State Regulators Push Back Against CLARITY Act Crypto Rules

• New York Attorney General Letitia James says the CLARITY Act still threatens state enforcement authority.
• Her concern goes beyond the new provision allowing state attorneys general to enforce federal ethics restrictions.
• Crypto groups argue that replacing fragmented state regimes with national rules is precisely what the industry needs.
• The dispute adds another complication before the Senate’s September 15 procedural vote.

New York Attorney General Letitia James says she will not support the CLARITY Act in its current form, arguing that its federal preemption provisions could weaken states’ ability to register market participants and pursue crypto-related fraud even after senators expanded the enforcement role of state attorneys general.

Why James Says the Latest CLARITY Act Still Falls Short

James’s objection is narrower than opposition to federal crypto regulation itself.

The revised legislation gives state attorneys general authority to enforce new conflict-of-interest restrictions alongside the Justice Department, part of a last-minute compromise intended to address concerns over crypto holdings and activities involving federal officials.

But that does not answer the question James is raising.

Her coalition argues that other parts of the legislation could allow federal regulators to preempt state registration requirements and create uncertainty over the continued application of state securities laws.

James specifically objects to language she says would give the Securities and Exchange Commission discretion to determine the extent to which federal rules override state registration authority. Her office warns that the provision is broad enough to affect the state securities regulatory system beyond digital assets.

That is the reason she will not support the bill as written: giving state attorneys general authority to enforce one part of a federal law is different from preserving the state laws and registration powers they already enforce.

States Say Their Enforcement Record Is at Risk

The coalition’s argument is backed by an existing state enforcement apparatus.

James says states have brought more than 330 anti-fraud actions involving digital assets since 2017. Her own office has pursued cases involving companies including Gemini, Genesis, KuCoin and Tether.

The concern is that ambiguous federal preemption could give defendants another route to challenge those actions by arguing that federal law displaced the state authority being used against them.

That question is becoming more consequential as reported losses rise. James’s office cites FBI figures showing $11.4 billion in losses associated with cryptocurrency complaints in 2025, up 22% from 2024. It also says crypto-related complaints received by her office have tripled over three years.

The coalition therefore wants Congress to preserve state anti-fraud and registration authority explicitly rather than leave its scope to later interpretation.

The political composition of the group strengthens that argument. James, a Democrat, is joined by Republican attorneys general including Kansas Attorney General Kris Kobach and Ohio Attorney General Andy Wilson, making the challenge bipartisan rather than simply another Democratic objection to the bill.

The Crypto Industry Wants the Opposite Direction

The disagreement exposes one of the fundamental trade-offs behind US crypto market structure.

Crypto companies have spent years arguing that operating under overlapping state requirements increases compliance costs and creates uncertainty over which rules apply.

The Blockchain Association, Crypto Council for Innovation and The Digital Chamber have explicitly backed the CLARITY Act as a way to replace what they describe as a patchwork of state money-transmitter and licensing regimes with purpose-built federal rules.

In a joint statement supporting Senate consideration, the groups argued that a national framework would provide durable regulatory certainty while establishing consumer and market safeguards.

That means the provision worrying James is connected to something the industry actively wants: fewer overlapping regulatory regimes.

The disagreement is over how far consolidation should go.

For crypto businesses, one federal framework can reduce the burden of navigating different state requirements. For James and the other attorneys general, federal uniformity becomes problematic when it prevents states from applying stronger protections or intervening against misconduct themselves.

The September 15 Vote Now Carries Another Policy Fight

The timing matters because senators are approaching a procedural vote that requires 60 votes to move the legislation forward.

Senator Cynthia Lummis released updated text on September 10 containing changes to DeFi registration, Bank Secrecy Act requirements and credit-union digital asset powers, describing the legislation as the product of bipartisan negotiations over the August recess.

Additional concessions have since been made over government ethics, including an expanded role for state attorneys general.

James’s intervention shows that those concessions have not resolved every state-level concern.

The remaining question is highly practical: when a crypto company complies with the new federal framework, which additional state requirements can still be imposed on it, and which state laws can still be used when investors are harmed?

That boundary will determine whether CLARITY creates a federal floor for crypto regulation or a federal framework that displaces significant parts of the state system.

For James, the current text leaves that boundary too uncertain. Until Congress makes clear that states can continue registering firms and pursuing fraud under their own investor-protection laws, she says the bill does not have her support.

Source: https://www.crypto-news-flash.com/state-regulators-push-back-against-clarity-act-crypto-rules/