The gloves are off. The SEC’s recent enforcement actions against leading crypto exchanges suggest that the SEC has decided that time’s up for the crypto industry as it currently exists in the United States.
After spending years urging industry participants to come in and register, the SEC has made clear,…
Crypto firm bankruptcies and resulting disruption in the crypto ecosystem will continue to exacerbate liquidity and regulatory concerns in this space. Since all participants supporting the crypto ecosystem are at risk, managing that risk is critical.
Fund managers should be prepared on multiple fronts.
On May 5, 2021, another federal district court, this time for the Northern District of California, permitted the IRS to proceed with a John Doe summons very similar to the one served on Circle last month (the subject of a recent post). This time, the Summons seeks information on…
One driver for the first widely adopted cryptocurrency Bitcoin was to create a store of value that existed outside of government control. It is therefore no surprise that attempts to regulate the rapidly developing crypto asset market have required great efforts from regulators and legislators around the world to keep apace.
In this blog, we compare key drivers and results of the regulatory approach being taken in the US and UK. While the U.S. is leading the way on the enforcement of crypto regulations, the UK has taken greater steps in relation to banking approvals. With regard to tax treatment, the position is becoming much clearer in both jurisdictions.
First though, is there even “an” approach within each country?
Based on a recent regulatory statement, entities involved with cryptocurrency or digital assets should revisit their anti-money laundering and countering the financing of terrorism obligations (AML/CFT) compliance under the Bank Secrecy Act (BSA).
On October 11, the leaders of the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Securities and Exchange Commission (SEC) issued a joint statement (the “Joint Statement”) regarding the application of the BSA to activities involving digital assets. The Joint Statement “reminds” those involved with such activities of their AML/CFT obligations and specifically calls out those entities that would be subject to such obligations: futures commission merchants and introducing brokers (regulated by the CFTC), money services businesses (regulated by FinCEN), and broker-dealers and mutual funds (regulated by the SEC).
Potentially indicating a key concern of the regulators going forward, the Joint Statement notes that the applicability of AML/CFT obligations is not dependent on the terminology surrounding the applicable assets, but rather the nature of the assets themselves: “Regardless of the label or terminology that market participants may use, or the level or type of technology employed, it is the facts and circumstances underlying an asset, activity or service, including its economic reality and use (whether intended or organically developed or repurposed), that determines the general categorization of an asset, the specific regulatory treatment of the activity involving the asset, and whether the persons involved are “financial institutions” for purposes of the BSA.” Thus, while market participants refer to digital assets in many different ways, how assets are referred to should not have a bearing on BSA compliance. By way of example, the Joint Statement offers that “something referred to as an ‘exchange’ in a market for digital assets may or may not also qualify as an ‘exchange’ as that term is used under the federal securities laws.”
Following the general statement, each leader provides additional comments, which should guide entities subject to each applicable regulator’s review. Heath Tarbert (Chairman, CFTC) notes that introducing brokers and futures commission merchants are required to report suspicious activity and implement reasonably-designed AML programs, regardless of whether the digital assets qualify as commodities or are used as derivatives. Kenneth A. Blanco (Director, FinCEN) advises those handling digital assets to review FinCEN’s May 2019 interpretive guidance, under which FinCEN makes clear that many digital asset activities would qualify a person as a money services business subject to AML/CFT obligations (unless the person is registered with and functionally regulated and examined by the SEC or CFTC, whereby they would be subject to the BSA obligations of those regulators). Jay Clayton (Chairman, SEC) reminds persons engaged in activities involving digital assets as securities that they remain subject to federal securities laws, but certain rules also apply regardless of whether the assets are securities, such as broker-dealer financial responsibility rules.
Last month, SEC chairman Jay Clayton and CFTC chairman Christopher Giancarlo testified before the Senate Banking Committee on their agencies’ regulatory efforts with respect to cryptoassets and ICOs. The written testimonies of chairmen Clayton and Giancarlo, as well as their verbal statements at the hearing itself, shed light on various issues including: how tokens might be categorized; the desirability of targeted legislative action to address jurisdictional gaps in the cryptoasset marketplace; coordination among regulators; forthcoming enforcement actions; and the general long-term prospects of cryptoassets and blockchain technology.
Below, we highlight some essential takeaways and remaining open questions.
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