NASAA Opposes Federal Preemption in Proposed Digital Commodity Legislation

The North American Securities Administrators Association ("NASAA") criticized proposed digital commodity legislation and urged Congress to amend the text to clearly preserve states' enforcement powers.

In a comment letter, NASAA said it cannot support the proposed Digital Commodity Intermediaries Act in its current form because it restricts state regulators from protecting investors. NASAA argued that the most critical change required in the legislation is clarification that states retain the authority to investigate and bring civil, criminal, and administrative actions against fraud. The association warned that the bill’s grant of exclusive jurisdiction to a federal agency could be used to challenge state efforts to stop scams. NASAA reminded lawmakers that similar federal preemption in the 1970s led to a rapid expansion of illegitimate commodities markets.

NASAA also emphasized the importance of policing business conduct standards. The association claimed the current draft might be interpreted to exclude "dishonest or unethical" practices from state oversight. NASAA urged Congress to adopt a clear "rule of construction" that explicitly permits states to pursue anti-fraud actions against unethical behavior.

Further, NASAA contended that the bill relies on "fundamental[ly] inconsisten[t] ... definitions" regarding network tokens. The association warned that defining tokens as non-securities subject to exclusive commodity jurisdiction, while simultaneously treating them as "covered securities" under other laws, risks undermining investment contract law and creating unworkable scenarios for regulators and courts.