NASAA Urges Congress to Protect State Regulatory Authority in Digital Asset Bills

The North American Securities Administrators Association ("NASAA") submitted a comment letter urging congressional lawmakers to modify proposed digital asset legislation to ensure the preservation of essential state regulatory authority.

In the comment letter, NASAA asserted that Congress must preserve, in the Digital Asset Market Clarity Act (the "CLARITY Act") and the Digital Commodity Intermediaries Act ("DCIA"), the "cooperative federalism framework" that allows states to regulate local markets. NASAA urged Congress to include, among other things, clear catch-all savings clauses to "confirm[] that neither the CLARITY Act nor the DCIA limits existing state securities and commodities anti-fraud authorities, including with respect to assets that are not 'digital assets'." The comment letter emphasized that not including such protections would create the potential for bad actors to exploit regulatory gaps to evade accountability.

Additionally, the comment letter focused on preserving the traditional legal test for investment contracts under the federal securities laws, known as the Howey test. NASAA cautioned that Congress "should not allow the displacement or narrowing in [the CLARITY Act or DCIA] of the well-established Howey test or investment contract analysis, whether directly or indirectly through SEC rulemaking or otherwise." 

Finally, NASAA requested that Congress "not risk upending the foundations of securities regulation by granting the SEC wide-ranging exemptive authority that can be exercised by order," bypassing the notice-and-comment process.