Crypto’s ‘Rampant Fraud and Dysfunction’ Needs ‘Law and Order,’ NY AG Says

The conflict around state versus federal cryptocurrency regulation heats up with a new effort in New York to further establish itself as a policy pioneer. 

New York State Attorney General Letitia James plans to bring a bill to state legislators next month that would require crypto companies to complete audits, submit financial statements and increase fraud protection. 

“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry,” James wrote in a statement Friday. 

The proposed bill, known as the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act, also includes new rules around custody and lending; increasing scrutiny around which companies are allowed to hold assets and facilitate leverage trading. 

The news comes as lawmakers across the country continue to disagree over how to oversee the growing crypto industry. 

New York leaders have maintained their approach to cryptocurrency regulation is one of the more advanced in the US. The state rolled out its BitLicense in 2015, a policy that prompted some companies to cease operating in the state. Since then, other states, including Illinois and New Jersey, have expressed interest in passing similar regulations based on New York’s framework.  

Rep. Ritchie Torres, D-N.Y., said he would not be inclined to support any legislation that undermined New York’s current stablecoin regulatory policy during an April stablecoin hearing in the House. 

Some New York state regulators have taken what the industry sees as a slightly more crypto-friendly approach. 

During April’s hearing, witness Adrienne A. Harris, superintendent of the New York State Department of Financial Services, countered a popular narrative that crypto is to blame for recent banking collapses. 

“It is a misnomer that the failure of Signature Bank was related to crypto,” Harris said during the hearing, in response to a question from Rep. Maxine Waters, D-Cali., about crypto’s role in the banking crisis. 

Stablecoins, which have long been speculated to be the first area of policy congressional leaders will tackle with digital assets, are also a concern in James’ new proposal. 

The CRPTO Act would limit companies from being able to use the term ‘stablecoin;’ only allowing assets fully backed dollar-for-dollar to be labeled as such.

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