House Democrats are reportedly discussing legislation that would expand the SEC’s role in crypto regulation and strengthen investor protections, drawing partly on Rep. Maxine Waters’ 2025 investor-rights amendment. Journalist Eleanor Terrett’s November 4 account describes a broader market-structure proposal with a smaller CFTC role and additional government ethics restrictions, following the CLARITY Act’s stalled advance in the Senate.
Summary
Key takeaways
- Democrats’ discussions draw on Waters’ failed customer-protection amendment.
- The Senate blocked the CLARITY Act’s advance on September 15, 2026.
- Comments on the SEC’s custody proposal are due December 7, 2026.
Waters’ amendment anchors the investor-protection debate
Waters’ July 2025 amendment would have imposed specific customer obligations on exchanges, brokers, custodians and other retail-facing digital asset firms. Those requirements now provide part of the basis for Democrats’ discussions.
Withdrawals and transfers would have been due within 24 hours, except in documented, good-faith fraud cases. Customer assets would have stayed in segregated, bankruptcy-remote accounts, with affirmative, revocable permission required before firms lent, staked or rehypothecated them.
Eligible firms would have joined SIPC; others would have funded an equivalent customer-asset protection arrangement. Cryptographically verifiable proof of reserves would have required monthly attestation by a licensed accountant.
Under best-execution rules, the proposal also gave customer orders priority over proprietary trades and prohibited affiliated proprietary traders or market makers from taking the opposite side of customer trades on the same platform. It also called for round-the-clock human support with a five-minute response time, plus disclosure of designated security breaches to both customers and regulators within 48 hours.
Additional requirements covered single-page fee disclosures, settlement by the next business day, and a metric indicating what share of customers were holding an asset at a loss. Coverage from bonds, insurance, or insured trusts would have applied only to losses stemming from regulatory violations, rather than to all market losses.
On July 14, 2025, the amendment’s path through committee came to a halt when the House Rules Committee voted 8-4 against sending it to the floor.
Crypto regulation at the SEC emerges as a dividing line
The proposals Terrett described would give the SEC more authority and the CFTC less, reversing the direction of the CLARITY Act’s proposed allocation. Her account rested on industry sources who had spoken with Democratic staff.
The CLARITY Act passed the House 294-134 in July 2025, but Senate cloture on the motion to proceed failed on September 15, 2026. The tally was 49 in favor and 50 against, short of the required 60; four Republicans opposed it. This was a procedural vote, not a final passage vote.
The Congressional Research Service’s September 15 analysis described customer-property safeguards, restrictions on commingling and bankruptcy protections. It also identified CFTC registration requirements for exchanges, brokers and dealers, alongside market-manipulation, conflict-of-interest, customer-protection and Bank Secrecy Act duties.
The SEC retained authority over investment-contract offerings, including a disclosure-backed exemption of up to $200 million for qualifying token originators.
Senators Cynthia Lummis, John Boozman and Tim Scott said their September 14 revision contained 126 substantive revisions requested by Democrats. That was the sponsors’ tally, not a Democratic endorsement.
Among the changes were ethics measures modeled on the Tillis-Gallego framework, enforceable by state attorneys general, along with divestment or blind-trust mandates for officials holding substantial financial interests. They also authorized Treasury to restrict stablecoin incentives when bank deposit outflows were large.
Agency proposals continue while legislation stalls
The SEC’s crypto regulation proposals are proceeding within existing law despite the legislative deadlock. Its 2026 initiatives include August’s Regulation Crypto Assets proposal, the September 17 Innovation Exemption and the October 1 custody proposal.
Democrats’ midterm takeover of Congress changes the legislative setting, but federal regulators appointed under President Donald Trump remain in place. Customers continue relying on existing law, state requirements and platform terms.
The legislative agenda includes the SEC-CFTC division of authority, exchange obligations and their costs, DeFi and developer treatment, stablecoin incentives and ethics enforcement. Enforceable customer rights during withdrawal delays or exchange failures remain part of that debate.
Any successor legislation needs identical text approved by both chambers and a presidential signature or veto override. Compensation schemes and jurisdiction across all spot markets require legislation. Comments on the SEC custody proposal are due December 7, 2026.
Article produced with the assistance of artificial intelligence and reviewed by the editorial team.
