18 State AGs Oppose CLARITY Act Ahead of Senate Vote

18 state attorneys general oppose the CLARITY Act, warning its federal framework could change state authority over crypto markets.

New York Attorney General Letitia James led 17 other state attorneys general against the current CLARITY Act. The bipartisan group called on Congress to rethink provisions that impact state regulation of digital assets.

Before Tuesday’s procedural vote, the group sent a letter to Sens. Tim Scott and Elizabeth Warren. Meanwhile, legislators are getting ready for a key vote on the 635-page market structure bill.

State Officials Raise Concerns Over CLARITY Act

The attorneys general noted that the law might cause confusion about state enforcement authority. They raised in particular concerns about restrictions on investigations into cryptocurrency fraud and scams.

Letitia James’ office has been a key driver in the investigation of crypto misconduct, she said. She said she believed the removal of state authority would leave investors with less enforcement options.

Related reading: Ripple May Unlock More XRP After CLARITY Act 

In recent years, New York has been actively pursuing cases against several large cryptocurrency companies. Those actions were Coin Cafe, Gemini, Genesis, and KuCoin.

The state also recovered billions of dollars in settlements, refunds, and penalties from digital asset firms. Consequently, James believes state regulators need sufficient authority under any new federal framework.

The coalition also raised concerns about federal preemption. They want Congress to ensure federal rules do not automatically override existing state registration requirements.

Additionally, attorneys general wondered about the division of duties between federal agencies and states under the proposed plan. They called for clearer protections for state consumer laws.

But the proponents of the CLARITY Act believe the law would provide much more clarity for digital asset businesses. They also believe that a national framework would help to diminish the regulatory uncertainty.

Revised Bill Adds Ethics and Stablecoin Provisions

The Senate lawmakers have released a revised version after over 1 year of bipartisan negotiations. The current draft has 126 substantive changes requested by Democrats.

Before Tuesday’s vote, Cynthia Lummis, Tim Scott and John Boozman supported the amended bill. They have proposed new ethics, stablecoins, developer, and consumer protection rules.

Specifically, the bill provides state attorneys general a role in enforcing some of the conflict-of-interest provisions. This change is a response to a significant concern that arose during discussions about the bill.

The draft also extends the powers of the Treasury Secretary to pay stablecoins. The provision is designed to solve a potential problem of deposit flight to community banks and smaller businesses.

Additionally, lawmakers changed the Blockchain Regulatory Certainty Act provisions. The changes would exempt some blockchain developers from the money transmission registration provision.

The bill also provides a civil safe harbor for qualified developers. In addition, new regulations cover affiliate trading and conflicts with digital asset companies.

The updated text keeps the Commodity Futures Trading Commission’s existing jurisdiction over derivatives. It also clarifies how state consumer protection laws would apply.

The 18 attorneys general still oppose the current version, however. Their letter is not about the new provisions in the bill, but about the powers of the state in general.

Senate Vote Could Decide CLARITY Act’s Next Step

The Senate plans to hold a cloture vote Tuesday at roughly 2:15 p.m. ET. The process will decide if the bill can go further in the Senate.

The Republicans now control 53 seats in the Senate. So, supporters must have 60 votes or more to break a filibuster and advance the bill.

If all Republicans vote for the measure, then 7 Democrats or independents must vote for it. Another hurdle in the final negotiations is the state attorneys general’ opposition.

Meanwhile, lawmakers are trying to balance federal regulatory goals with state enforcement concerns. The debate could impact the relationship between future crypto companies and federal and state regulators.

The vote also follows significant changes made by lawmakers to gain the support of both parties. But differences over state power have not been settled.

Consequently, Tuesday’s outcome could determine whether negotiations continue or the legislation faces another delay. The ruling could also have implications for America’s overall digital asset regulatory strategy.