James Warns of State Authority Erosion in Clarity Act

New York Attorney General Letitia James has sounded the alarm about the proposed Clarity Act, warning that it would undermine states' authority to investigate crypto-related fraud and enforce investor protection laws. In written testimony submitted to Congress, James argued that the federal legislation could override rules developed by New York and other states that have regulated digital asset companies for years.

The Digital Asset Market Clarity Act seeks to establish a broad federal regulatory framework for the crypto industry, but its passage has been delayed due to disagreements over state authority and ethics restrictions. Republicans have not yet secured the Democratic votes needed to move the bill through the Senate.

James called for stronger anti-money-laundering requirements, customer identification rules, and enforcement tools covering decentralized finance platforms and other crypto intermediaries. She also challenged the idea that DeFi services should avoid responsibility because their transactions rely on software rather than a traditional financial institution.