New York urges Congress to strengthen cryptocurrency regulations

New York State Attorney General Letitia James is advocating for Congress to implement strict regulations on the cryptocurrency market, arguing that current legislative proposals do not offer adequate protections for investors, national security, or the financial system. In a letter to congressional leaders, James highlighted the need for significant changes to the GENIUS Act and STABLE Act, which are aimed at legalizing and overseeing stablecoins – a type of cryptocurrency tied to traditional assets such as the U.S. dollar.

James expressed concerns that the uncontrolled expansion of stablecoins could expose numerous Americans to fraud, criminal activities, and economic risks due to the appeal of anonymity in transactions. To address these dangers, the Attorney General proposed key reforms that include treating stablecoin issuers akin to banks by subjecting them to bank-like regulations, capital requirements, and constant supervision. She also advocated for providing FDIC insurance protection for stablecoin deposits similar to traditional bank accounts and implementing compulsory digital ID verification for all stablecoin transactions to counteract money laundering and terrorist financing.

Additionally, James emphasized the significance of onshore operational requirements to prevent stablecoin firms from circumventing U.S. regulations by operating overseas, as well as the need to support local financial institutions to ensure that federal crypto rules do not undermine community banks. She also stressed the importance of retaining state-level authority to enforce safeguards against fraud and protect investors.

Despite the recent passage of the GENIUS Act by the U.S. Senate and the ongoing review of the STABLE Act, James criticized both bills for failing to provide adequate measures to address the risks posed by unregulated stablecoins. Furthermore, she raised concerns about the CLARITY Act, a proposal aiming to regulate wider digital assets, arguing that it may allow bad actors to retain anonymity and overlook the prevention of fraud and market manipulation.

In support of her call for stricter regulations, James cited a string of high-profile enforcement actions undertaken by her office, including freezing $300,000 in cryptocurrency linked to scams targeting Russian-speaking New Yorkers, filing a lawsuit to recover $2.2 million stolen through job text scams, suing NovaTechFx for operating an illicit cryptocurrency pyramid scheme defrauding over 11,000 New Yorkers, and recovering $2 billion from Genesis Global Capital for victims of cryptocurrency fraud. These actions underscored the Attorney General’s belief in the necessity of robust and enforceable regulations to shield consumers from sophisticated financial crimes.

As congressional efforts continue to reconcile multiple proposals on cryptocurrency regulation, state officials like Letitia James are advocating for reforms that prioritize transparency, accountability, and consumer protection. The final shape of federal crypto legislation is poised to determine the trajectory of digital finance development and the level of protection available to everyday investors against risks.