Concerns are mounting regarding the implications of new legislation aimed at revamping the cryptocurrency market. State authorities are increasingly vocal about how it might restrict their powers to hold digital asset fraudsters accountable.

State Officials Raise Warnings on Crypto Legislation

From the coasts of California to the heartland of Kansas, regulators have issued urgent warnings about impending crypto legislation. They believe that the current framework, known as the Responsible Financial Innovation Act, could severely impair their ability to combat fraudulent activities, as highlighted by several news reports.

For example, Elizabeth Lang, head of the Florida Financial Services Commission, expressed that the proposed legislation lacks the necessary provisions for state oversight of digital asset firms, which could severely hinder their enforcement efforts.

This gap in oversight raises alarms about the potential for an increase in fraudulent activities. Compounding the issue, federal enforcement actions against cryptocurrency companies have noticeably dwindled in recent years, creating further uncertainty.

Key regulatory institutions, such as the SEC, CFTC, and DOJ, have reportedly scaled back their enforcement units dedicated to digital currencies, leading to a significant drop in prosecutions and investigations. A recent analysis found that enforcement actions have fallen dramatically compared to previous years, suggesting that 2025 could record the fewest actions since 2018.

“If states don’t step up, fraud will flourish unchecked,” warned Lang during a press conference. “Lack of enforcement at every level simply emboldens criminals.”

Kansas Securities Commissioner Ashley Allen cautioned that adjusting the definition of what constitutes an investment contract may allow some offenders to evade accountability, exacerbating the potential for fraud.

Threat to State Fraud Prevention Efforts?

State regulators are actively seeking revisions to the crypto market structure bill ahead of its anticipated markup scheduled for next month. Many officials have pointed out the critical need for stronger language to ensure that crypto businesses are held accountable at the state level.

Additionally, alterations to the federal definition of an investment contract could lead to less stringent requirements for crypto entities, raising concerns about regulatory effectiveness in preventing scams. The North American Securities Administrators Association (NASAA) recently highlighted the urgency of maintaining state anti-fraud enforcement powers through a public letter addressed to several congressional representatives.

In their correspondence, NASAA underscored the necessity of robust state protections, stating that these measures are essential for safeguarding investors against the rising tide of online fraud. To tackle these vulnerabilities, NASAA proposed two pivotal recommendations for lawmakers.

Firstly, they advocated for the elimination of proposed adjustments to the investment contract definition, emphasizing that such changes could disrupt long-standing securities law and impede anti-fraud measures by creating unnecessary complexity.

Secondly, they urged Congress to pass the Support Anti-Fraud Enforcement (SAFE) Act to empower states with the necessary authority to effectively address citizen complaints related to digital assets.

While some in the crypto industry believe that the proposed legislation won’t necessarily undermine states’ prosecutorial capabilities, others argue that regulators will still find ways to hold bad actors accountable through protections designed for consumers.

“It’s understandable that states are apprehensive, especially in a climate where federal agencies are less active,” reported John Carmichael, a legal advisor specializing in financial regulations. “However, I believe that consumer protection laws might provide avenues for states to act even in ambiguous regulatory waters.”