Senate Banking Committee Draft Expands Financial Oversight
Galaxy Digital has issued a warning that a draft cryptocurrency market structure bill from the U.S. Senate Banking Committee would grant the Treasury Department extensive surveillance and enforcement tools. This potential expansion of authority could represent the most significant increase in financial oversight since the enactment of the USA PATRIOT Act. According to a research note released on Tuesday, the Senate proposal extends considerably beyond the scope of the CLARITY Act, which was previously passed by the House of Representatives, particularly concerning provisions related to illicit finance.
New Treasury Authorities and "Special Measures"
Alex Thorn, Head of Firmwide Research at Galaxy, indicated that the draft proposal unveiled on Monday includes new authorities for the U.S. Treasury that surpass those outlined in the House version. The House bill had garnered bipartisan support when it passed in July 2025. This development occurs even though the Senate bill offers significant advantages that the cryptocurrency industry has long advocated for, such as protections for self-custody, clarification of the definition of money transmitters, and safeguards for developers.
The Senate Banking draft proposes the creation of tools that would empower the Treasury Department to implement special measures on digital asset transactions identified as posing risks of money laundering. This new crypto-specific "special measures" authority would enable the Treasury to designate foreign jurisdictions, financial institutions, or entire categories of digital asset transactions as primary concerns. Galaxy drew a parallel between these measures and the tools available under the Patriot Act, noting their potential for broad application across offshore venues and transaction rails.
Transaction Freezing and AML Compliance
The bill also introduces a formal framework for the "temporary hold" of digital asset transactions. Under this provision, the Treasury or other relevant agencies could request that stablecoin issuers and digital asset service providers freeze transactions for a period of up to 30 days, with the possibility of extensions, without the necessity of obtaining prior court orders. Another key provision explicitly brings crypto front-end applications under the purview of sanctions and Anti-Money Laundering (AML) compliance requirements.
Regulation of DeFi and Front-End Interfaces
Furthermore, the draft legislation defines "distributed ledger application layers," which encompass web-hosted interfaces used to interact with blockchains or decentralized finance (DeFi) protocols. The Treasury would be responsible for issuing guidance that mandates these tools to screen wallets, block sanctioned activities, and implement risk-based AML controls. Galaxy highlighted language within the bill that targets "DeFi in name only" protocols, suggesting that regulators could impose Bank Secrecy Act obligations on individuals or groups who maintain significant control over the functionality of such protocols.
Industry Reactions and Legislative Path
The Crypto Council for Innovation commented that the updated text from the Senate Banking Committee demonstrates ongoing engagement with digital asset policy priorities. The organization stressed the importance of any final framework preserving consumer choice and fostering responsible competition. Galaxy contrasted the Senate's proposed provisions with the House-passed CLARITY Act, which primarily focused on extending BSA compliance to centralized intermediaries and intentionally avoided creating new surveillance authorities for digital assets.
The Senate Banking Committee is slated to mark up and vote on the bill this Thursday. The Senate Agriculture Committee, which has jurisdiction over the Commodity Futures Trading Commission (CFTC), has postponed its hearing to a later date this month. Chairman John Boozman cited the need for additional time to secure broad bipartisan support for the legislation. For any final bill to become law, it would require reconciliation of competing committee versions and the attainment of at least 60 votes to pass the Senate.
Concerns Over Enforcement and Legislative Timing
Galaxy further warned that certain lawmakers are advocating for the inclusion of additional enforcement provisions, despite what the firm described as an already substantial expansion of Treasury and law enforcement powers. The debate surrounding illicit finance has emerged as a critical point of contention, raising questions about the continued industry support for the bill. Analysts at Bernstein characterized the current legislative window as "here and now," while TD Cowen cautioned that delays could postpone the implementation of any new regulations for several years.