- James argued the proposed federal crypto framework would reduce states’ ability to investigate fraud and protect investors.
- The attorney general urged tougher compliance rules, stronger market monitoring and greater liability for platforms that fail customers.
- She also called for tighter ethics rules for public officials and restrictions on untraceable digital assets.
New York Attorney General Letitia James has warned Congress that proposed federal cryptocurrency legislation could weaken state oversight, making it more difficult for regulators to pursue scams and hold digital asset platforms accountable.
In testimony submitted to a Senate investigative panel, James said the Digital Asset Market Clarity Act would pre-empt state regulation by shifting responsibility for digital asset markets to the Commodity Futures Trading Commission. She argued state and local agencies carry out much of the country’s law enforcement work and should retain their authority.
James said complaints about cryptocurrency scams received by her office have tripled in the past three years, while reported losses over the previous five years totalled almost US$500 million (AU$725 million). She added investors also lost billions through cryptocurrency company collapses.
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A Tougher Regulatory Blueprint
Among her recommendations, James called for mandatory anti-money laundering, know-your-customer and cybersecurity standards, as well as surveillance systems capable of detecting market manipulation and suspicious transactions.
She also urged lawmakers to require cryptocurrency companies and intermediaries to compensate customers when they fail to prevent fraud, and to prevent untraceable cryptocurrency, including assets linked to mixers, from being exchanged for US dollars.
James further argued that existing state money transmission, commodities and securities laws should continue to apply to cryptocurrency, while elected officials and recent public office holders should be barred from regulating the industry where they may benefit financially.
Related: Trump Backs Ethics Provision, Clearing Key Obstacle for Landmark Crypto Bill
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