Daily News 19

Tag: Federal preemption

  • Banking Groups, New York Lawyers Oppose CLARITY Act Ahead of Sept. 15 Senate Vote

    Banking Groups, New York Lawyers Oppose CLARITY Act Ahead of Sept. 15 Senate Vote

    Banking Groups and State Attorneys General Challenge CLARITY Act Ahead of Senate Vote

    Major banking associations and a coalition of state attorneys general are mounting opposition to the CLARITY Act as the Senate prepares for a crucial vote scheduled for September 15. The legislation, which aims to establish a federal regulatory framework for stablecoins, faces mounting pressure from two distinct fronts, each raising separate concerns about the bill’s implications for financial stability and state enforcement authority.

    Banking Industry Raises Concerns Over Stablecoin Rewards and Deposits

    Banking trade groups argue that the current draft of the CLARITY Act creates an uneven playing field by permitting stablecoin issuers to offer yield-bearing products that function similarly to bank deposits but without equivalent regulatory safeguards. Industry representatives contend that allowing stablecoin rewards to compete directly with traditional interest-bearing accounts could destabilize deposit funding models, particularly for community and regional banks that rely on stable core deposits for lending operations.

    The groups emphasize that stablecoin issuers operating under the proposed framework would not be subject to the same capital requirements, deposit insurance premiums, or examination regimes that apply to insured depository institutions. This regulatory disparity, they warn, could accelerate deposit outflows from the banking system into less-regulated digital assets, potentially undermining monetary policy transmission and financial intermediation.

    State Attorneys General Defend Enforcement Authority

    In a parallel challenge, a bipartisan group of state attorneys general has objected to provisions that would preempt state enforcement powers over stablecoin activities. The coalition argues that the CLARITY Act’s federal preemption clauses would strip states of their ability to investigate and prosecute fraud, consumer protection violations, and anti-money laundering failures involving stablecoin issuers and wallet providers operating within their jurisdictions.

    State enforcement officials maintain that their on-the-ground oversight has been critical in addressing crypto-related scams, unlicensed money transmission, and deceptive marketing practices. They contend that a purely federal regulatory model, without preserved state concurrent enforcement authority, would create enforcement gaps and leave consumers with fewer avenues for redress when harmed by bad actors in the stablecoin ecosystem.

    Legislative Timeline and Stakes

    The Senate Banking Committee is expected to bring the measure to the floor during the week of September 15, setting up a high-stakes debate over the balance between federal regulatory certainty and state-level consumer protections. Proponents of the CLARITY Act argue that a unified federal framework is essential for providing legal clarity, fostering responsible innovation, and maintaining U.S. competitiveness in digital asset markets.

    Opponents counter that the bill, as currently structured, sacrifices critical safeguards in favor of industry-friendly provisions. With both banking lobbyists and state law enforcement officials actively engaging congressional offices, the outcome of the September vote remains uncertain. Any passed legislation would still require reconciliation with House counterparts before reaching the president’s desk.

    Market Implications

    Financial markets are closely monitoring the legislative proceedings, as the CLARITY Act represents the most significant federal attempt to date to regulate payment stablecoins. The bill’s treatment of reserve requirements, issuance standards, and the permissible activities of nonbank stablecoin issuers could reshape the competitive landscape for digital payments and dollar-denominated tokenized assets globally.

    Stablecoin market participants, including major issuers and blockchain infrastructure providers, have lobbied for clear federal rules that would enable broader institutional adoption. Meanwhile, traditional financial institutions seek either equal regulatory treatment or explicit barriers preventing stablecoins from replicating deposit-like functions without banking charters.

  • Kalshi Seeks En Banc Rehearing in Nevada Sports Prediction Markets Case

    Kalshi Seeks En Banc Rehearing in Nevada Sports Prediction Markets Case

    Prediction market platform Kalshi has escalated its legal challenge against the state of Nevada, filing a petition for an en banc rehearing before the Ninth Circuit Court of Appeals. The move comes after a three-judge panel ruled in favor of Nevada, upholding the state regulator’s authority to classify Kalshi’s sports-related event contracts as gambling.

    Background: Kalshi vs. Nevada Regulatory Action

    The dispute centers on Kalshi’s offerings of event contracts tied to sports outcomes. The Nevada Gaming Control Board (NGCB) previously issued a cease-and-desist order asserting that these contracts constitute unlicensed gambling under state law. Kalshi, a federally regulated exchange overseen by the Commodity Futures Trading Commission (CFTC), argues that its contracts fall under federal derivatives jurisdiction and are therefore preempted from state gambling regulation.

    Ninth Circuit Panel Decision

    In a recent decision, a Ninth Circuit panel sided with Nevada. The court held that the state retains the authority to regulate the sports contracts as gambling, rejecting Kalshi’s argument that the Commodity Exchange Act (CEA) preempts state law in this instance. The panel’s ruling effectively allows the NGCB’s enforcement action to proceed, creating a significant regulatory hurdle for the platform’s operations in the state.

    Petition for En Banc Rehearing

    Kalshi’s petition for a full court rehearing—known as an en banc review—asks the entire complement of active Ninth Circuit judges to reconsider the panel’s decision. Such petitions are granted sparingly, typically reserved for cases involving exceptional importance or conflicts with precedent. Kalshi contends that the panel’s ruling creates a circuit split regarding the scope of CEA preemption and threatens the regulatory framework for federally designated contract markets.

    Implications for Prediction Markets and Federal Preemption

    The outcome of this case carries broad implications for the prediction market industry and the balance of power between federal derivatives regulation and state gambling laws. A final ruling affirming state authority could encourage other states to pursue similar enforcement actions against federally regulated exchanges offering event contracts on sports, elections, or other outcomes. Conversely, a reversal would reinforce the CFTC’s exclusive jurisdiction over designated contract markets.

    Next Steps

    The Ninth Circuit will now decide whether to grant the petition for en banc review. If denied, the panel’s decision stands, and Kalshi may consider petitioning the U.S. Supreme Court. If granted, the case will be re-argued before a larger bench of judges, extending the legal timeline but offering Kalshi a critical opportunity to overturn the adverse precedent.

  • Connecticut Sues Kalshi Over Sports Prediction Contracts

    Connecticut Sues Kalshi Over Sports Prediction Contracts

    Connecticut has filed a lawsuit against prediction market operator Kalshi, escalating a nationwide legal battle over whether such platforms can offer sports-related contracts without state gambling licenses. The action, filed Thursday by Attorney General William Tong, alleges that Kalshi’s sports contracts function as traditional sports wagers and violate state consumer protection laws.

    State Alleges Unlicensed Sports Gambling

    The complaint targets contracts covering team wins, game scores, and point spreads. Connecticut officials contend these products cross the line into unlicensed sports gambling, an activity reserved for licensed operators under state law. The lawsuit follows a 2023 enforcement order directing Kalshi and two other platforms to cease offering unlicensed sports wagering to Connecticut residents.

    Kalshi Claims Federal Preemption

    Kalshi has challenged Connecticut’s authority in federal court, arguing its contracts qualify as regulated financial instruments under the Commodity Exchange Act. The company maintains that the Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction over its markets, preempting state gambling regulations.

    Regulatory Conflict Expands Across States

    Connecticut’s lawsuit opens a new front in Kalshi’s growing regulatory challenges. New York has launched a similar challenge against the company’s sports prediction markets. Meanwhile, a federal court recently blocked Minnesota from enforcing a ban against prediction markets, a ruling that bolstered Kalshi’s argument for federal oversight.

    However, a Connecticut judge recently denied Kalshi’s motion to halt the state’s enforcement efforts. The company has appealed that decision.

    National Implications for Prediction Markets

    The outcomes of these cases could define how regulators classify prediction markets across the United States. The central question remains whether states retain the power to regulate sports-related event contracts independently, or whether federal commodities law provides a complete shield for platforms like Kalshi.