Crypto news & regulatory update: October 2 - 23, 2023

Editor’s note: The a16z crypto Regulatory Update is a series that highlights the latest crypto regulation 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.

🧠 tl;dr

1. U.S. Senator Elizabeth Warren (D-Mass.) and more than 100 other lawmakers wrote to the White House and the Department of the Treasury asking that the administration “provide additional details on its plan to prevent the use of crypto for the financing of terrorism.”
2. California Governor Gavin Newsom signed the Digital Financial Assets Law, which creates a regulatory licensing framework for the state’s crypto industry.  It will go into effect in July 2025.
3. New York’s Attorney General filed a lawsuit against Gemini and Digital Currency Group, Inc. for allegedly defrauding more than 230,000 investors, including at least 29,000 New Yorkers, of more than $1 billion.

🌽 Commodity Futures Trading Commission

• The Commodity Futures Trading Commission (CFTC) charged the former CEO of now-bankrupt Voyager Digital for fraud and registration failures in connection with its digital asset platform and alleged operation of an unregistered commodity pool.  The Federal Trade Commission filed simultaneous charges against the CEO for falsely claiming that customers’ accounts were FDIC-insured and “safe,” even as the company was approaching an eventual bankruptcy.
• CFTC Chair Rostin Behman gave an overview of the CFTC’s recent enforcement actions relating to crypto at the Futures Industry Association Expo.

🦅 Congress

• As mentioned in the “tl;dr,” U.S. Senator Elizabeth Warren (D-Mass.) and more than 100 other lawmakers wrote to the White House and the Department of the Treasury asking that the administration “provide additional details on its plan to prevent the use of crypto for the financing of terrorism.”
• U.S. Senator Elizabeth Warren (D-Mass.) and other senators urged the Internal Revenue Service and Department of the Treasury to implement tax reporting requirements for crypto brokers “as rapidly as possible.”

⚖️ Department of Justice

• The Department of Justice (DOJ) charged China-based companies and their employees, who may have used crypto to obscure their identities, with crimes relating to fentanyl and methamphetamine production, distribution of synthetic opioids, and sales resulting from precursor chemicals.

• The DOJ charged six people for allegedly operating an illegal $30 million money-transmitting business using cryptocurrencies.
• A former CEO of an investment firm pleaded guilty to criminal charges in the government’s first case against a commodities trading advisor and commodities pool operator for engaging in a “Cherry-Picking” scheme involving cryptocurrency futures contracts.

💵 Department of the Treasury

• The Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions on ten key Hamas terrorist group members, operatives, and financial facilitators in Gaza, including a Gaza-based virtual currency exchange and its operator.

• Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert to assist financial institutions in identifying funding streams supporting the terrorist organization Hamas, which include “fundraising campaigns involving virtual currency and fictitious charities raising both fiat and virtual currency.”
• FinCEN announced a Notice of Proposed Rulemaking (NPRM) that identifies international “Convertible Virtual Currency Mixing” as a class of transactions of primary money laundering concern.  Written comments to the NPRM may be submitted within 90 days of publication in the Federal Register, which can be found here.

🔐 Federal Deposit Insurance Corporation

• The Federal Deposit Insurance Corporation’s (FDIC) Office of Inspector General released a report recommending that the FDIC establish a plan for assessing risks pertaining to crypto-related activities and update and clarify the supervisory feedback process related to its review of supervised institutions’ crypto-related activities.

💰 Federal Reserve

• Federal Reserve Board Governor Michelle Bowman said that the potential benefits of a U.S. central bank digital currency (CBDC) are unclear and that the introduction of a U.S. CBDC could “pose significant risks and tradeoffs for the financial system.”

📈 Securities and Exchange Commission

• The Securities and Exchange Commission (SEC) dropped charges against Ripple’s CEO or Executive for allegedly aiding and abetting the company in violating federal securities laws in its XRP transactions.

• The SEC won a default judgment (a ruling in favor of a plaintiff when a defendant does not respond to a summons or appear in court) against Thor Technologies and its founder in connection with a $2.6 million unregistered offering of crypto asset securities.
• SEC Chair Gary Gensler said that he would not “pre-judge” the numerous Bitcoin ETF applications before the agency, and that the SEC staff is “doing work” on those filings.

🇺🇸 United States

🐻 California

• As mentioned in the “tl;dr,” California Governor Gavin Newsom signed the Digital Financial Assets Law, which creates a regulatory licensing framework for the state’s crypto industry.  It will go into effect in July 2025.

🗽 New York

• As mentioned in the “tl;dr,” New York’s Attorney General filed a lawsuit against Gemini and Digital Currency Group, Inc. for allegedly defrauding more than 230,000 investors, including at least 29,000 New Yorkers, of more than $1 billion.

🌏 International

 🇦🇺 Australia

• Australia’s Treasury announced that it expects to release draft legislation before 2024 which will cover licensing and custody rules for crypto asset providers.

💰 Bank for International Settlements

• The Bank for International Settlements announced a partnership with the Dutch and German central banks to launch a data platform aimed at exploring the economic impact of crypto assets and decentralized finance.

🇨🇦 Canada

• The Canadian Securities Administrators issued guidance to exchanges and cryptocurrency issuers on its interim approach to what it calls value-referenced crypto assets, which include stablecoins.

🇪🇺 European Union

• The European Securities and Markets Authority (ESMA) released a report titled “Decentralized Finance in the EU: Developments and Risks,” which concludes that “[c]rypto-assets markets, including DeFi, do not represent meaningful risks to financial stability at this point.”
• ESMA released a statement encouraging digital asset market participants to make “adequate preparations” that will reduce the risk of disruptive business model adjustments before the Markets in Crypto Assets legislative regime goes into effect.

🇩🇪 Germany

• Germany’s Federal Financial Supervisory Authority (BaFin) warned consumers that the MEXC exchange is offering financial services on its website without the required authorization.

🇮🇱 Israel

• Israeli police froze cryptocurrency accounts used to solicit donations for the Palestinian militant group Hamas on social media.

🇵🇹 Portugal

• The Governor of Banco de Portugal, Portugal’s central bank, called for international cooperation to set up a “robust framework” for crypto to, among other things, avoid the possibility of “regulatory arbitrage.”

🇬🇧 United Kingdom

• The Financial Conduct Authority issued 146 alerts about crypto asset promotions on the first day of its new financial promotions regime.

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