The financial system has always evolved faster than the rules that govern it. The Bank Secrecy Act (BSA) of 1970, designed to track large cash transactions, has been amended over decades—through the Money Laundering Control Act of 1986, the establishment of FinCEN in 1990, and the PATRIOT Act after 9/11—each time to address new risks. Today, the rise of digital assets presents another such moment, and the proposed Digital Asset Market Clarity Act (CLARITY) aims to bring much-needed statutory clarity to this space.
The Problem: Uncertainty in Digital Asset Compliance
Since 2013, FinCEN has relied on interpretive guidance to apply existing BSA rules to crypto firms. While this has provided some framework, it lacks the durability of statutory law. This ambiguity creates significant challenges for banks that engage with digital asset counterparties. Compliance officers at banks often cannot confidently assess whether a crypto firm’s controls meet regulatory standards, leading to a cautious retreat from these relationships rather than attempting to price an unquantifiable risk.
The consequences are tangible. Investment advisors have faced similar uncertainty: FinCEN first proposed AML rules for them in 2003, but a final rule was only issued recently, with its effective date pushed to 2028. Such prolonged ambiguity hampers innovation and leaves efficiency gains—like faster settlement and lower cross-border friction—untapped.
What CLARITY Proposes
If passed, CLARITY would be the first law to formally bring digital commodity brokers, dealers, and exchanges under BSA obligations. It would codify requirements for these firms to maintain AML programs, retain transaction records, monitor and report suspicious activity, and conduct rigorous customer due diligence. This statutory baseline would give banks a clearer framework for counterparty diligence and help examiners assess third-party risk.
Transaction Hold Powers
A notable provision of CLARITY is the ability for crypto companies and stablecoin issuers to pause suspicious transactions for up to 30 days, extendable to 180 days with a formal law enforcement request, with liability protection for good-faith actions. This addresses a critical gap: crypto transactions settle in minutes, but legal processes to freeze funds can take days, often rendering them ineffective. However, this power raises concerns about innocent customers whose funds might be frozen, requiring companies to establish clear internal standards to use this tool as a last resort.
Global Challenges Remain
CLARITY is U.S. legislation, but digital asset markets are global. The act does not fully address cross-border interoperability. For instance, the Travel Rule, which requires sharing sender and receiver information for transactions above a threshold, has been implemented by 83% of surveyed jurisdictions per the Financial Action Task Force (FATF), but enforcement gaps persist. A compliant U.S. exchange may still face foreign counterparties that cannot or will not provide required information. CLARITY cannot fix this, but it can strengthen the U.S. negotiating position, similar to how the GENIUS Act allows Treasury to pursue reciprocal arrangements for stablecoin regimes.
What Banks Should Do
Banks should support CLARITY because it provides a domestic framework that reduces uncertainty and encourages innovation. However, they should not wait for global alignment. FATF publishes country-by-country reports grading crypto enforcement, which banks can use to refine counterparty risk strategies. Additionally, the Basel Committee’s capital rules for crypto exposure need relaxation to facilitate broader bank participation; updates are expected later this year.
The BSA has been rewritten before, always in response to a financial system outgrowing its rules. CLARITY represents a necessary step to bridge the gap between banks and digital asset firms, offering statutory clarity that benefits all parties. Banks have a stake in seeing it enacted.