Crypto exchanges must prove they hold customer funds—or face escalating fines

What it does

This bill requires digital asset exchanges and custodians to prove they actually hold the customer assets they claim to hold, through monthly independent audits and cryptographic verification. Exchanges must segregate customer funds from their own money, cannot use customer assets to cover their own trades, and face escalating civil penalties (25 cents to 90 cents per user, or 2.5% to 9% of assets under management) if they fail to produce proof of reserves. The bill aims to prevent exchanges from losing or misusing customer crypto holdings, a problem that emerged after major exchange collapses like FTX.

Why we flagged it

The bill's operative mechanism is a mandatory proof-of-reserves regime with segregation rules and escalating penalties. It is fundamentally a consumer safeguard against exchange insolvency and asset misappropriation, not a tax, subsidy, or deregulation.

What the text implies

• The bill's effectiveness depends entirely on the accounting standard that PCAOB and AICPA jointly approve within 18 months (extendable by 180-day periods). If that standard is weak or allows loopholes, the proof-of-reserves requirement becomes performative. The bill does not specify what 'proof' must include, delegating that power to industry-influenced advisory committees.
• Margin accounts are explicitly carved out from 'covered assets,' meaning customer funds in margin accounts receive no segregation protection. This is a significant gap: customers borrowing on margin have no statutory guarantee their collateral is held separately, only that the exchange follows 'baseline accounting standards.'
• The bill allows exchanges to co-mingle customer funds with exchange funds 'for convenience' in bank or custodian accounts, and to withdraw customer assets for 'ordinary course of business' purposes (fees, taxes, storage, settlement). The definition of 'ordinary course' is not constrained, creating a potential loophole for asset use.
• Auditing firms are not named or pre-approved; exchanges can hire any 'independent' firm, or if none will take the job, a 'disinterested third party.' There is no definition of independence or disinterestedness, and no bar on conflicts of interest. An exchange could hire a friendly auditor with financial incentives to certify false reserves.
• The penalty structure caps annual fines at $1 per user or 10 basis points of AUM, whichever is lower. For a large exchange with millions of users and billions in AUM, this cap may be too low to deter violations, especially if the exchange can appeal and delay payment during the appeal period.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

Ordinary crypto users gain a concrete protection: mandatory proof that exchanges actually hold their funds, with public reporting and enforcement penalties. The segregation rules and audit requirements directly reduce the risk of customer asset loss or misuse. While compliance costs may be passed to users, the alternative—unverified exchanges that can secretly lend or lose customer funds—poses far greater harm.

Who stands to gain

• independent auditing firms and accounting firms (new recurring revenue from monthly attestations)
• digital custodians (potential increase in business as exchanges seek qualified third-party custody s
• compliance software vendors (tools to track and verify reserves)

Named in the bill

Department of the Treasury, Office of Domestic Finance, Under Secretary for Domestic Finance, Public Company Accounting Oversight Board (PCAOB), American Institute of Certified Public Accountants (AICPA), digital exchanges, digital custodians, independent auditing firms, Financial Crimes Enforcement Network (FinCEN)

Where it stands

1 cosponsor: 1 Democrats.

• Apr 10, 2025 — Introduced · Congress.gov: “Introduced in Senate”
• Apr 10, 2025 — Referred to Senate Committee on Banking, Housing, and Urban Affairs · Congress.gov: “Read twice and referred to the Committee on Banking, Housing, and Urban Affairs”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.