Revised CLARITY Act targets ‘non-decentralized’ DeFi operators

A revised version of the CLARITY Act would direct United States regulators to determine whether people or groups controlling “non-decentralized finance trading protocols” must comply with securities, commodities and anti-money laundering (AML) requirements.The revised text, posted on Senator Cynthia Lummis’ website, defines such a protocol as one whose functionality, operation, or rules can be materially altered by a person or coordinated group. The definition also covers protocols whose controllers can restrict users or whose transactions are not governed solely by transparent, pre-established code.Under the proposal, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) would develop activity-based rules addressing registration, conduct, disclosure, recordkeeping and supervision. Meanwhile, the Treasury would establish how existing Bank Secrecy Act obligations apply to affected controllers.The bill specifies that software and distributed ledger systems would not be required to register in their own capacity. It also says participation in an incident-response or security council would not, by itself, establish control over a protocol. The rev...