Crypto news & regulatory update: October 23 – November 20, 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. A jury found Sam Bankman-Fried, the co-founder and former head of crypto exchange FTX, guilty of all seven criminal counts of fraud, conspiracy, and money laundering against him. The sentencing hearing is scheduled for March 28, 2024. He also faces a potential second trial next year on additional charges.
2. A federal court in Florida ruled that the Department of the Treasury’s Office of Foreign Assets Control (OFAC) did not exceed its authority when it sanctioned Tornado Cash last year. This order follows a similar ruling from a Texas court in August that also found in favor of OFAC with respect to its sanctioning of Tornado Cash.
3. The US Government Accountability Office (GAO) found that SEC Staff Accounting Bulletin (SAB) 121, which directed firms safeguarding consumer crypto to track the funds as liabilities on their balance sheets, should have been submitted to Congress as part of a rulemaking process. House Financial Services Committee Chair Patrick McHenry (R-N.C.) and Senator Cynthia Lummis (R-Wyo.) called on Congress to step in and block SAB 121.

DC FinTech week brought together some of the most important regulators and policymakers with respect to crypto. The first section below addresses some of the notable talks from the week.

Finally, our team filed a comment in response to the Internal Revenue Service’s (IRS) consultation on its proposed digital asset broker reporting requirements.

🏛️ DC Fintech Week

1 First Day

• Federal Reserve Vice Chair Michael S. Barr said that there is “interest in strong, federal regulation of stablecoins that makes sure the Federal Reserve can approve, regulate and enforce against stablecoin issuers, including wallets.”

• Acting Comptroller of the Currency Michael J. Hsu discussed the potential positive impacts of tokenization but said that crypto “remains replete with fraud, scams, and hacks.”

• The Bank for International Settlements (BIS) Innovation Hub Head Cecilia Skingsley said that more than half of the BIS’s projects relate to payments and central bank digital currencies (CBDCs).

• Under Secretary for Domestic Finance at Treasury Nellie Liang encouraged legislation on private stablecoins and said that distributed ledger technologies have “high potential.”

• New York State Department of Financial Services (NYDFS) Superintendent Adrienne Harris described New York’s digital assets regulatory framework and said that she is eager for a “federal partner” with respect to digital asset legislation.

• House Representative Wiley Nickel (D-N.C.) emphasized the importance of digital asset legislation to prevent the industry from moving overseas.

• Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam said that crypto has “great potential” but that the US is “unfortunately a bit behind” in regulating the industry.

• Securities and Exchange Commission (SEC) Chair Gary Gensler reiterated his belief that crypto is “ripe with fraud and manipulation” and said that investors need to understand the use case of each individual token before investing.

• Hong Kong Securities and Futures Commission (SFC) CEO Julia Leung said that regulators would not stand in the way of responsible innovation but will find ways to mitigate new risks to improve customer protection.

• European Securities and Markets Authority Chair Verena Ross discussed the EU’s implementation of its new Markets in Crypto Assets regulatory framework.

• General Manager of the BIS Agustín Carstens said that tokenization is an “effective instrument” for introducing programmability and composability to financial transactions, and that a wholesale CBDC would soon be a reality in most countries.

🌽 Commodity Futures Trading Commission

🐻 California

• California’s Department of Financial Protection and Innovation and other state regulators announced desist and refrain orders against GSB Gold Standard Bank Ltd., Swiss Valorem Bank Ltd., and GSB Gold Standard Corporation AG for allegedly offering and selling unqualified securities and making material misrepresentations and omissions to investors related to crypto asset investments.

🗽 New York

• NYDFS announced that it has updated its guidelines for listing or de-listing cryptocurrencies. The updated guidelines will require crypto companies to submit their coin listing and delisting policies for NYDFS approval before self-certifying tokens.

🌏 International

💰 Bank for International Settlements

• General Manager of the BIS Agustín Carstens said that CBDCs, whether in wholesale or retail form, “will sit at the core of the future financial system.”
• A BIS paper found that stablecoins “do not meet the key criteria for being a safe store of value and a trustworthy means of payment in the real economy.”
• A BIS randomised survey experiment found that privacy protection is among the “key features” to consider in the design of CBDC.
  

🇩🇪 Germany

• The German Federal Financial Supervisory Authority (BaFin) granted BitGo, a crypto custody firm, a crypto custody license.
• BaFin also granted Commerzbank AG a crypto custody license. According to Commerzbank, it’s the first full-service bank in Germany to obtain the license.

🇭🇰 Hong Kong

• The SFC issued two circulars on tokenization, one that provides conduct-related guidance to intermediaries engaging in tokenized securities-related activities, and the other that addresses the tokenization of SFC-authorized investment products.

• The Hong Kong Monetary Authority published a report on the first phase of its CBDC pilot.

🌎 International Monetary Fund

• The International Monetary Fund (IMF) launched a CBDC Virtual Handbook that is intended to serve as a reference guide for policymakers and experts at central banks and ministries of finance.
• IMF Managing Director Kristalina Georgieva said that CBDCs could replace cash, offer resilience in more advanced economies, and improve financial inclusion in countries where few people hold bank accounts.

🗺️ International Organization of Securities Commissions

• The International Organization of Securities Commissions published its final policy recommendations relating to the activities of centralized crypto-asset service providers.

🇯🇵 Japan

• The Japanese government announced that it will freeze the assets of nine operatives and a crypto firm involved in financing Hamas.

🌐 Organisation for Economic Co-operation and Development

• Forty eight countries committed to adding the OECD’s Crypto-Asset Reporting Framework (CARF) to the Common Reporting Standard. The standard will come into effect in 2027.

🇦🇪 United Arab Emirates

• The Registration Authority of Abu Dhabi Global Market (ADGM) announced a new regulatory framework for decentralized autonomous organizations and other entities built on distributed ledger technology.

🇬🇧 United Kingdom

• The Financial Conduct Authority (FCA) identified common issues with crypto asset financial promotions, including making claims about safety and security, not making risk warnings visible enough, and failing to provide customers with adequate information about risks associated with specific products. The FCA followed up with guidance attempting to clarify how crypto firms can comply with its financial promotions rules.

• The Economic Crime and Corporate Transparency Act received Royal Assent (thus becoming official law), granting new powers to UK authorities to seize, freeze, and recover crypto assets used by criminals. 

• The UK’s HM Treasury published a response to the comments it received to its call for evidence on the future financial services regulatory regime for crypto assets last year. 

• The FCA published a discussion paper with proposals for a stablecoin regime, which would require issuers to apply for authorization demonstrating that they meet specific requirements. The Bank of England (BOE) also published a discussion paper, presenting considerations for the regulation of British-pound-denominated stablecoins.

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