Chair

James

Stablecoin

World Liberty Financial

A bipartisan group of 17 state attorneys general has urged the U.S. Senate to reject the CLARITY Act ahead of a key procedural vote, arguing that the crypto market structure bill could restrict states’ ability to pursue fraud and enforce investor protection laws.<div id="cn-block-summary-block_0894755fa19d2870a64657d03d668110" class="cn-block-summary"><div class="cn-block-summary__nav tabs">Summary</div><div class="cn-block-summary__content"><ul class="wp-block-list"><li>A bipartisan group of 17 state attorneys general urged senators to reject the CLARITY Act, arguing it could weaken their authority to pursue crypto fraud and protect investors.</li><li>New York Attorney General Letitia James said the bill could give the SEC new authority to preempt state registration powers and create uncertainty around state securities enforcement.</li><li>Senate Republicans released a revised version of the bill ahead of Tuesday’s procedural vote, adding a state role in enforcing conflict of interest rules for public officials.</li><li>The revised legislation would let the Treasury secretary impose an 18 month circuit breaker on stablecoin rewards if payment stablecoins cause substantial deposit outflows from community banks.</li><li>The bill changes protections for certain software developers and clarifies state consumer protection rules, but the attorneys general said the revisions did not resolve their enforcement concerns.</li></ul></div></div>New York Attorney General Letitia James led the group in a letter sent Monday to Senate Banking Committee Chair Tim Scott and ranking Democrat Elizabeth Warren, warning that provisions in the legislation could give federal regulators new authority to override parts of state securities regulation.“As written, the Clarity Act would embolden scammers and potentially strip attorneys general of our authority to protect our states’ investors and their wallets,” James said in a <a href="https://ag.ny.gov/press-release/2026/attorney-general-james-calls-congress-preserve-states-ability-protect-americans" rel="noopener noreferrer nofollow">statement</a>. “Together with my attorney general colleagues, I urge Congress not to pass the Clarity Act.”The intervention comes one day before the Senate is expected to hold an initial procedural vote on the legislation, with Republicans needing 60 votes to advance it.<h2 class="wp-block-heading" id="attorneys-general-say-clarity-act-could-restrict-state-powers">Attorneys general say CLARITY Act could restrict state powers</h2>James and the other attorneys general focused much of their objection on language governing the relationship between federal securities rules and state enforcement.Their letter argued that the Securities and Exchange Commission could gain the ability to “preempt state registration authorities,” creating uncertainty over how far states could go when regulating digital assets or pursuing companies accused of violating securities laws.<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“This unprecedented grant of authority would not only apply to digital assets but would also broadly grant unilateral discretion to SEC to reset the scope of federal preemption, potentially upending the state securities regulatory regime,” the New York attorney general’s office said.</blockquote>James raised similar concerns in July, when she <a href="https://crypto.news/clarity-act-weaken-state-fraud-powers-james-warns/" rel="noopener noreferrer nofollow">warned that the legislation</a> could weaken state investor protections and limit local authorities’ ability to pursue crypto fraud. As crypto.news previously reported, she called for changes that would preserve state enforcement powers while strengthening anti-money laundering and ethics provisions.You might also like: <a href="https://crypto.news/clarity-act-gets-final-gop-offer-before-senate-vote/" rel="noopener noreferrer nofollow"> CLARITY Act gets final GOP offer before Senate vote </a>Monday’s letter was signed by attorneys general from states including California, Illinois, Arizona, Kansas, Ohio and Wisconsin, giving the opposition a bipartisan group of state officials.The latest challenge comes as senators prepare to decide whether the bill can clear the procedural threshold needed for further consideration. Republicans cannot reach the required 60 votes on their own, leaving the outcome dependent on Democratic support.<h2 class="wp-block-heading" id="revised-clarity-act-adds-public-official-enforcement-rules">Revised CLARITY Act adds public official enforcement rules</h2>Senate Republicans released a revised version of the more than 600-page legislation on Sunday as negotiations continued over provisions sought by Democrats.One change gives state attorneys general a role in enforcing conflict-of-interest restrictions covering public officials, replacing an earlier approach that would have placed enforcement primarily with the federal Justice Department.Ethics rules have remained one of the main disputes surrounding the legislation because of President Donald Trump’s crypto interests, including his involvement with World Liberty Financial and the TRUMP memecoin.The issue has complicated Senate negotiations for months. A <a href="https://crypto.news/clarity-act-trump-crypto-ethics-obstacle-explained/" rel="noopener noreferrer nofollow">June examination of the ethics dispute</a> detailed how Trump’s crypto businesses had become a sticking point for lawmakers seeking restrictions on elected officials’ digital asset interests.By August, the disagreement remained unresolved. Senate Banking Committee Chair Tim Scott said negotiations had stalled as Republicans and Democrats remained divided over ethics rules, stablecoin rewards and financial crime provisions. The Senate had been preparing for a Sept. 15 procedural vote requiring 60 senators to move forward, with <a href="https://crypto.news/clarity-act-stalls-as-scott-criticizes-warrens-team/" rel="noopener noreferrer nofollow">Democratic support needed</a> for the legislation to advance.The bill has already traveled through several stages in Congress. The House passed its version 294 to 134 in July 2025, while the Senate Banking Committee advanced its proposal 15 to 9 in May 2026.<h2 class="wp-block-heading" id="stablecoin-rewards-face-an-18-month-circuit-breaker">Stablecoin rewards face an 18-month circuit breaker</h2>Sunday’s revision addresses another dispute that has followed the legislation through Senate negotiations: rewards paid on payment stablecoins.The updated language would give the Treasury secretary authority to impose an 18-month “circuit breaker” on stablecoin rewards when payment stablecoins cause substantial deposit outflows from community banks.Under the proposal, the temporary restriction could be used when withdrawals linked to stablecoins put pressure on smaller banking institutions.Stablecoin rewards had already emerged as one of the major unresolved issues during earlier negotiations. Banks have raised concerns that interest or rewards attached to stablecoins could draw deposits away from traditional financial institutions, while crypto companies have pushed to preserve rewards tied to certain customer activities.A July analysis of the <a href="https://crypto.news/the-3-fights-that-decide-the-clarity-act-ethics-defi-and-1-35b-in-yield/" rel="noopener noreferrer nofollow">three main Senate disputes</a> identified stablecoin rewards alongside presidential ethics restrictions and protections for decentralized software developers as the issues holding up the bill.The revised proposal stops short of establishing a permanent blanket restriction through the circuit breaker provision. Instead, it would give Treasury temporary authority to intervene if specified conditions involving community bank deposit outflows were met.<h2 class="wp-block-heading" id="developer-protections-and-state-consumer-laws-are-revised">Developer protections and state consumer laws are revised</h2>Lawmakers have changed provisions tied to the Blockchain Regulatory Certainty Act as part of the latest text.The revised legislation narrows money-transmission registration requirements for certain software developers and creates a civil safe harbor. Developer protections have been contested during negotiations as lawmakers, law enforcement organizations and the crypto industry debated when developers of noncustodial software should fall under financial registration requirements.The bill would establish federal rules governing when software developers must register while providing protections for certain activities that do not involve custody or control of customer funds.Agriculture Committee provisions in the latest text impose guardrails involving affiliate trading and conflicts of interest. The proposal further addresses how state consumer protection laws can apply under the federal digital asset framework.Questions over state authority, however, remain at the core of the attorneys general’s opposition.James and the other officials argued that unclear preemption language could invite legal challenges over states’ existing powers to pursue misconduct. Their objection extends past digital asset registration requirements because they contend the SEC could receive discretion affecting the division of authority between federal and state securities regulators.The dispute comes after months of negotiations over a bill designed to divide digital asset oversight between the SEC and Commodity Futures Trading Commission and establish registration requirements for crypto market intermediaries.The legislation has faced repeated delays despite clearing the House and Senate Banking Committee. The Senate left for its August recess without holding a floor vote, while unresolved disputes over ethics, decentralized finance and stablecoin rewards continued to weigh on negotiations.James had previously called on Congress to preserve state securities enforcement authority while adding stronger safeguards covering money laundering and conflicts of interest.With Monday’s letter, attorneys general from 17 states are now asking senators to vote against advancing the current legislation,Read more: <a href="https://crypto.news/kaiko-raises-series-b-to-110-million-as-sp-global-leads-investment/" rel="noopener noreferrer nofollow"> Kaiko raises Series B to $110 million as S&amp;P Global leads investment </a>

New York AG leads 17 state officials against CLARITY Act

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