Lummis Says CLARITY Act Would Protect Customer Crypto in Exchange Bankruptcies
Key Takeaways
- •The CLARITY Act would require cryptocurrency platforms to maintain customer digital assets separately from company funds.
- •Customer assets such as Bitcoin and Ethereum would be excluded from an exchange's bankruptcy estate under the proposed legislation.
- •The bill seeks to resolve issues exposed by the 2022 collapses of FTX, Celsius Network, and BlockFi, where commingled assets delayed customer recoveries.
- •The proposed rules would align crypto custody practices with existing SEC customer protection rules and the SIPC framework used in traditional brokerage markets.
- •The CLARITY Act is part of broader congressional debates over digital asset regulation, including jurisdictional questions between the SEC and CFTC.
Senator Cynthia Lummis said the proposed CLARITY Act would require crypto platforms to keep customers’ digital assets separate from company funds, a measure intended to address how customer holdings are treated if an exchange enters bankruptcy.
Under the bill, Bitcoin (BTC), Ethereum (ETH), and other customer assets held on a platform would not become part of an exchange’s bankruptcy estate if the company fails. Lummis said the provision would close a regulatory gap that has left users classified as unsecured creditors in previous crypto bankruptcies. The issue gained urgency after the 2022 collapses of FTX, Celsius Network, and BlockFi, where commingling of customer and corporate assets left users waiting through lengthy proceedings to recover a fraction of their holdings.
The proposal would move crypto custody rules closer to standards used in traditional brokerage markets, where SEC customer protection rules and the Securities Investor Protection Corporation framework generally require customer assets to be segregated from a firm’s own property. Lummis has been among the U.S. lawmakers most closely associated with digital asset legislation, and the CLARITY Act has drawn attention as part of broader efforts in Congress to define rules for crypto market structure and custody, including the ongoing debate over whether certain digital assets fall under SEC or CFTC jurisdiction.