New York Attorney General Warns: The CLARITY Act Weakens State-Level Crypto Regulation, With Nearly $500 Million in Fraud Losses Over 5 Years

New York Attorney General Letitia James submitted a written testimony to the Senate, warning that the federal CLARITY Act could strip states of their regulatory authority, and urging Congress to require crypto platforms to comply with anti-money laundering, consumer protection, and conflict-of-interest rules.
(Background: Breaking news — U.S. Senate Republicans propose a revised Clarity Act clarity bill; five key regulatory highlights at a glance)
(Additional context: Trump and senators are putting pressure on the CLARITY Act as it sprints through August recess; enforcement agencies move on two fronts)

Table of contents

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• Complaints in 3 years triple, losses in 5 years near $500 million
• 5 key requirements: full coverage of anti-money laundering, consumer protection, and conflict of interest
• The importance of state-level regulation
• Latest progress of the CLARITY Act

New York Attorney General Letitia James submitted written testimony to the Senate Standing Committee on Investigation on Monday, warning that the federal “Digital Asset Market Clarity Act” (CLARITY Act) may eliminate state-level oversight power, and calling on Congress to establish stricter consumer protection rules for crypto platforms. In her formal statement, James laid out five core requirements in detail.

She said that if the federal bill is directly taken over for regulation by the Commodity Futures Trading Commission (CFTC), local law enforcement would lose tools to investigate fraud and pursue illegal platforms.

Complaints in 3 years triple, losses in 5 years near $500 million

Based on James’ statistics, the number of crypto fraud complaints received by New York State over the past 3 years has tripled, and the cumulative losses over the past 5 years are close to $500 million (about $1.5 billion New Taiwan dollars). She noted that this is only part of what the public voluntarily reports, and the actual figure may be higher.

By comparison, Europe’s regulatory approach is “set the rules first, then check violations.” The European Union’s “Markets in Crypto-Assets Regulation” (MiCA) requires exchanges to provide asset proofs 1:1 for each transaction, whereas the United States currently relies on regulations that each state sets independently, resulting in an ununiform standard.

5 key requirements: full coverage of anti-money laundering, consumer protection, and conflict of interest

In her testimony, James listed five core requirements:

• Anti-money laundering requirements: Crypto platforms must comply with anti-money laundering (AML), know-your-customer (KYC), and cybersecurity standards, and monitor suspicious transactions and market manipulation.
• Financial accountability: Platforms should bear financial responsibility when they fail to protect consumers, giving platforms incentives to do risk control well.
• Ban mixers-to-fiat exchange: Ban the use of mixers or untraceable crypto exchanges into dollars, ensuring transparent asset flows.
• Keep state laws: Maintain existing state laws on money transmission, commodities, and securities, so the federal bill does not automatically replace local rules.
• Conflict-of-interest ban: Prohibit electors or officials with financial interests in the crypto industry from participating in regulatory decision-making.

The importance of state-level regulation

James emphasized that state-level regulation is not superfluous. She said, “The market structure, consumer demographics, and fraud patterns are different in each state. A single federal standard cannot cover all situations.”

For example, in 2025, the California Securities Commission (COS) issued $4.5 million in fines to 3 crypto platforms for not retaining transaction records. If federal standards were unified, California might lose these enforcement tools.

Latest progress of the CLARITY Act

The CLARITY Act has currently passed through the Senate Banking Committee, and is expected to be submitted for a full Senate vote before the end of July. However, the Senate Majority Leader has already warned that despite passing in principle, there are still disagreements between the two parties on the details, and whether it can pass before the August recess remains uncertain.

This New York attorney general’s testimony is the first public reminder by enforcement agencies about the bill’s contents. If the final version relies solely on a single CFTC unified regulator, state-level enforcement tools may disappear, and the public could face an increased risk of scams.