Regulatory Roundup #17

Summary

In Washington, Senators Tillis and Alsobrooks released compromise text that clears the path to a Senate Banking Committee markup of the CLARITY Act, though the two-year deposit review mechanism buried in Section 404 suggests the banking lobby is not done yet. Elsewhere, tokenization moved from policy to infrastructure: DTCC announced a July pilot and October launch for a service covering trillions in custody assets, Hong Kong’s SFC opened secondary market trading for tokenized funds with 24/7 and stablecoin settlement in scope, and the FCA finalized its fund tokenization framework under PS26/7. The UK also published its crypto perimeter guidance, Australia set the implementation clock on its Digital Assets Framework, and Brazil’s central bank drew a hard line between stablecoins and its regulated FX rails.

🔦 Spotlight

🇺🇸 The CLARITY Act’s stablecoin yield deal: what actually happened, and what it deferred

The Digital Asset Market Clarity (CLARITY) Act spent the first four months of 2026 stuck on a question that was not really about market structure at all. The bill’s central ambition is to draw cleaner jurisdictional lines between securities and commodities and establish a comprehensive framework for digital asset markets. Yet its Senate path was blocked by a narrower commercial and policy fight: whether crypto platforms should be allowed to compensate customers for holding stablecoins.

The yield dispute turned into the pressure point for the whole package. Once Coinbase withdrew its support ahead of the scheduled January markup, the issue stopped being a technical drafting problem and became a coalition-management problem. Senate Banking Committee Chair Tim Scott postponed the markup, and negotiators went back to the table. On 1 May, Senators Thom Tillis and Angela Alsobrooks released compromise language. Punchbowl News first reported the text. Brian Armstrong, who had pulled Coinbase’s support ahead of the January markup, responded on X with three words: “Mark it up.” Polymarket odds on 2026 passage moved from 46% to 64% at the time of writing. The politics of the moment have been well covered but the exact mechanics of the deal need more unpacking.

What Section 404 actually says

Section 404 prohibits “covered parties” from paying any form of interest or yield to customers “solely in connection with the holding” of stablecoins, or in any manner “economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.” The carve-out preserves rewards tied to “bona fide activities or bona fide transactions,” including payments, transfers, remittances, DeFi liquidity provision, governance participation and similar engagement. Section 404 also directs federal regulators to jointly publish rules defining a non-exhaustive list of permitted activities within one year of enactment.

The practical consequence is not trivial. Any program that currently rewards customers simply for maintaining a stablecoin balance will need to be restructured around verifiable activity. The distinction between “you earned this because you used the product” and “you earned this because you parked cash here” will need to be demonstrable, not just rebranded. Industry participants have already flagged that the activity-reward line may prove difficult to apply in practice, given the breadth of the “economically or functionally equivalent” standard. Sounds a lot like kicking the next fight down the road for someone else to break up.

The prohibition applies to digital asset service providers and their affiliates, but excludes permitted stablecoin issuers and registered foreign issuers, which are already barred from paying direct interest under the GENIUS Act. That structural point is significant. Ji Kim, CEO at the Crypto Council for Innovation (CCI), has been explicit that the Section 404 prohibition extends the yield restriction well beyond the GENIUS Act’s issuer-level approach to apply across digital asset market participants, a meaningful expansion of scope. CCI disputes the premise that stablecoin adoption drives deposit flight from banks and has called on the Senate Banking Committee to move to markup without delay, framing US leadership in crypto as the overriding priority. That is a sensible position given the legislative window, though it does not resolve the underlying compliance complexity the broader scope creates.

The two-year review: a deferred question, not a resolved one

The provision attracting least commentary may be the one most worth watching. Within two years of enactment, the Federal Reserve, OCC, FDIC, NCUA and Treasury must jointly report to Congress on three things: the adoption of dollar-denominated stablecoins; the effect of stablecoin growth on Treasury yields; and the impact of compensation paid to US customers on the volume, stickiness, composition and concentration of bank deposits. That last phrase reads like the preamble for the next round of the stablecoin yield war.

The deposit flight argument drove the entire negotiation, with banking groups citing Treasury estimates that yield-bearing stablecoins could drain up to $6.6 trillion from traditional deposits, and the ABA maintaining that the competitive threat to community banks in particular justifies a blanket prohibition. The White House Council of Economic Advisers pushed back in April, finding in its baseline model that eliminating stablecoin yield would increase bank lending by just $2.1 billion, or 0.02%, while imposing an estimated net welfare cost of $800 million on consumers. Even stacking every unfavorable assumption simultaneously (the stablecoin market’s share of deposits sextupling, all reserves shifting into non-lendable cash, and the Federal Reserve abandoning its current monetary framework), the CEA’s model produced $531 billion in additional aggregate lending, or 4.4% of total bank loans. The CEA described those conditions as “highly unlikely.”

Banking groups’ answer, in effect, was that the CEA had modeled the wrong risk. The ABA argued that the CEA had studied the wrong question: rather than modeling the impact of a ban, policymakers should examine what happens when yield-paying stablecoins scale rapidly, pulling cheap deposits away from community banks and raising their funding costs for local lending. That argument did not prevail in the text, but it did not disappear. The two-year reporting mandate is, in effect, the legislative resolution of an unresolved empirical dispute. It is structured to produce the data the banking lobby would need to make a second-generation case for further restriction. If deposit migration materializes at scale, the report hands Congress a documented basis to revisit activity-based rewards as well. The compromise does not close the stablecoin yield debate. It sets a clock on the next round.

The road from here

At least five steps remain before the bill reaches the President’s desk: Senate Banking Committee markup; alignment with the Senate Agriculture Committee’s own market structure draft, passed along party lines in January with materially different provisions on CFTC jurisdiction and DeFi; a full Senate floor vote; reconciliation with the House-passed CLARITY Act, which cleared the chamber 294-134 last July; and a presidential signature. DeFi perimeter language and ethics provisions around senior officials’ crypto holdings remain open. Senator Moreno has warned that missing the May window risks pushing comprehensive crypto legislation off the calendar until after the November midterms. Senator Lummis and other bill supporters have framed 2026 as the decisive window, warning that failure this year could push market structure legislation into the next Congress or beyond.

Kim put the available Senate floor time at roughly 13 weeks. Strip out scheduled recesses and competing legislative priorities (budget reconciliation, must-pass appropriations, FISA reauthorization) and the working window is closer to nine or ten weeks. Alex Thorn at Galaxy Digital placed the odds of the CLARITY Act becoming law in 2026 at roughly 50-50 in a 22 April research note, citing “the sheer number of unresolved questions that must be settled in sequence under severe time pressure.”

That framing is doing real work in holding the coalition together. Whether it is enough depends on what the remaining markup negotiations produce, whether the unresolved DeFi and ethics provisions can be contained, and whether the calendar cooperates.

🌎 Global Developments

🇺🇸 United States

🏛️ DTCC sets a date for Wall Street’s tokenization moment

On 4 May, the Depository Trust & Clearing Corporation announced that its new tokenization service, backed by a 50-firm industry working group that includes Talos, will begin limited production trades in July, ahead of a full service launch in October. The announcement is the culmination of a process that began in December 2025, when DTC, DTCC's subsidiary that operates the US securities settlement infrastructure, received a no-action letter from the SEC's Division of Trading and Markets authorizing a three-year pilot to record security entitlements on distributed ledger technology in parallel with its existing centralized ledger.

The scale warrants a moment of attention. DTC custodies more than $114 trillion in assets and sits at the center of US securities clearance and settlement. The eligible asset scope is deliberately conservative: Russell 1000 constituents, ETFs tracking major US equity indices, and US Treasury bills, bonds and notes. Participants include BlackRock, Goldman Sachs, Bank of America and Citadel Securities from the TradFi side, alongside Circle, Coinbase and Kraken from the digital asset world. The Canton Network, a privacy-preserving permissioned blockchain purpose-built for institutional finance, is the first approved blockchain for the service, with DTCC having signaled that the program is designed to remain technology-neutral across approved networks over time.

The architecture matters precisely because it is not the clean “securities go on-chain” story it is sometimes framed as. Under the no-action relief, DTC participants may elect to have their security entitlements recorded as tokens on an approved blockchain in registered wallets, while the underlying securities remain registered in the name of Cede & Co and DTC’s centralized ledger continues to function as the system of record. Tokenized entitlements carry the same ownership rights and investor protections as their conventional counterparts but, critically, do not yet count for settlement or collateral purposes within DTC’s risk management framework. The pilot is additive, not substitutive: designed to let the market prove the infrastructure before the legal and risk framework is updated to reflect it.

That constraint is also the point. What the service does enable, even in pilot form, is direct wallet-to-wallet transfer of tokenized entitlements between DTC participants outside DTC’s normal operating hours, without DTC intermediating each transfer. That is the operational change that matters most in the near term: assets that can move atomically, including overnight and at weekends, without the timing buffers that T+1 settlement cycles currently require. For institutional participants managing assets across digital and traditional asset positions, the ability to mobilize DTC-custodied securities on-chain without losing their legal standing addresses a structural friction that has constrained adoption since the earliest tokenization experiments.

The coalition’s breadth, spanning bulge-bracket banks, asset managers, custodians and crypto-native infrastructure providers, reflects a deliberate effort to build the interoperability and workflow standards that fragmented tokenization pilots have consistently failed to produce. Whether the October full launch holds to schedule, and whether the scope expands beyond the initial eligible asset set, will be the metrics that matter for the second half of 2026.

🇬🇧 United Kingdom

📋 FCA CP26/13: the perimeter question nobody has fully answered yet

On 15 April, the FCA published CP26/13, a consultation proposing a new chapter in the Perimeter Guidance Manual setting out when the seven regulated cryptoasset activities introduced by the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 will require Part 4A authorization. The consultation closes 3 June 2026, and the FCA will publish final guidance in September, just in time for the authorization gateway opening on 30 September 2026. The regime itself goes live on 25 October 2027.

The consultation is the last major piece of the FCA’s crypto roadmap before the authorization window opens. Substantive rules covering custody, prudential requirements, stablecoin issuance, Handbook application, regulated activities, and admissions and disclosures have already been consulted on through a sequence of papers since CP25/14. What CP26/13 adds is the threshold question that precedes all of those: does your firm need to be in the room at all?

The seven regulated activities are:

• Issuing qualifying stablecoins in the UK
• Safeguarding qualifying cryptoassets and specified investment cryptoassets
• Operating a qualifying cryptoasset trading platform
• Dealing in qualifying cryptoassets as principal
• Dealing in qualifying cryptoassets as agent
• Arranging deals in qualifying cryptoassets
• Arranging qualifying cryptoasset staking

The FCA is proposing to clarify when each applies, which permissions are required for different business models, how exclusions operate, and how the new perimeter interacts with the existing MLR registration regime that currently governs most firms in the market.

Two aspects of the guidance deserve particular attention. The first is the FCA’s treatment of decentralization. The paper is direct: the fact that a service uses smart contracts, public blockchains or decentralized architecture does not automatically place it outside the perimeter. The analysis turns on whether there is an identifiable person whose business includes carrying on the relevant activity in the UK, looking at whether that person operates or maintains the service, sets key parameters, controls how it functions, or receives fees from it. The contrast with the SEC’s April staff statement on self-custodial wallet interfaces is instructive. The SEC drew a bounded, if temporary, non-objection zone for front-end interface providers that meet specific conditions around routing, compensation and disclosure. The FCA has not done the equivalent. CP26/13 applies a substance-over-form test that leaves the perimeter question open to the facts of each arrangement, without offering the kind of defined non-objection position the SEC statement provided. For DeFi interface providers and protocol developers with UK exposure, that is a materially less comfortable position.

The second is territorial reach. The Cryptoasset Regulations extend the definition of “carrying on activity in the UK” beyond its ordinary meaning. Stablecoin issuance is caught regardless of where the issuer is incorporated if the stablecoin is issued in the UK or references sterling. That means overseas firms serving UK consumers will need to assess their position under the new perimeter guidance with the same rigor as UK-headquartered firms, and the FCA has made clear it will hold them to the same standard. Firms that have been treating UK consumer exposure as a secondary compliance question have until 3 June to begin that assessment in earnest.

📦 FCA PS26/7: tokenized funds get a practical runway

Published on 30 April and taking effect immediately, PS26/7 finalizes the FCA’s framework for fund tokenization following last year’s CP25/28 consultation. Two changes matter most. First, authorized fund managers can now use DLT as the official unitholder register without maintaining a full off-chain duplicate, provided appropriate resilience plans are in place, removing a requirement that had been a practical obstacle to adoption. Second, the new optional Direct-to-Fund dealing model allows the fund or its depositary to act as the direct counterparty to investor trades, collapsing the existing two-stage issuance process into a single step and enabling atomic on-chain settlement for newly issued units.

The FCA has signaled that waivers may be available to permit digital cash and stablecoin settlement ahead of the full stablecoin regime arriving in October 2027, and will consult further on this later in 2026. PS26/7 is framed as stage one of a broader roadmap, with DLT in UK wholesale markets to follow later in 2026. The contrast with the SFC’s circular 26EC23 (covered below), published ten days earlier and going straight to 24/7 secondary market trading of tokenized funds on licensed VATPs with stablecoin settlement already in scope, illustrates two different theories of sequencing. The FCA is anchoring tokenization inside the existing regime first; Hong Kong is moving more quickly into secondary trading, building on its existing primary dealing framework.

🇧🇷 Brazil

🚫 Brazil draws the line between crypto and regulated FX rails

On 30 April, Brazil’s Banco Central do Brasil published Resolution BCB 561, barring eFX providers (fintechs and payment institutions licensed by the BCB to offer digital cross-border payment services) from using stablecoins or other crypto assets to settle the offshore leg of regulated cross-border payments. The rule takes effect on 1 October 2026. Settlement between an eFX provider and its overseas counterparty must now occur exclusively through traditional FX operations or non-resident BRL accounts. Firms not yet authorized under the eFX framework may continue operating temporarily but must apply for BCB authorization by 31 May 2027.

The scale of the market affected makes this a significant change. Stablecoins account for roughly 90% of Brazil's crypto-linked international transfers, according to BCB Governor Gabriel Galipolo and Receita Federal data, in a market with transaction volumes hitting between $6 billion and $8 billion per month. Resolution 561 closes that route for eFX providers specifically.

The scope of Resolution 561 is equally important. It is a restriction on the eFX channel, not a general prohibition on stablecoin cross-border payments. A parallel framework established by Resolution BCB 521, published in November 2025 and largely in effect since February 2026, created a separate supervised channel for cross-border crypto activity by bringing virtual asset services inside Brazil’s FX market. The restriction applies specifically to the eFX channel and does not prohibit the use of stablecoins in Brazil's foreign exchange market more broadly. Licensed VASPs operating under Resolution 521's separate framework can continue using stablecoins for international payments through that channel.

The policy rationale is straightforward: stablecoin-settled cross-border transactions inside the eFX system fell outside the central bank’s transacting billions of dollars per month. Resolution 561 is less a rejection of stablecoins in cross-border finance than a decision about which regulatory channel they are permitted to flow through. This is key for international firms assessing Brazilian market access: a door to stablecoin-based cross-border payments remains open, but it now requires a VASP license to walk through it.

🌏 Asia-Pacific

🇭🇰 Hong Kong 

📊 SFC opens secondary trading for tokenized funds: 24/7 and stablecoin settlement in scope

On 20 April, the SFC issued circular 26EC23, establishing a pilot framework for secondary market trading of tokenized SFC-authorized investment products by retail and professional investors via SFC-licensed virtual asset trading platforms. Until now, tokenized SFC-authorized funds have been limited to primary dealing only, meaning subscription and redemption. The new framework permits on-platform secondary trading for the first time, alongside a discretionary over-the-counter route that the SFC will consider on a case-by-case basis.

The market context gives the circular some weight. As of April 2026, the SFC states that 13 tokenized products are available to the public in Hong Kong, with assets under management in their tokenized share classes growing approximately sevenfold over the prior year to HK$10.7 billion. The initial product scope focuses on tokenized money market funds, with the SFC reserving discretion to expand the eligible range once it has reviewed the pilot’s operation.

The framework has two features that distinguish it from comparable initiatives elsewhere. First, it explicitly contemplates 24/7 trading, with regulated stablecoins (defined as fiat-referenced stablecoins licensed under Hong Kong’s Stablecoins Ordinance) and tokenized deposits contemplated as settlement instruments to support round-the-clock liquidity. Second, the SFC simultaneously updated its companion circular on tokenization of SFC-authorized investment products to extend the prior consultation requirement to cover material changes to existing tokenization arrangements, not just initial proposals. Firms with tokenized funds already in the market need to engage the SFC before making material changes to those arrangements, an immediate compliance consideration that the headline coverage of the secondary trading announcement has largely overlooked.

The operational demands of the framework are substantial. Product providers must appoint at least one market maker, with a minimum three-month notice period before termination, and VATPs must implement price deviation alerts when execution prices diverge significantly from real-time indicative NAV. Running a market-making obligation continuously across evenings, weekends and public holidays, when the underlying assets of many funds are not actively trading, is a meaningful infrastructure commitment. With only around a limited number of licensed VATPs currently in Hong Kong, the choice of platform partner will itself be a material commercial decision for issuers.

🇦🇺 Australia

🗓️ ASIC sets the clock on Australia’s digital asset regime

The Corporations Amendment (Digital Assets Framework) Act 2026 passed Parliament on 1 April, received Royal Assent on 8 April, and commences on 9 April 2027. On 20 April, ASIC published its 18-month implementation roadmap, setting out the sequencing of consultations, standards and licensing arrangements that will shape how the regime operates in practice.

The Digital Assets Framework Act introduces two new categories of regulated financial product: digital asset platforms (DAPs), covering operators that hold, match or otherwise deal with customer digital assets; and tokenized custody platforms (TCPs). Both will require an Australian Financial Services License from ASIC. The Act inserts specific operational standards into the Corporations Act, including asset-holding standards under section 912BE, requiring segregation of client assets, trust arrangements, reconciliation and reporting, and transactional and settlement standards under section 912BF, covering market integrity, best execution, trade surveillance, settlement practices and operational resilience. Financial requirements, expected to include a liquidity requirement, a net tangible asset test and periodic auditor review, will be set through the consultation process.

ASIC has divided the 18-month runway into four broad phases. The first six months focus on industry engagement: stakeholder roundtables, an industry advisory group announced in March, and early consultation on standards and guidance. Months six to twelve will see ASIC publish a dedicated regulatory guide for DAPs and TCPs alongside the legislative instruments setting operational standards. Licensing applications open in months twelve to eighteen, with transitional relief available while applications are assessed. Full supervision and enforcement powers take effect from month eighteen onwards, which is October 2027, the same month the transition period ends.

The near-term pressure point is June 2026, when firms relying on ASIC’s INFO 225 class no-action position need to have made an AFSL application or notified ASIC of their intention to apply for the relevant license. INFO 225 has been the informal harbor that allowed many digital asset businesses to operate without formal licensing while the legislative framework was developed. Its expiry means that from July, existing licensing obligations apply in full throughout the transition period, regardless of where a firm sits in the AFSL application queue. Platforms that have been relying on INFO 225 relief and have not yet begun assessing their licensing pathway are running out of runway.

🔎 Things to Watch

• 🇺🇸 CLARITY Act: Senate Banking Committee markup targeted for the week of 11 May. Missing the Memorial Day window likely pushes the bill into midterm territory.
• 🇺🇸 GENIUS Act AML rule: sixty-day public comment period running from Federal Register publication. 
• 🇺🇸 SEC Reg Crypto: OIRA review underway; publication awaited.
• 🇬🇧 FCA CP26/13: consultation closes 3 June 2026. Final perimeter guidance due September, ahead of the authorization gateway opening 30 September.
• 🇦🇺 ASIC INFO 225 no-action harbor expires June 2026.
• 🇪🇺 Remaining MiCA transitional periods expire 1 July 2026 across the EU. Any entity providing crypto-asset services to EU clients without a MiCA license after that date is in breach of EU law.
• 🇵🇱 Poland: MiCA transition period expires 1 July 2026. No implementing legislation in place. Domestic CASPs face an existential legal vacuum.
• 🇺🇸 California DFAL: compliance deadline 1 July 2026.
• 🇯🇵 Japan FIEA bill: Diet consideration continues following Cabinet approval of crypto-related FIEA amendments. Further FSA guidance will be needed on exchanges, custody, market conduct and any treatment of staking or decentralized trading models.

Coming into view:

• 🇺🇸 DTCC tokenization service: limited production trades July 2026, full launch October 2026.
• 🇬🇧 FCA: policy statements on substantive crypto rules due summer 2026, ahead of the October 2027 regime go-live.
• 🇪🇺 EU Markets Integration and Supervision package: multi-month legislative negotiations underway following ECB endorsement.

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