The regulatory landscape applicable to crypto asset markets is rapidly evolving, with new laws both proposed and adopted by Congress, executive orders, and initiatives undertaken by federal regulatory agencies.1 State securities regulators are actively seeking to influence these developments. The North American Securities Administrators Association (NASAA) provided Congress with comments on two proposed versions of crypto “market structure” legislation being considered in the U.S. Senate: the Digital Asset Market Clarity Act of 2025 (CLARITY Act), which passed the House of Representatives on July 18, 2025, and the Senate-authored Responsible Financial Innovation Act (RFIA).2 The Chair of the Senate Banking Committee aims to pass market structure legislation out of committee by September 30, 2025.3
State securities regulators have been active in the crypto space, evaluating state laws and policy priorities and bringing enforcement cases against individuals and companies involved in crypto-related fraudulent offerings and advisory services.4 Most recently, NASAA submitted comments on the RFIA discussion draft, emphasizing the need to preserve state antifraud enforcement authority as federal regulators consider new rulemaking.5
One of NASAA’s primary concerns is the RFIA’s directive that the SEC define the term “investment contract” under the federal securities laws. By codifying specific elements —such as the investment of money, a common enterprise, an expectation of profits, and the efforts of others — NASAA cautions that the RFIA risks narrowing the breadth of the traditional Howey test, on which states have long relied for flexible, fact-intensive fraud investigations.
NASAA’s concerns arrive amid notable federal activity concerning the scope of the Howey test and application of the securities laws to crypto assets. SEC Chairman Paul Atkins recently voiced his opinion that most crypto assets are not securities, and CFTC Acting Chairman Caroline Pham announced an initiative to permit CFTC-registered exchanges to list spot crypto asset contracts for trading.6
NASAA Urges Congress to Preserve Broad State Authority
Whether a particular arrangement is an “investment contract” that constitutes a security under the federal securities laws is based on a judicial test known as the Howey test. As the Supreme Court put it in deciding Howey, the test “embodies a flexible rather than a static principle” and is intentionally broad. The RFIA contains a provision that directs the SEC to adopt rules defining the term “investment contract” as that term is used in the federal securities laws. The RFIA further specifies certain elements that must be present in a “contract” to be considered an investment contract in any rule adopted by the SEC.7 States rely on existing Howey jurisprudence for determining what is a security, and NASAA warns that these rigid definitions could narrow securities classifications and limit state fraud enforcement.
As evidence and support for the states’ role in antifraud enforcement, NASAA includes an appendix of over 300 cases brought by member states involving fraud related to crypto assets (although not all of these cases relied on the current investment contract test).
To address these potential issues, NASAA provides the Senate Banking Committee with proposed text, dubbed the Support Anti-Fraud Enforcement Act (SAFE Act), and argues that the proposed text should be included in either the CLARITY Act or the RFIA. The SAFE Act is intended to make clear that federal crypto market structure legislation does not preempt or restrict states’ ability to use their existing antifraud enforcement authority over securities and commodities.
NASAA’s Historical Position
States have been active in policing against crypto-related frauds for many years, with the NASAA-coordinated “Operation Cryptosweep” beginning in 2017. NASAA has also been active in recent efforts to shape federal policy regarding crypto assets.
Earlier this year, NASAA provided strongly worded comments to a discussion draft of the CLARITY Act prior to its introduction in the House of Representatives.8 As with its most recent letter, NASAA emphasized the role of state securities regulators in investor protection and advocated for expressly preserving states’ antifraud and examination authorities. NASAA also proposed significant structural changes to the CLARITY Act, including changes to the oversight of intermediaries, and the appropriate regulatory jurisdiction for crypto assets sold pursuant to investment contracts.9
Last year, NASAA submitted a letter to congressional leaders in both the House and Senate arguing that any market legislation should preserve a “technology-neutral” approach to regulation and similarly urged Congress to preserve states’ authority to “investigate and bring enforcement actions for any violation of federal law, regulation, or rule.”10
NASAA also responded11 to SEC Commissioner Hester Peirce’s statement12 earlier this year inviting public input on a wide range of issues related to crypto assets and blockchain technology. NASAA’s response provides general principles for the SEC to bear in mind when regulating crypto assets consistent with its letters to Congress, including that investor protection must be central to any regulatory scheme and that state antifraud and examination authorities must be preserved.
Prevailing Winds
States’ jurisdiction over crypto assets is a live issue. Both the CLARITY Act and the RFIA contain provisions excluding certain crypto assets and certain types of transactions from state (and federal) securities laws — although there are arguments that such exclusions present less of a change to existing state authority than NASAA members fear. Notably, however, none of NASAA’s proposed amendments to the CLARITY Act were adopted by the House of Representatives. Furthermore, a recently released report of recommendations by the President’s Working Group on Digital Asset Markets explicitly call on Congress to provide that federal law preempts state law with respect to securities and commodities laws applicable to SEC- and CFTC-registered intermediaries, including in the areas of state virtual currency business, “blue sky,” and commodity broker laws.13
Takeaways
As federal crypto asset legislation begins to take shape, the role, if any, the states will play is undoubtedly a key issue. Even if the CLARITY Act or the RFIA is passed as currently drafted, states are likely to maintain enforcement authority over certain types of crypto assets and related transactions. NASAA’s position is unequivocal: The state securities regulators are not stepping aside. This may mean lobbying for legislative text, an increased focus on maximizing what state powers ultimately remain, or even, as briefly suggested in NASAA’s most recent letter, a constitutional challenge. For market participants, this means navigating a complex and layered enforcement landscape — one in which state regulators are not just present but actively seeking to expand their footprint.
We are monitoring legislative developments closely and are available to assist clients in assessing their exposure and engagement strategies in light of these evolving regulatory dynamics.
Knowledge management lawyer Dan Engoren contributed to this Sidley Update.
1 See, e.g., previous Sidley Updates: President Trump Signs “Fair Banking” Executive Order Directing Financial Regulators to Remedy Past and Present Debanking Practices (Aug. 8, 2025), Alternative Assets — the Next 401(k) Plan Investment? (Aug. 8, 2025), SEC Announces Launch of “Project Crypto” (Aug. 5, 2025), The GENIUS Act: A Framework for U.S. Stablecoin Issuance (Jul. 21, 2025).
2 HR 3633, 119th Cong. (2025); U.S. Senate Committee on Banking, Housing, and Urban Affairs, Scott, Lummis, Colleagues Release Market Structure Discussion Draft, Issue Request for Information from Stakeholders (Jul. 22, 2025).
3 Senate Banking Press Release, What They Are Saying: Support for Scott’s September Deadline on Digital Asset Market Structure Legislation (Jun. 27, 2025).
4 Following the SEC’s dismissal of a high-profile enforcement action against a digital asset trading platform earlier this year, some state securities regulators dismissed their parallel actions, while other states appear to be continuing enforcement actions or awaiting further legal developments — and at least one state has filed a new enforcement action, seemingly in response to the SEC’s dismissal.
5 NASAA Urges Congress to Protect Investment Contract Law and Pass the Support Anti-Fraud Enforcement Act (Aug. 5, 2025).
6 SEC Chairman Paul Atkins, American Leadership in the Digital Finance Revolution (Jul. 31, 2025); CFTC, Acting Chairman Pham Launches Listed Spot Crypto Trading Initiative (Aug. 4, 2025).
7 See Section 105 of the RFIA Discussion Draft.
8 NASAA Calls on the Federal Government to Leverage the State-Federal Partnership that Fosters Innovation and Mitigates Fraud in Our Capital Markets (May 29, 2025).
9 The CLARITY Act defines “investment contract assets” as digital commodities sold pursuant to an investment contract, generally granting the CFTC jurisdiction over digital commodities while preserving SEC jurisdiction over investment contracts. NASAA’s proposal defined investment contract assets — in addition to investment contracts — as securities, within the SEC’s sole jurisdiction.
10 https://www.nasaa.org/wp-content/uploads/2024/09/NASAA-Urges-Congress-to-Maintain-a-Technology-Neutral-Approach-to-Market-Regulation-9.16.24-F.pdf. At the time, NASAA wrote, “Congress’ piecemeal and varied approaches to legislating uses of [distributed ledger technology] in our capital markets makes it difficult for NASAA to offer legislative text that could be used universally across all proposals affecting state authority.”
11 NASAA’s Principles for SEC Crypto-Asset Regulation (May 27, 2025).
12 SEC Commissioner Hester M. Peirce, There Must Be Some Way Out of Here (Feb. 21, 2025). Also see Sidley Update, Engage With the U.S. SEC’s Crypto Task Force and Shape the Future of Crypto Regulation (Feb. 24, 2025).
13 President’s Working Group on Digital Asset Markets, Strengthening American Leadership in Digital Financial Technology (Jul. 30, 2025).