New York AG Warns CLARITY Act Could Weaken Crypto Enforcement

Summary

New York Attorney General Letitia James expressed concerns that the proposed Digital Asset Market Clarity Act, a federal crypto market structure bill, could limit the enforcement powers of state regulators over digital asset platforms. In her written testimony to the Senate Permanent Subcommittee on Investigations, James warned that shifting oversight to the Commodity Futures Trading Commission (CFTC) would undermine state and local authorities' ability to investigate scams and hold platforms accountable.

James highlighted the growing issue of cryptocurrency-related scams, noting that complaints received by her office have tripled over the past three years. She also reported that total losses from these scams approached nearly $500 million over five years. To address these challenges, she called on Congress to impose stronger consumer protections on crypto companies, including requirements for anti-money laundering (AML), know-your-customer (KYC), cybersecurity measures, and active surveillance for suspicious activity and market manipulation.

Why it matters

Additionally, James urged lawmakers to make crypto platforms and intermediaries financially liable if they fail to protect their customers from fraud. She also recommended banning the conversion of mixer-linked or otherwise untraceable cryptocurrencies into US dollars and preserving state-level money transmission, commodities, and securities laws. Furthermore, James proposed prohibiting elected and recent government officials with financial interests in the crypto industry from regulating these platforms to avoid conflicts of interest.