CLARITY Act Faces Bipartisan State Opposition Before Senate Vote

The CLARITY Act faced another challenge Monday after 18 state attorneys general opposed the legislation in its current form. New York Attorney General Letitia James led the bipartisan coalition ahead of Tuesday’s Senate procedural vote.

The group argued that the bill could weaken state authority over cryptocurrency fraud, securities registration and investor protection. Their intervention came shortly after Senate Republicans released what they called the final CLARITY Act text.

The new draft included tougher ethics provisions and 126 revisions sought by Democrats. However, opposition continues to grow across state regulators, Tribal gaming interests and parts of the crypto policy community.

State Attorneys General Challenge CLARITY Act

However, the state attorneys, in a letter addressed to Senate Banking Committee chair Tim Scott and ranking member Elizabeth Warren, are asking for changes to the draft legislation to preserve state authorities.

According to the letter, the current draft of the Clarity Act would affect a state’s ability to prosecute crypto fraud and scams. They claimed that the state will no longer be the first line of defense against crypto fraud, and bad actors will benefit.

They are now calling for preservation of the state’s enforcement authority through licensing and registration for securities intermediaries and transactions. The attorneys general argue that the bill, with its current language, could displace these fundamental tools.

This position saw bipartisan support, with Attorneys general from Democratic states such as New York, California, Delaware, and Maryland, Arizona, Connecticut, Illinois, Michigan, Massachusetts, Nevada, New Jersey, Virginia, Washinton, Wisconsin and District of Columbia, as well as Republican states such as Kansas and Ohio, all signing the letter.

Beyond seeking to preserve state authorities, the attorneys general also claim that ambiguities in the clarity act could allow bad actors to evade state authority. They want these ambiguities resolved and the preemptive power that gives federal agencies too much control over state regulators removed.

New Clarity Act Version Tougher on Ethics, but Still Facing Pushback

The bipartisan pushback from the attorneys general raises concerns, as it comes after Senate Republicans released what many believe is the best and final version of the Clarity Act.

The new version released today included tougher ethics rules that addressed a major concern among Democrats. However, the criminal-prosecution protections for developers under the Blockchain Regulatory Certainty Act (BRCA) were also removed, to the dismay of crypto stakeholders.

While Senate Democrats have yet to address the new version, it has already raised expectations about Clarity Act passages. Odds on Polymarket went from below 20% to 28%.

However, there is still strong opposition to the bill. Democrat Senator Chris Van Hollen of Maryland is already campaigning against the bill’s passage.

The Indian Gaming Association Chair, David Z. Bean, has said that the Clarity Act does not address concerns in Indian Country despite amendments to carve out prediction markets.

Meanwhile, crypto policy stakeholders have also expressed disappointment with the changes to BRCA.  Coin Center director of policy Jason Somensatto noted that this is disappointing, but added that it is “still helpful to codify the regulatory protections for developers.”

This article is for informational purposes only and does not constitute legal, financial or investment advice. Legislative proposals can change during negotiations and may not become law in their current form.