New York Attorney General urges Congress to preserve state crypto-enforcement powers

What the Attorney General submitted

New York Attorney General Letitia James submitted written testimony to the U.S. Senate Permanent Subcommittee on Investigations on July 27. Her office asked Congress to strengthen the rules that would apply to cryptocurrency platforms, with particular emphasis on fraud prevention, anti-money-laundering controls, transaction surveillance and the ability of state authorities to bring cases.

The submission is part of the congressional debate over the Digital Asset Market Clarity Act. It is an official policy statement from a state enforcement authority. It is not a court ruling, a final federal rule or a new licence requirement that has already taken effect.

The dispute over federal and state authority

The Attorney General’s central objection is that the proposed federal framework could pre-empt or weaken state investor-protection laws. New York has long used state commodities, securities and fraud statutes alongside the separate BitLicense regime administered by the Department of Financial Services. James argues that a federal framework should not remove those parallel enforcement tools.

For exchange users, this is more than an institutional dispute. A platform may have a federal registration for one activity, a state licence for another and no permission for a third product. If federal legislation redraws those boundaries, the same public brand could face different obligations depending on its entity, product and customer location.

Platform duties proposed in the testimony

The testimony calls for cryptocurrency platforms to monitor anomalous transaction patterns, identify manipulation and cooperate with investigations. It also argues that platforms and intermediaries should carry clearer financial responsibility when inadequate controls allow fraud or scams to proceed.

These are proposed policy safeguards, not findings that a particular exchange has failed them. Cexvia therefore records the testimony as an informational policy update affecting the U.S. regulatory perimeter. It does not subtract points from Coinbase, Kraken or another U.S.-facing exchange solely because the proposal exists.

The losses and enforcement record behind the warning

James supported her warning with New York complaint and enforcement data. According to the Attorney General’s office, complaints about cryptocurrency scams in the state have tripled over the last three years. Reported scam losses submitted to the office approached half a billion dollars over five years, while investors lost billions more through the collapse and bankruptcy of crypto companies. Those figures explain why the office views overlapping state authority as a practical recovery tool rather than a theoretical jurisdictional preference.

The office also pointed to cases in which New York law produced settlements, refunds or penalties. Its public record includes the 2021 Tether matter, actions involving Coin Café, Gemini and Genesis, and KuCoin, as well as more than $5 million recovered from Uphold in April 2026 over promotion of an allegedly fraudulent investment scheme. These examples do not prove that every state action was superior to federal enforcement, but they show the kind of investigations and restitution powers James fears could be narrowed.

Why timing, ethics and traceability are part of the debate

The testimony arrived while Senate negotiators were trying to assemble enough votes for broad federal market-structure legislation. The published proposal would assign a central role to the Commodity Futures Trading Commission and could displace parts of state digital-asset law. Even if the Senate passes a bill, differences from the earlier House version would require further congressional action. That means the framework, enforcement split and implementation timetable remain unsettled rather than imminent changes to an exchange account.

James also asked Congress to strengthen ethics and traceability provisions. Her recommendations include preventing officials from regulating an industry in which they have a financial interest, applying anti-money-laundering and know-your-customer duties to crypto platforms, restricting conversion of assets routed through mixers when they cannot be fully traced, and requiring intermediaries to cooperate with investigations. She further argued that platforms should monitor abnormal patterns and bear financial responsibility when weak controls allow customer fraud losses.

Industry groups have pushed in the opposite direction on timing, arguing that a federal framework would give companies and investors clearer rules. That pressure makes the final wording more important than the bill’s name. For users, the decisive questions are whether state anti-fraud and restitution powers survive, which agency can act against a platform, and whether the final law leaves a gap when misconduct spans multiple entities, products or jurisdictions.

What exchange users should do now

Users should continue checking both layers of the current system. Federal MSB registration, CFTC registration or SEC status may describe only a specific activity; state money-transmission, virtual-currency or securities permissions can still determine whether a product is lawfully available in a particular location.

The practical trigger for a Cexvia score change would be an enacted rule, an official licence-status change, a named enforcement action or a verified change in service scope. Until then, this item remains market-wide regulatory intelligence rather than an exchange-specific adverse event.