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Banking Group Criticizes CLARITY Act for Leaving Decentralized Finance Out of AML Scope
On June 19, the Bank Policy Institute (BPI), an advocacy group representing 42 banking institutions, issued a policy update that branded the CLARITY Act’s approach to anti‑money‑laundering (AML) compliance as “illicit finance‑friendly.”
The CLARITY Act is one of the most detailed U.S. proposals for a federal crypto market structure. It would assign regulatory authority for digital assets to the Securities and Exchange Commission, the Commodity Futures Trading Commission, and other agencies, and would replace enforcement‑driven rulemaking with statutory categories.
BPI’s critique centers on the bill’s “lighter‑touch” AML regime, which applies obligations only to a narrow set of digital‑asset intermediaries—specifically, brokers, dealers, and exchanges. The group argues that other parts of the crypto ecosystem, such as decentralized finance (DeFi) platforms, unhosted wallets, and certain digital‑asset service providers, would remain outside the scope of the Bank Secrecy Act.
According to BPI, this regulatory gap could make the U.S. crypto market more attractive to illicit actors who seek to evade law‑enforcement scrutiny. The legislation also does not grant the Treasury Department clear authority to regulate or sanction mixers, tumblers, and other blockchain‑based tools commonly used for money‑laundering.
“The bill is not innovation‑friendly; it is illicit finance‑friendly,” the organization wrote. BPI warned that the absence of a comprehensive AML framework for DeFi and related services could erode the integrity of the financial system.
To close the gaps, BPI urged Congress to extend AML and sanctions compliance requirements to all digital‑asset service providers and DeFi platforms, and to grant explicit Treasury authority to regulate or sanction mixers and similar services. The group also proposed an “economic benefit” test for DeFi, arguing that entities that profit from operating DeFi protocols should not be exempt from financial‑institution obligations simply because the services run on decentralized infrastructure.
The debate reflects a broader tension between traditional banking institutions and parts of the crypto industry over how compliance obligations should apply to permissionless networks. While banks have long been subject to intensive AML/CFT regulation and examination, many DeFi protocols operate without a central intermediary and rely on smart contracts to execute financial transactions.
The CLARITY Act has already advanced out of the Senate Banking Committee, but it remains under consideration in the House and in committee reviews. BPI’s criticism comes as lawmakers weigh the bill’s potential impact on innovation, consumer protection, and financial‑crime prevention.
The BPI’s stance is consistent with its broader focus on ensuring that the U.S. financial system remains robust against money‑laundering and terrorist‑financing risks. Its membership includes large national banks, regional banks, and foreign banks operating in the United States.
As the CLARITY Act moves through the legislative process, stakeholders will need to consider whether the bill’s limited AML scope adequately addresses the risks posed by the rapidly evolving digital‑asset landscape. The outcome will shape the regulatory environment for crypto exchanges, brokers, DeFi platforms, and other service providers.
For now, BPI’s policy update signals that the banking sector remains concerned that the CLARITY Act may leave significant compliance gaps in the U.S. crypto market, potentially enabling illicit actors to exploit the system.
The CLARITY Act is one of the most detailed U.S. proposals for a federal crypto market structure. It would assign regulatory authority for digital assets to the Securities and Exchange Commission, the Commodity Futures Trading Commission, and other agencies, and would replace enforcement‑driven rulemaking with statutory categories.
BPI’s critique centers on the bill’s “lighter‑touch” AML regime, which applies obligations only to a narrow set of digital‑asset intermediaries—specifically, brokers, dealers, and exchanges. The group argues that other parts of the crypto ecosystem, such as decentralized finance (DeFi) platforms, unhosted wallets, and certain digital‑asset service providers, would remain outside the scope of the Bank Secrecy Act.
According to BPI, this regulatory gap could make the U.S. crypto market more attractive to illicit actors who seek to evade law‑enforcement scrutiny. The legislation also does not grant the Treasury Department clear authority to regulate or sanction mixers, tumblers, and other blockchain‑based tools commonly used for money‑laundering.
“The bill is not innovation‑friendly; it is illicit finance‑friendly,” the organization wrote. BPI warned that the absence of a comprehensive AML framework for DeFi and related services could erode the integrity of the financial system.
To close the gaps, BPI urged Congress to extend AML and sanctions compliance requirements to all digital‑asset service providers and DeFi platforms, and to grant explicit Treasury authority to regulate or sanction mixers and similar services. The group also proposed an “economic benefit” test for DeFi, arguing that entities that profit from operating DeFi protocols should not be exempt from financial‑institution obligations simply because the services run on decentralized infrastructure.
The debate reflects a broader tension between traditional banking institutions and parts of the crypto industry over how compliance obligations should apply to permissionless networks. While banks have long been subject to intensive AML/CFT regulation and examination, many DeFi protocols operate without a central intermediary and rely on smart contracts to execute financial transactions.
The CLARITY Act has already advanced out of the Senate Banking Committee, but it remains under consideration in the House and in committee reviews. BPI’s criticism comes as lawmakers weigh the bill’s potential impact on innovation, consumer protection, and financial‑crime prevention.
The BPI’s stance is consistent with its broader focus on ensuring that the U.S. financial system remains robust against money‑laundering and terrorist‑financing risks. Its membership includes large national banks, regional banks, and foreign banks operating in the United States.
As the CLARITY Act moves through the legislative process, stakeholders will need to consider whether the bill’s limited AML scope adequately addresses the risks posed by the rapidly evolving digital‑asset landscape. The outcome will shape the regulatory environment for crypto exchanges, brokers, DeFi platforms, and other service providers.
For now, BPI’s policy update signals that the banking sector remains concerned that the CLARITY Act may leave significant compliance gaps in the U.S. crypto market, potentially enabling illicit actors to exploit the system.
