The Regulatory Implementation Gap: Why Rules Lag Behind Legislation

In discussions about U.S. crypto asset regulation, a common misconception persists: that once Congress passes a bill, new rules immediately take effect. The reality is far more procedural. Former SEC staffer Anne Kelley recently highlighted that the real work often begins after a bill is signed into law.

Separation of Powers: Legislation vs. Rulemaking

The U.S. Constitution grants Congress sole legislative authority. In practice, Congress frequently delegates the power to craft detailed implementation rules to specialized agencies like the SEC and CFTC. This division means that even if a bill like the CLARITY Act passes, it primarily establishes broad regulatory direction and authority.

The specifics—how rules are enforced, what activities require reporting, what technical standards apply—must be filled in by agencies through formal rulemaking processes. Kelley emphasizes, “Legally binding rules must follow the procedures established by the Administrative Procedure Act. This isn’t optional; it’s a legal requirement.”

The Standard Rulemaking Timeline

Agencies typically advance rulemaking through several key phases:

  • Notice of Proposed Rulemaking: The agency publishes a draft rule, formally initiating the process
  • Public Comment Period: Usually 30 to 90 days to gather feedback from industry, the public, and congressional members
  • Analysis and Revision: The agency must carefully consider all substantive comments
  • Final Rule Publication: Published in the Federal Register, often with an effective date months later

Kelley points to the upcoming SEC tokenization innovation exemption public meeting as an example: “This is just the first formal step. Even if the meeting proceeds smoothly, it doesn’t mean final rules are set. The subsequent public comment period, where lawmakers often weigh in, usually extends the process by months.”

The Realistic Timeline After Bill Passage

If the CLARITY Act were to pass soon, regulators wouldn’t start from scratch. They could issue a Supplemental Notice of Proposed Rulemaking to amend existing proposals, building on work already underway. While this continuity improves efficiency, it doesn’t shorten the required legal procedures.

“Even if the bill passed tomorrow, the SEC and CFTC would still need to draft implementing rules,” Kelley notes. “That process alone takes at least several months.” The GENIUS Act serves as a real-world example—passed over a year ago, it still hasn’t been fully implemented, largely because accompanying rules remain unfinished.

Why Can’t This Go Faster?

Designing regulatory rules requires balancing multiple objectives: providing clear compliance guidance while maintaining flexibility for innovation; protecting investors without stifling market activity. Rules rushed through the process often contain vulnerabilities that could be overturned in court.

Kelley concludes, “There’s no instant solution. For rules to be durable and withstand judicial review, they must follow established compliance processes. This shouldn’t be framed as a conflict between the SEC and Congress—in a well-designed system, they are meant to function as collaborative partners.”

For market participants, understanding this implementation gap is critical. Bill passage marks the midpoint, not the finish line, of the regulatory process. The true adaptation period for compliance begins only after implementing rules are published.