The U.S. Senate may release this week a consolidated draft of the CLARITY Act, a bill that broadly regulates crypto market structure. Negotiations are continuing over ethics provisions and the scope of decentralized finance (DeFi) regulation, leaving the timing of a floor vote uncertain.

On July 13, blockchain outlet Coinpost reported that work by the Office of Legislative Counsel to merge CLARITY Act drafts prepared by the Senate Banking Committee and the Agriculture Committee has entered its final stage. But talks between Republicans and Democrats over core provisions are continuing, and more time is expected to be needed to finalize the bill.

The market had been discussing the possibility of a Senate floor vote in the week beginning July 20. But the schedule could slip as differences over the ethics provision have not narrowed. People familiar with the matter said major provisions are still "actively under negotiation".

The CLARITY Act is key legislation to overhaul oversight of the U.S. crypto market. It aims to clarify which regulator supervises crypto and what obligations apply to operators such as exchanges and brokers. The House passed the bill in July last year, and the Senate Banking Committee completed its review in May by a 15-9 vote. A process is now under way to combine the Banking and Agriculture committee drafts. The consolidated version is also said to include major additions of consumer protection provisions reflecting Democratic demands. Newly added related content is said to exceed 70 pages.

The biggest sticking point is the scope of entities covered. Lawmakers are split over which digital asset businesses should face registration duties, transaction surveillance and anti-money laundering (AML) obligations. Democratic Senator Elizabeth Warren said the current draft could exclude some DeFi participants from the scope of the Bank Secrecy Act (BSA), calling it "a ticket to evade sanctions". She argued that this could make it harder to track illicit funds and enforce sanctions.

The industry, however, argues the bill reduces regulatory gaps. Faryar Shirzad (파리아르 시르자드), Coinbase's chief policy officer, argued that an unclear regulatory environment is what gives bad actors openings. He stressed that the CLARITY Act is not a bill that excludes crypto from regulation, saying it clearly imposes on brokers, dealers and exchanges obligations including know-your-customer (KYC) requirements, anti-money laundering programmes, suspicious activity reports (SAR) and sanctions compliance.

According to Senate Banking Committee materials, the bill applies financial crime prevention and counter-terrorist financing (CFT) rules to centralized digital asset intermediaries. It also grants the Treasury Department so-called "Special Measure 6" authority to designate foreign jurisdictions and financial institutions with high money laundering risks. It also includes provisions to expand the budget of the Financial Crimes Enforcement Network (FinCEN), regulate crypto kiosks and strengthen investigations related to mixer services.

Many issues remain unresolved. They include an ethics provision that would limit digital asset income for the president, vice president and members of Congress, as well as stablecoin rewards, the approach to DeFi regulation and provisions to protect software developers. Senator Ron Wyden is reported to have sent a letter to Senate leadership, as a co-sponsor, saying a provision to protect non-custodial blockchain developers should be kept in the final bill.

The legislative timetable is tight. The time available for the Senate to take up the bill on the floor is limited from mid-July to early August, after which Congress enters its summer recess. Even if the Senate passes the bill, it must go through a re-approval process in the House, leaving little time for enactment.

The crypto industry is urging swift action. Lindsey Frasier (린지 프레이저), chief policy officer of the Blockchain Association, said months of bipartisan negotiations have built a strong foundation. She said the Senate should finish the remaining technical issues and focus on preparing for a floor vote.

The Digital Assets Subcommittee under the House Financial Services Committee is scheduled to hold a hearing in New York on July 18 on crypto market structure. The industry believes that, after the Senate releases the consolidated draft, the ethics provision and the scope of DeFi regulation will be key variables determining the pace of final passage of the CLARITY Act.