New York State Attorney General leads 17 state officials to oppose the CLARITY Act

17 state attorneys general have jointly called on the Senate to veto the CLARITY Act

A bipartisan group of 17 state attorneys general has urged the U.S. Senate to reject the CLARITY Act (the "Clarification Act") ahead of a key procedural vote. They argued that the bill, which aims to regulate the structure of cryptocurrency markets, could limit states 'ability to fight fraud and enforce investor protection laws.

Concerns about federal power weakening state enforcement powers

New York Attorney General Letitia James said the bill could give the Securities and Exchange Commission new powers to replace states 'registered jurisdiction and create uncertainty in enforcing securities laws. Senate Republicans released a revised bill ahead of Tuesday's procedural vote that adds an executive role for state attorneys general in holding public officials accountable for conflict of interest rules.

The revised legislation will allow the Finance Minister to implement an 18-month "circuit breaker mechanism" and suspend relevant rewards when a payment stablecoin causes a large-scale loss of deposits in community banks. Although the bill changes protections for certain software developers and clarifies the scope of state consumer protection rules, state attorneys general believe the revisions do not address their enforcement concerns.

James sends a warning to Senate leadership

On Monday, the group led by Letitia James sent a letter to Senate Banking Committee Chairman Tim Scott and senior Democrat Elizabeth Warren warning that provisions in the legislation could give federal regulators new powers to overturn some state securities regulations.

James said in a statement: "As currently written, the Clarification Act will embolden scammers and potentially deprive us of the power to protect our state's investors and their wallets. I join my attorneys general colleagues in urging Congress not to pass the Clarification Act."

The intervention came a day before the Senate was expected to hold a preliminary procedural vote on the bill. Republicans need 60 votes to advance the bill. The attorneys general noted that the CLARITY Act could limit state powers.

The main objection to James and other attorneys general is provisions on the relationship between federal securities rules and state enforcement. Their letter argued that the Securities and Exchange Commission could gain the ability to "replace state registration powers," creating uncertainty and affecting the scope of states 'actions when regulating digital assets or prosecuting companies suspected of violating securities laws.

The New York State Attorney General's Office said: "This unprecedented authorization not only applies to digital assets, but will also give the Securities and Exchange Commission broad discretion to unilaterally decide to reset the scope of federal priorities, which has the potential to subvert the existing state securities regulatory system."

James raised similar concerns back in July, when she warned that the legislation could weaken state investor protections and limit the ability of local authorities to crack down on cryptocurrency fraud. Previous reports pointed out that she called for changes to preserve state law enforcement powers while strengthening anti-money laundering and ethics provisions.

Bipartisan Opposition and Political Background

Monday's letter was signed by attorneys general from California, Illinois, Arizona, Kansas, Ohio and Wisconsin, forming a bipartisan opposition camp of local officials.

The challenge comes as senators prepare to decide whether the bill can meet the procedural threshold needed for further review. Republicans cannot get the 60 votes needed alone, so the outcome depends on Democratic support.

Revised version to add executive rules for public officials

Senate Republicans released the more than 600-page revised version of the legislation on Sunday as negotiations with Democrats continued. One of the changes is to give state attorneys general a role in enforcing conflict of interest restrictions covering public officials, replacing an earlier program that was largely implemented by the Federal Department of Justice.

Due to President Donald Trump's crypto interests, including his involvement in World Liberty Financial and TRUMP memes, ethics rules have been a major point of contention surrounding the legislation. The issue has complicated Senate negotiations for months. A June review of the ethics controversy detailed how Trump's crypto business has become a stumbling block for lawmakers seeking to limit the interests of elected officials 'digital assets. [TAG

By August, the differences remained unresolved. Senate Banking Committee Chairman Tim Scott said negotiations have stalled because Republicans and Democrats remain divided on ethics rules, stablecoin rewards and financial crimes provisions. The Senate originally planned to hold a procedural vote on September 15 that would require the support of 60 senators to allow the bill to move forward.

The bill has gone through multiple stages in Congress. The House approved its version 294 - 134 in July 2025, while the Senate Banking Committee advanced its proposal 15 - 9 in May 2026.

stablecoin rewards face 18-month blow-out period

Sunday's amendment resolved another controversy that has plagued the legislation in Senate negotiations: rewards for payment by payment-based stablecoin.

The updated language will give the Finance Minister the power to implement an 18-month "circuit breaker mechanism" for stablecoin rewards when payment types cause large-scale deposit losses in community banks. Under the proposal, such temporary restrictions could be used when withdrawals related to stablecoins put pressure on smaller banking institutions.

Stabilocin rewards have become one of the main outstanding issues in early negotiations. Banks are concerned that interest or rewards attached to stablecoins may attract deposits away from traditional financial institutions, while cryptocurrency companies are trying to retain rewards tied to customer activity. A July analysis of the three major Senate disputes listed stablecoin rewards and presidential ethics restrictions and protection of decentralized software developers as issues hindering passage of the bill.

The revised proposal does not establish permanent comprehensive restrictions through the circuit breaker clause. Instead, it gives the Treasury temporary power to intervene when specific conditions are met involving the loss of community bank deposits.

Developer Protection and State Consumer Law Amendments

As part of the latest text, lawmakers have changed provisions related to the Blockchain Regulatory Definiteness Act. The revised legislation narrows money transfer registration requirements for certain software developers and creates civil safe harbors. Developer protection has been a focus of debate among lawmakers, law enforcement organizations and the cryptocurrency industry as they debate when unmanaged software developers should be subject to financial registration requirements.

The bill would establish federal rules governing when software developers must register, while also providing protection for activities that do not involve custody or control of customer funds.

The Agriculture Committee clause in the latest text stipulates guardrails regarding ancillary transactions and conflicts of interest. The proposal also addresses the issue of how state consumer protection laws apply under the federal digital assets framework.

However, questions about state power remain at the heart of the attorneys general's opposition. James and other officials believe that vague priority clauses could trigger legal challenges to states 'existing powers to pursue misconduct. Their opposition is not limited to digital asset registration requirements because they believe the Securities and Exchange Commission could gain discretion that affects the division of power between federal and state securities regulators.

The dispute comes after months of negotiations aimed at dividing digital asset supervision powers between the Securities and Exchange Commission and the Commodity Futures Trading Commission and establishing registration requirements for cryptocurrency market intermediaries. Although the bill has passed the House and Senate Banking Committees, it still faces multiple delays. The Senate adjourned in August without a full vote, while unresolved disputes over ethics, decentralized finance and stablecoin rewards continue to affect negotiations.

James has previously called on Congress to retain state securities enforcement powers while adding stricter anti-money laundering and conflict of interest safeguards. With Monday's letter sent out, attorneys general of 17 states are now asking senators to vote against advancing current legislation.