Crypto News & Regulatory Roundup: January 13, 2023 – February 03, 2023
Editor’s note: The a16z crypto Global Regulatory Roundup is a series that highlights the latest regulatory and policy happenings relevant to builders in web3 and crypto, as tracked and curated by the a16z crypto regulatory team. The roundups are based on recent news, the latest updates, new guidance, ongoing legislation, and frameworks released by regulatory agencies/bodies, industry consortia and professional associations, banks, governments, and other entities as they impact the crypto industry (or applications) around the world. We also occasionally include select other resources such as talks, posts, or other commentary – from us or from others – with the updates. [Past edition of the roundup this year: December 16 – January 13.]
Commodity Futures Trading Commission
- Commissioner Caroline D. Pham said that she had participated in “advanced discussions” with international regulators on developing global crypto regulatory standards.
- Discussing the FTX bankruptcy, Commissioner Christy Goldsmith Romero said that lawyers, accountants, auditors, compliance professionals, and other gatekeepers had “failed” customers in their essential duties, and she questioned the due diligence processes of FTX’s large equity investors.
- Commissioner Kristin N. Johnson called for new legislation and regulation that would formalize obligations to segregate customer property, ensure that appropriate risk-based financial resource requirements apply to firms operating in CFTC markets, and introduce tailored and effective governance and risk management controls. She similarly told CoinDesk TV that it is important for the CFTC to modernize its regulations.
- House Representative Warren Davidson (R-Ohio) described the SEC as “asleep at the wheel” and not doing enough to regulate crypto.
- House Representative French Hill (R-Ark.) called the FTX collapse a “clear catalyst” for both Democrats and Republicans to develop a crypto regulatory framework. He also said that stablecoin legislation would be a top priority for his new subcommittee on digital assets, and that the broader House Financial Services Committee should consider developing a new privacy regime.
- Senator Elizabeth Warren (D-Mass.) said that the solution to crypto fraud “starts with the SEC,” and she urged the SEC to “double down and use its tools to enforce the rules.”
- Senator Ted Cruz (R-Tex.) proposed a congressional bill that would require vendors on Capitol Hill to accept cryptocurrency as payment.
- Senators Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.) called on the Public Company Accounting Oversight Board to maintain “rigorous standards for audit firms” in light of the FTX collapse.
- House Representative Tom Emmer (R-Minn.) called crypto a “great restoration of individual liberty and opportunity,” while emphasizing the significant differences between centralized and decentralized finance.
- Senators Elizabeth Warren (D-Mass.), Roger Marshall (R-Kan.), and John Kennedy (R-La.) sent a letter to Silvergate Bank asking about its connections to FTX and stating that its previous responses to similar questions were “evasive and incomplete.”
- Senator Tim Scott (R-S.C.) announced plans to work on a bipartisan regulatory framework for crypto.
Department of Justice
- A Russian national and senior executive of Bitzlato Ltd. was charged with conducting a money transmitting business that transported and transmitted $700 million worth of illicit funds, including funds associated with Conti ransomware threat actors. (Led by Russia-based threat actors, the Conti ransomware variant was first observed in or around February 2020, and the collective quickly became one of the most active groups in the ransomware space. For a detailed description of the history and modus operandi of Conti see this article.)
- The founder of the “My Big Coin” cryptocurrency and payment service was sentenced to more than 8 years in jail for marketing and selling a fraudulent virtual currency and operating an unlicensed virtual currency exchange.
Department of the Treasury
- The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) identified Bitzlato Ltd. as a “primary money laundering concern” in connection with Russian illicit finance. This is the first order issued pursuant to section 9714(a) of the Combating Russian Money Laundering Act. See our latest web3 weekly newsletter for more information on this topic.
- FinCEN Acting Deputy Director Jimmy Kirby said that funds from scam real estate transaction schemes are being laundered into crypto, and that digitally native financial services present challenges “to a patchwork of largely paper-based identifiers and credentials.”
- The Department of the Treasury’s Office of Foreign Assets Control blacklisted a bitcoin and ether address linked to Russian sanctions-evasion efforts.
- The Federal Reserve denied Custodia Bank’s application for membership to the Federal Reserve System on the basis that its “novel business model and proposed focus on crypto-assets presented significant safety and soundness risks.”
- Miami Mayor Francis Suarez said that cryptocurrency “screams for regulation” and that the lack of regulatory certainty hurts the United States because it forces crypto companies offshore.
- Governor Chris Sununu’s Commission on Cryptocurrencies and Digital Assets released a final report and recommendation. Key findings include: (1) blockchain technology is an important innovation with many potentially important applications, (2) legal and regulatory uncertainty in the industry materially undermines innovation and economic development, and (3) New Hampshire should devote resources to establishing a legal regime that will offer an attractive jurisdiction for blockchain innovators.
- The New York Department of Financial Services published guidance for crypto companies relating to custody and disclosure requirements to better protect consumers in the event of an insolvency or similar proceeding.
- The Manhattan District Attorney announced an indictment of a New York resident for using crypto to fund Syrian-based terrorist groups.
Securities and Exchange Commission
- Nexo Capital Inc. agreed to pay $45 million in penalties to settle charges with the SEC and state regulatory authorities relating to the unregistered offer and sale of Nexo’s crypto asset lending product, the Earn Interest Product.
- The SEC charged Avraham Eisenberg for purportedly perpetrating a market manipulation scheme in connection with his trading activity on the Mango Markets exchange and lending platform.
- Commissioner Hester M. Peirce called the SEC’s “regulation-by-arbitrary-and-
tardy-enforcement-actions” the “opposite of a rational regulatory framework,” and she urged the SEC to “conduct better, more precise, and more transparent legal analysis.” She similarly told CoinDesk TV that an “enforcement-centric approach” is “clearly not the right way” to regulate the crypto market.
- The SEC rejected a second attempt to list the ARK 21Shares Bitcoin ETF for failing to “demonstrate that its proposal is consistent” with the anti-fraud and anti-manipulation requirements of the Securities and Exchange Act.
- The White House published a “roadmap” for mitigating crypto risks, calling on Congress to “step up its efforts” to protect consumers and not to “greenlight mainstream institutions” to enter the digital asset markets, among other things.
- A Eurogroup statement said that the introduction of a digital euro requires decisions at the political level and an appropriate legal basis, involving the European parliament and other European institutions. It also states that a digital Euro must ensure a high degree of privacy.
- European Commissioner Mairead McGuinness commended the progress of Europe’s MiCA regulation, but said that there’s “no point in Europe being on its own” and that regulators would encounter “more and more problems” if a global regulatory approach fails.
- European Central Bank Executive Board Member Fabio Panetta said that “the digital euro would never be programmable money,” and that “central banks issue money, not vouchers,” in remarks to the European Parliament’s Economic and Monetary Affairs Committee.
- French legislators passed legislation that will permit crypto companies to continue operating without a full license until the E.U.’s MiCA bill is implemented.
- Indonesia passed a law that transfers crypto regulatory jurisdiction from the Indonesian commodities regulator to its Financial Services Authority, the Otoritas Jasa Keuangan, which regulates and supervises the financial services sector, including banking, capital markets, and non-bank financial industries.
International Monetary Fund
- IMF officials published a blog post calling for global crypto regulations based on a 5-point “targeted restriction” scheme, rather than disproportionate “broad bans.” (The IMF is an international organization owned by its member countries’ governments that promotes international monetary cooperation and exchange rate stability, facilitates the growth of world trade, and helps create a multilateral system of payments. Although not its primary function, the IMF is generally known for providing short term payments to countries in need of additional international reserves.)
- Ireland’s Central Bank Chief Gabriel Kakhlour said that crypto has “no social value whatsoever,” and he likened unbacked crypto to a Ponzi scheme.
- Deputy Director-General Mamoru Yanase of Japan’s Financial Services Agency urged world regulators to regulate crypto as strictly as they do traditional banks.
- The Netherlands Central Bank fined Coinbase €3.3 million for operating in the country without being registered
- South Korea launched a virtual metaverse replica of its capital city, Seoul, with the goal of improving its public services.
- Thailand’s Securities and Exchange Commission issued regulations for crypto custody providers regarding oversight of the management of digital wallets and keys, as well as procedures for designing digital wallets.
- A U.K. court sentenced four men to 15 years in prison for fraudulently obtaining and laundering approximately $26 million worth of cryptocurrencies from an Australian crypto exchange.
- The U.K.’s Financial Conduct Authority published guidance for crypto applicants seeking regulatory approval, in light of the low 15% approval rate last year.
- The U.K.’s Financial Conduct Authority referred some crypto companies that had tried to obtain regulatory approval to law enforcement, citing likely cases of financial crime or direct links to organized crime.
- A U.K. man pleaded guilty to stealing approximately $2.5 million in cryptocurrencies and was sentenced to 4 ½ years in prison.
World Economic Forum
- Crypto highlights from the World Economic Forum include:
- A regulatory panel featuring Klaas Knot (Netherlands Central Bank President), Mairead McGuinness (E.U. Commissioner for Financial Services), Omar Sultan Al Olama (Minister of State for Artificial Intelligence), and Brad Garlinghouse (CEO of Ripple)
- Ukraine’s Deputy Prime Minister discussing the impact of cryptocurrencies on the country’s war effort against Russia
- Finland’s Communications Minister urging the E.U. to consider legislation that would recognize DAOs, while on a panel discussing tokenized economies
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