The Senate is moving quickly towards a procedural vote on the legislation, with hopes for a final passage by the end of the week.
- The CLARITY Act would limit state and local law enforcement’s ability to address crypto scams, shifting oversight to the CFTC, according to NY Attorney General Letitia James.
- James emphasized the need for increased federal oversight of cryptocurrency to protect investors and prevent financial crises, citing a tripling of scam complaints and significant financial losses.
- She proposed a six-point framework mandating compliance with anti-money laundering and cybersecurity rules, banning untraceable crypto conversions, and holding platforms accountable for fraud.
As Senate Republicans push toward a procedural vote on the CLARITY Act this week, New York Attorney General Letitia James is urging lawmakers to rethink the legislation.
The Digital Asset Market Clarity Act (CLARITY Act) would limit the ability of state and local law enforcement to police crypto scams, James said in written testimony to the Senate Homeland Security and Governmental Affairs Committee’s Permanent Subcommittee on Investigations on Monday.
Fresh Regulatory Pushback
James testified that the CLARITY Act would shift oversight of digital assets to the Commodity Futures Trading Commission (CFTC) and preempt state regulation, hampering her office’s ability to pursue enforcement actions against crypto platforms.
James called on Congress to increase federal oversight of cryptocurrency platforms. “My office has been leading the fight against cryptocurrency fraud,” James testified. “Our rules-based market system gives people confidence that they can do business here. Without adequate laws and regulations, financial crises ensue. We urge Congress to safeguard our financial markets and protect America’s investors, their future, our economy, and national security.”
The testimony said that complaints to the Office of the Attorney General (OAG) about cryptocurrency scams have tripled in the last three years. Reported scam losses have reached around $500 million over the past five years, while investors have lost billions more in crypto company bankruptcies.
James’ Six-Point Proposal For Crypto Oversight
James called on Congress to enact legislation that would mandate crypto platforms to comply with anti-money laundering, know-your-customer and cybersecurity rules to prevent the funding of terrorism.
The proposed framework would also ban untraceable crypto, including funds routed through mixers, from being converted to U.S. dollars, while keeping existing coverage of crypto under money transmission, commodities and securities law. James asked for platforms to identify anomalous trading activity and bad actors, and to hold them financially liable for fraud, along the lines of the Electronic Funds Transfer Act.
James also called on Congress to ban elected officials and recent government employees from working in crypto regulation due to potential conflicts of interest and violations of the Emoluments Clause.
Previously, Senator Cynthia Lummis (R-WY) addressed the concerns put forward by James, saying that passing the CLARITY Act would close the “DINO loophole,” short for Decentralized In Name Only, and make provisions for bad actors to stop any money laundering activity. The bill “brought every corner of the digital asset market inside the Bank Secrecy Act and sanctions framework,” Lummis said last week.
Senate Heads Toward Key Procedural Vote
James’ testimony lands as the Senate heads into its last two-week sprint before the August recess. Senate Majority Leader John Thune (R-SD) is also reportedly planning to push for a procedural vote on the legislation this week, whether or not Democrats agree to a proposed deal on ethics restraints attached to the bill, as per PunchBowl News. “GOP leaders are hoping to run up the score on that procedural vote to make it easier to strike a deal, collapsing debate time and moving quickly to a final passage vote — possibly by week’s end,” said the report.
The current timeline is in line with Coinbase (COIN) CEO’s comments made last week, where he said the Act was ready for a ‘full Senate floor Vote’ and could pass within weeks. Coinbase and Circle (CRCL) stand to benefit from the CLARITY Act as the legislation provides more clarity from the federal government on digital assets and stablecoins.
Retail Sentiment: Coinbase And Circle
COIN stock was down over 2% in pre-market on Tuesday. On Stocktwits, retail sentiment around COIN dropped to ‘bearish’ from the ‘neutral’ zone over the past day. One user on Stocktwits said that unless the CLARITY Act passes, Coinbase stock would dip “really hard.”
CRCL stock was down over 3% in pre-market on Tuesday. On Stocktwits, retail sentiment around CRCL remained in the ‘bearish’ zone over the past day.
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