New York Attorney General Letitia James urged Congress to strengthen oversight of cryptocurrency companies, warning that a proposed federal market structure bill could weaken states’ ability to investigate scams and hold digital asset platforms accountable.

In written testimony submitted Monday to the Senate Permanent Subcommittee on Investigations, James said the Digital Asset Market Clarity Act, known as the CLARITY Act, would override state regulation of digital asset markets and transfer oversight authority to the Commodity Futures Trading Commission.

The dispute centers on how much authority federal legislation should give national regulators compared with state agencies that already enforce money transmission, commodities, securities and consumer protection laws. For state officials, preemption is a practical enforcement issue because it can determine who is able to open investigations, respond to local complaints and bring cases against companies serving residents.

James argued that such a shift would undermine state and local enforcement. She said state regulators play a key role in responding to consumer complaints and pursuing fraud cases involving cryptocurrency companies and intermediaries.

According to the attorney general, complaints about crypto scams received by her office have tripled over the past three years. Reported losses connected to those complaints totaled nearly $500 million over five years, she said.

James called on Congress to require crypto platforms to comply with anti-money laundering, know-your-customer and cybersecurity standards. She also said platforms should be required to conduct surveillance for suspicious activity and market manipulation.

The attorney general further urged lawmakers to make platforms and intermediaries financially liable when they fail to protect customers from fraud. She also called for a ban on converting mixer-linked or otherwise untraceable cryptocurrency into US dollars.

James said Congress should preserve existing state money transmission, commodities and securities laws, rather than preempt them through federal legislation. She argued that maintaining those authorities is necessary for state officials to continue investigating misconduct and enforcing consumer protection rules.

James also proposed prohibiting elected officials and recent government officials from regulating cryptocurrency when they may have financial interests in the industry. Her testimony puts state preemption, platform compliance duties and conflict-of-interest rules among the issues lawmakers may weigh as they consider federal crypto market structure legislation.