulatory repercussion. 

This recent flurry of actions by the SEC and CFTC reflects a carefully coordinated effort to fill the void left in the US cryptoasset regulatory landscape following the failure of legislative efforts to progress the CLARITY Act, draft market structure legislation that would codify rules for market participants across a wide range of activities and that would delineate the jurisdiction of the SEC and CFTC over crypto markets. 

On September 15, the CLARITY Act failed to secure enough support in the US Senate to advance to a full vote, a failure that most observers feel effectively ends any chance to pass comprehensive market structure legislation before a new Congress – potentially under new Democratic Party leadership, pending upcoming midterm elections on November 3 – takes over in January 2027. Immediately in response to the CLARITY Act’s failure in the Senate, the CFTC and SEC leadership indicated that they would act aggressively to ensure that market participants could receive meaningful regulatory guidance despite the continued legislative gap. 

In a televised interview one week after CLARITY Act efforts broke down, CFTC Chairman Michael Selig described the current moment as “go time” for the CFTC and SEC, indicating that the agencies intend to make the most of the remaining two years of President Donald Trump’s term in office to fulfil the administration’s aim to establish US leadership in digital asset innovation. 

It was also confirmed this week that Commissioner Hester Peirce, who has served at the SEC as a long-time advocate of digital asset innovation and has been known by the cryptoasset industry as “Crypto Mom” for her pro-innovation stance, will end her term with the Commission on Friday, October 2. Her departure will leave the SEC with just two Commissioners, and it remains unclear whether President Trump will seek to make further appointments during his term. Democratic members of Congress have been raising concerns about ongoing leadership vacancies at the CFTC and SEC, which could remain a point of tension further complicating future crypto-related legislative efforts if Democrats do manage to take control of the Senate following the mid-term elections. 

For more on US regulatory activity amidst the challenges facing the CLARITY Act, see our recent analysis here. 

Other cryptoasset policy and regulatory news

There were a number of other important developments in the world of crypto policy and regulatory affairs over the past two weeks. Here are some highlights: 

• UK issues guidelines on new cryptoasset regime, cracks down on illegal trading. The United Kingdom’s Financial Conduct Authority (FCA) has released new guidance to help firms prepare applications for the FCA’s future crypto regulatory regime. The FCA’s forthcoming regime takes effect from October 25, 2027, but the application window opens September 30 this year, providing firms with nearly a year to seek authorization. The guidance covers a wide range of activities that will require authorization under the new regime, including stablecoin issuance, cryptoasset safeguarding and operating exchange platforms. In addition to its work aimed at expanding the regulatory perimeter around cryptoassets, the FCA has also been increasing its enforcement activity: On September 17, the regulator announced that it had issued cease and desist orders to three illegal peer-to-peer cryptoasset trading firms that have failed to register with the FCA. 
   
• Hong Kong continues tokenization and stablecoin push. Earlier this month, Hong Kong’s Secretary for Financial Services and the Treasury Christopher Hui announced two initiatives that aim to boost Hong Kong’s continued innovation in tokenization and stablecoins. The first involves plans for the Hong Kong Monetary Authority (HKMA) to launch a pilot program to tokenize exchange fund bills before the end of 2026, an effort that would build on HKMA’s other tokenization pilot efforts that reflect its commitment to facilitating the digitization of Hong Kong’s financial markets. The second development relates to plans for the Hong Kong Securities and Futures Commission (SFC) to permit HKMA-licensed stablecoins to trade on regulated virtual asset trading platforms. For more on Hong Kong’s digital asset innovation efforts, read our full analysis here. 
   
• South Korea aims to reignite stalled cryptoasset legislation efforts. South Korean legislators are aiming to hold a hearing in November on the Digital Assets Framework Act, a bill that aims to provide a comprehensive regulatory for digital asset markets, including oversight of stablecoin issuers. South Korea’s ruling Democratic Party has been eager to progress new rules for cryptoassets and stablecoins since coming into control of government in June 2025. However, its legislative efforts have stalled since then. Lawmakers in the country have indicated they are focused on progressing legislation across the closing months of this year to ensure that South Korea can boost its digital asset innovation plans. 
   
• ECB flags potential crypto AML gaps. Responding to the European Commission’s ongoing consultation on potential uplifts to the Markets in Cryptoassets (MiCA) Regulation, the European Central Bank (ECB) has flagged a number of potential gaps in anti-money laundering and countering the financing of terrorism (CFT) requirements for cryptoasset firms. According to the ECB’s response, issuers of asset-referenced tokens (ARTs) – stablecoins whose value is pegged to a basket of currencies, a commodity, cryptoassets or other assets rather than a single fiat currency – are currently exempt from AML/CFT measures, a gap that the ECB argues “is unclear and does not appear consistent with the principle of ‘same activity, same risk, same regulation.” The ECB also recommends that the Commission should look to bring DeFi services within the scope of AML/CFT regulation where feasible, including by creating a regulatory framework for the oversight of decentralized autonomous organizations (DAOs). It also recommends strengthening AML/CFT oversight across the EU by centralizing supervisory and enforcement authority to the European Securities and Markets Authority (ESMA) and away from member state supervisory authorities. 
   
• ESMA will prioritize opportunities and challenges of tokenization in 2027. In a report published on September 23 outlining its strategic priorities, ESMA indicated that it will focus on understanding how regulated firms are using tokenization, AI and other technologies. ESMA will use next year to engage with market participants on the potential benefits of tokenization and AI, and will begin to identify supervisory approaches and best practices that will allow it to respond to tokenization. The report indicates that ESMA’s aim is to identify market opportunities that tokenization and AI can offer to improve outcomes for investors – such as faster settlement times, lower operational costs, improved choices for investors and more digitized EU markets – while ensuring robust protections for consumers and investors. 

Source: www.elliptic.co