House Democrats weigh broader SEC role and customer rules for crypto firms

Democrats reportedly discuss a wider crypto bill

House Democrats are reportedly discussing a broader crypto market structure bill that would give the US Securities and Exchange Commission, or SEC, a larger role and add tougher ethics rules and customer protections.

The account, from a Nov. 4 post by journalist Eleanor Terrett, is based on industry sources who spoke with Democratic staff. The new bill text has not been published, so its full scope, deadlines and enforcement rules are not yet known.

An exchange is a platform where people buy, sell or hold crypto for customers. A custodian is a firm that holds those assets for customers.

Key points

• The reported proposal would expand the SEC role and reduce the role of the Commodity Futures Trading Commission, or CFTC.
• Rep. Maxine Waters proposed similar customer rules in a July 2025 amendment that did not advance.
• The September Senate compromise already covered some customer protections, but in general principles rather than specific deadlines.
• There is no published text for the new Democratic bill.

What Waters proposed in July 2025

Amendment No. 31 was a nine-page text in July 2025. It would have applied to exchanges, brokers, custodians and other firms that serve retail customers.

Withdrawals and transfers would have been due within 24 hours, except where there was documented good-faith fraud. Firms would have had to join the Securities Investor Protection Corporation, or SIPC, if eligible, or fund an equivalent protection arrangement. Customer assets would have been held in separate accounts designed to stay apart from the firm's own assets in bankruptcy.

Firms would have needed clear, revocable customer consent before using customer assets again, including for lending or staking. Staking means locking crypto to help support a network, often for a reward. Proof of reserves, which shows a firm holds the crypto it says it holds, would have needed a monthly attestation from a licensed accountant.

Customer orders would have taken priority over a firm's own orders. Affiliated traders or market makers would have been barred from trading against customers on the same platform. Human support would have been available around the clock within five minutes, and specified security breaches would have been reported to customers and regulators within 48 hours.

The text also called for a one-page fee disclosure, settlement the next business day, and a display showing the share of customers holding an asset at a loss. Its insurance language covered losses from a firm's regulatory violations through bonds, insurance or insured trusts. That is narrower than paying for every market loss.

The House Rules Committee voted 8-4 on July 14, 2025, against making the amendment eligible for floor consideration. The amendment died in committee.

What the September Senate text already covered

The Congressional Research Service's Sept. 15 analysis describes customer-property protections, limits on mixing customer and firm assets, and bankruptcy treatment for digital asset customers in the September text.

It also lists CFTC registration for exchanges, brokers and dealers, core principles on market manipulation, conflicts and customer protection, and duties under the Bank Secrecy Act, which covers financial crime checks.

The SEC kept a role in investment-contract offerings in that text, including an exemption for qualifying token originators up to $200 million with required disclosures.

Sens. Cynthia Lummis, John Boozman and Tim Scott said their Sept. 14 revision included 126 substantive revisions requested by Democrats. That number is the sponsors' tally and does not mean Democrats endorsed the text.

Among those revisions were ethics provisions drawing on the Tillis-Gallego approach, with state attorney general enforcement, and Treasury authority to restrict stablecoin incentives when bank deposit outflows are large. A stablecoin is a token designed to keep a stable value, often linked to the US dollar. The ethics text required certain covered officials with large financial interests to divest or use blind trusts. The sides remained divided over its scope and enforceability.

A procedural vote on whether to proceed with the bill failed. Cloture needed 60 votes and received 49 in favour and 50 against on Sept. 15. Four Republicans voted no. That vote was on proceeding, not final passage.

How a larger SEC role could change duties

The CFTC oversees derivatives and has antifraud and antimanipulation authority over spot commodity markets. Full supervision of spot exchanges would need new law, which the September draft sought to provide.

A Democratic text could add SEC oversight of intermediaries, issuers or customer standards, or redraw the definitions that split work between the two agencies.

Under such a framework, exchanges could face added registration, disclosure, order-handling and custody duties. Custodians could face higher separation and verification standards. Smaller platforms could face higher fixed compliance costs, meaning costs that do not fall much when a firm is small.

The source also notes a March 2026 SEC and CFTC interpretation treats Bitcoin as a digital commodity, and says exchange regulation and token classification are separate legal matters.

Confirmed facts and open questions

Confirmed from the supplied material are the contents of Waters' July 2025 amendment, its 8-4 committee vote, the September text's described principles, and the 49-50 procedural vote.

Not confirmed is the content of the new Democratic bill. Its scope, deadlines, penalties and enforcement are unclear because the text is unpublished. Open items also include the split of SEC and CFTC authority, the cost of new exchange duties, treatment of DeFi and developers, and disagreements over stablecoin incentives and ethics enforcement.

Why customer rules are central to the debate

Waters' text set a uniform 24-hour withdrawal deadline and monthly reserve attestations, required consent for staking and lending, gave customer orders priority, barred certain affiliated trading, and included compensation mechanisms. The September text described principles. A new bill could turn principles into enforceable rights with deadlines, reporting standards and penalties.

Staff at the Public Company Accounting Oversight Board have cautioned that ordinary proof-of-reserve reports differ from full audits and can omit liabilities, ownership rights and borrowed assets. SIPC says non-security crypto assets sit outside its protection even at a SIPC-member brokerage, so an equivalent system would need its own terms on eligible firms, limits and funding.

The source gives a hypothetical example, based on assumptions, of an exchange holding $1 billion of customer crypto and able to move transfers equal to 15% of balances in a day. In that example, a 20% withdrawal rush leaves a $50 million processing gap and a 40% rush leaves $250 million. The example is described as reflecting operations at a fully backed firm, not as a reported event.

The Waters text also set a one-year effective date, up to 18 months for joint SEC and CFTC rules, and a possible extra year for small entities.

What would be needed for a new bill to become law

Any successor would need identical text passed by both chambers and signed by the president, or a veto override.

Agencies can act within existing law. The source cites the SEC's August Regulation Crypto Assets proposal, the Sept. 17 Innovation Exemption and the Oct. 1 custody proposal, with comments due Dec. 7. Compensation schemes and jurisdiction over all spot markets would need a statute.

If lawmakers pair CFTC spot oversight with clear customer standards, initial compliance costs would rise, the source says, and certainty would last longer than agency guidance alone. If talks remain deadlocked, customers would rely on existing law, state rules and each platform's terms, the source says.

Sources

• CryptoSlate

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