Senate Advances GENIUS Act, CFTC Leadership Shifts and SEC Updates Custody Guidance

Several legislative and regulatory developments in the crypto space occurred this week. The U.S. Senate took a significant step forward on stablecoin legislation, voting 66-32 on a procedural motion to advance the GENIUS Act. On May 21, a motion to proceed passed 69-31, moving the bill closer to a vote on final passage, which is expected following Congress’ Memorial Day recess. The vote clears the way for the legislation to move to full debate on the Senate floor, reflecting growing bipartisan support for establishing a federal regulatory framework for payment stablecoins.

At the same time, the CFTC is undergoing a leadership transition, with four of the agency’s five commissioners announcing plans to step down. Notably, Acting Chair Caroline Pham, who will return to the private sector once President Donald Trump’s nominee, Brian Quintenz, is confirmed, is among the departing commissioners. The departures come as the agency continues to shape its regulatory approach to digital assets.

The SEC also took action this week, formally withdrawing its 2019 joint guidance with FINRA on how broker-dealers may custody digital asset securities under the Customer Protection Rule. In its place, the Division of Trading and Markets released a new FAQ outlining how existing broker-dealer and transfer agent rules may apply to crypto custody.

Separately, Commissioner Hester Peirce, who leads the SEC’s Crypto Task Force, called for a more straightforward approach to digital asset regulation. Peirce emphasized that while some token distributions may involve investment contracts, many crypto assets do not meet the definition of a security. She urged the agency to establish boundaries that distinguish investment contracts from tokens over time and proposed options such as a safe harbor for early-stage projects and a tailored registration regime.

Congressional Updates

Senate Advances GENIUS Act With Two Procedural Motions

• On May 19, the Senate voted 66-32 (50 Republicans and 16 Democrats voted in favor) to invoke cloture on the motion to proceed to the GENIUS Act (S. 1582). On May 21, a motion to proceed passed 69-31 (51 Republicans and 18 Democrats voted in favor), moving the bill closer to a vote on final passage, which is expected following Congress’ Memorial Day recess. Additionally, an amendment was circulated that would include negotiated changes into the bill, and is still subject to change, ahead of a final floor vote.
  • Democratic Support Breaks the Deadlock. Senators Raphael Warnock (D-GA) and Jerry Moran (R-KS) changed their votes to “yes” on the May 21 vote after voting against a previous procedural motion on May 19. Senator Mark Kelly (D-AZ), who was absent for the previous vote, also supported the bill Wednesday.
    • Negotiators circulated a memo summarizing key negotiated updates, including strengthening provisions on anti-money laundering, foreign issuers, national security safeguards, and consumer protection, and measures to preserve the safety and soundness of the financial system.
    • Senator Elizabeth Warren (D-MA) continues to oppose the bill, warning that it lacks adequate safeguards to prevent alleged conflicts of interest in the Administration. Nonetheless, support from other Democrats has provided the margin needed to move forward.
  • New Restrictions for Non-Financial Public Companies and Ethics Safeguards.
    • Non-Financial Public Company Restrictions. The updated bill would prohibit non-financial publicly traded companies from issuing a stablecoin unless they can meet strict criteria regarding financial risk, consumer data privacy, and fair business practices.
    • Ethics Rule Updates. The updated language clarifies that financial conflict of interest standards apply uniformly to both regular and special government employees.  
    • Stablecoin Naming Rules. The bill clarifies that stablecoin issuers cannot use names that suggest government backing or FDIC insurance.

Senators Urge Treasury to Exempt Digital Assets From Unrealized Gains Rule

• On May 12, Senators Cynthia Lummis (R-WY) and Bernie Moreno (R-OH) sent a letter to Treasury Secretary Scott Bessent, urging the department to revise tax regulations that currently subject U.S. companies to taxation on unrealized gains from digital assets. The senators argued that taxing unrealized crypto gains could discourage corporations from holding digital assets, undermining innovation and financial flexibility.

Agency Updates

CFTC Leadership Transitions as Four Commissioners Announce Departures

• On May 15, Acting Chair Caroline Pham announced she will return to the private sector following the confirmation of Brian Quintenz, President Trump’s nominee to lead the CFTC. The Senate Agriculture Committee has not yet scheduled a confirmation hearing.
• On May 16, two additional commissioners announced their departures:
  • Christy Goldsmith Romero will depart the agency at the end of the month.
  • Summer Mersinger is stepping down to become CEO of a digital assets trade association.
  • Once these departures take effect and Quintenz is confirmed, the CFTC will have only two sitting commissioners: Kristin Johnson and Brian Quintenz.
• On May 21, Commissioner Kristin Johnson announced she will leave the agency later this year after completing her full term.
• The simultaneous exit of four commissioners comes as the CFTC seeks to define its authority over digital assets and as Congress considers legislation affecting the agency’s jurisdiction. The reduced number of commissioners could delay enforcement actions, rulemaking activity, and coordination with other financial regulators, increasing pressure on the Senate to expedite the confirmation process.

SEC and FINRA Withdraw Joint Statement on Broker-Dealer Custody of Digital Asset Securities

• On May 15, the SEC’s Division of Trading and Markets and the FINRA Office of General Counsel jointly withdrew their 2019 Joint Staff Statement on broker-dealer custody of digital asset securities, effective immediately.
  • The original 2019 statement had outlined how broker-dealers should approach the custody of digital asset securities under Exchange Act Rule 15c3-3, the Customer Protection Rule.
  • The Customer Protection Rule requires broker-dealers to safeguard customer assets and keep them separate from the firm’s assets, thereby increasing the likelihood that customers’ securities and cash can be returned to them in the event of the broker-dealer’s failure. But digital assets are held using private keys on a blockchain, which does not fit neatly into this framework. The withdrawal reflects a broader regulatory shift to modernize how traditional rules apply to digital assets.
• The withdrawal coincided with the release of a detailed FAQ document from the SEC’s Division of Trading and Markets. The FAQs clarify how existing broker-dealer and transfer agent rules apply to crypto asset activities and distributed ledger technologies. While not binding, these staff-level interpretations provide important guidance for firms navigating digital asset custody and compliance.

SEC Commissioner Peirce Calls for Clarity on Crypto Asset Regulation

• On May 19, Commissioner Hester Peirce, head of the SEC’s Crypto Task Force, called for a shift in how the agency approaches digital assets during remarks at SEC Speaks. Since its formation earlier this year, the Crypto Task Force has held periodic roundtables and issued guidance on digital assets.
  • Security Status. Peirce emphasized that most crypto assets are not securities. Common crypto assets are methods of payment, stores of value, access to computing power, artwork, rewards points, video game items, tickets, memberships, and memes. While some distributions of crypto assets may be part of investment contracts, the underlying tokens often lack the core attributes of securities.
  • Transition of Status. Peirce also noted that the biggest challenge for crypto market participants is determining when a non-security crypto asset subject to an investment contract separates from the investment contract. Difficult security-status questions arise when distributions of non-security crypto assets occur early in the development, before the assets are functional, and while the network is centralized. Because the crypto assets are sold with promises to develop the network and deliver functionality, they may be subject to an investment contract, a type of security under federal securities laws. Peirce had a number of suggestions:
    • The SEC could provide clarity on when the link between the investment contract and the crypto asset severs, rather than leaving this question entirely up to the courts. Achieving crypto asset functionality may be one way to break the link.
    • Another way may be for control over the network or application to become dispersed so that the issuer is no longer providing essential managerial efforts, and the information asymmetries that animated the development of the securities laws no longer exist. Upon conclusion or termination of the investment contract, the crypto asset would no longer be tethered to a security.
  • Registration and Safe Harbors. To enable crypto projects to move forward, Peirce noted that the SEC could provide both a tailored registration regime and a safe harbor. A time-limited, conditional safe harbor would allow crypto assets subject to an investment contract to be transacted in without being subject to securities registration requirements for a period of time, provided that the issuer satisfies certain disclosure and investor protection requirements. An alternative would be to regulate offers and sales of pre-functional and pre-decentralized crypto assets but exempt from regulation subsequent sales on secondary markets.

Federal Reserve Advisory Council Flags Stablecoin Risks to Bank Funding

• At its April 10 semiannual meeting, the Federal Reserve Board’s Community Depository Institutions Advisory Council raised concerns about the growing role of nonbank-issued payment stablecoins, warning that they could pose a long-term threat to the banking system’s deposit base. Council members stated they are closely monitoring payment stablecoin legislation currently moving through Congress.

White House Signals Crypto Legislation on Track for Summer

• Speaking at Consensus 2025 on May 14, Bo Hines, Executive Director of the President’s Council of Advisors for Digital Assets, said the White House expects stablecoin and market structure legislation to reach the President’s desk before the August recess. While acknowledging recent setbacks and ongoing negotiations, Hines expressed confidence in the legislative timeline.