On July 13, the FTC issued a press release announcing that it had reached a settlement with a bankrupt crypto platform. The New Jersey based company, which filed for bankruptcy in July 2022, marketed a variety of cryptocurrency products and services to consumers including interest-bearing accounts, personal loans secured by cryptocurrency deposits, and a cryptocurrency exchange. According to the FTC, the company and its executives induced consumers to deposit cryptocurrency by deceiving users and falsely promising access to deposits, high yields, and deposit security. The FTC complaint alleges that rather than securing these deposits, the platform took title to and misappropriated deposits totaling more than $4 billion. Specifically, it is alleged that the company used consumer deposits to fund operations, pay rewards to other customers, borrow from other institutions, and make high-risk investments. As the fiscal health of the company declined, executives concealed the fiscal condition of the company all the while protecting themselves by withdrawing significant sums of cryptocurrency from the platform two months before the company filed for bankruptcy.Continue Reading FTC Reaches Settlement with Crypto Platform
In recent weeks, Texas and Louisiana became the latest states to enact legislation establishing licensure requirements for digital asset service providers.Continue Reading Texas, Louisiana Enact Digital Asset Licensing Legislation
On June 16, Michael Hsu, the Acting Comptroller of the Currency gave remarks at the American Bankers Association’s Risk and Compliance Conference about the risks of tokenization and AI on the banking industry. While reiterating his skepticism of cryptocurrency (see our previous blog post here), Hsu cautions that the decentralization and “trustlessness” associated with public blockchains will impose severe limitations on the scalability of tokenization, and its associated benefits. Rather, Hsu advocates for the development of centralized and regulated “trusted blockchains” that, due to the security and safety they offer, are better positioned to facilitate the growth of tokenization at scale in a safe, sound, and fair manner.Continue Reading Hsu Suggests Caution in Rollout of AI and Tokenization in Banking
On May 1, NYDFS settled with a cryptocurrency trading platform over the company’s cybersecurity deficiencies, resulting in a consent order and $1.2 million fine for the crypto company. NYDFS alleged “multiple deficiencies in the Company’s cybersecurity program” discovered during NYDFS examinations in 2018 and 2020. The examinations prompted an investigation, ultimately leading to the consent order and the fine.Continue Reading New York Settles with Crypto Company, Proposes Crypto Legislation
On March 16, NYDFS entered a consent order resolving an examination of a payment service provider that allows merchants to accept Bitcoin payments from customers in exchange for the equivalent value in local currency credited to the merchant’s bank account. The company is licensed by the NYDFS to engage in virtual currency business activity pursuant to 23 NYCRR Part 200. Licensees under Part 200 are required to, among other things, adhere to federal and state laws mandating effective controls to guard against money laundering and certain other illegal activities.Continue Reading NYDFS Examination of Crypto Payment Service Provider Ends in Settlement
On January 26, the California DFPI announced its participation in a $22.5MM multi-state into a settlement with a with a Cayman Islands digital asset firm to resolve a securities enforcement action in connection with the platform’s earn interest product program. A North American Securities Administrators Association working group—composed of the DFPI and state regulators from Washington, Kentucky, New York, Oklahoma, Indiana, Maryland, South Carolina, Vermont, and Wisconsin—collaborated in the investigation into the firm. The group alleged that the platform failed to register as a securities and commodities broker but told investors that it was fully in compliance (we discussed similar actions in a previous blog post here). The DFPI’s previous desist-and-refrain order concluded that the earn interest accounts, which enables retail investors to earn interest upwards of 36% APR on crypto assets, constituted the unqualified sale of securities in the form of investment contracts in violation of California law.Continue Reading Recent Crypto Settlements Signal State and Federal Enforcement Trends
On January 23, the NY DFS released updated guidance with regard to better protecting consumers in the event of virtual currency insolvency. This updated guidance applies to entities that DFS has licensed or chartered to hold or maintain virtual currency assets on behalf of their customers. The guidance reiterates that as custodians, such entities must have practices in place to maintain custody and control of virtual currency similar to that of traditional financial service providers. DFS’ previous guidance already required certain practices, such as maintaining books and records, disclosure of certain terms, and protections in place for the assets held. The new guidance sets forth additional requirements and most pertinently, custodians must:Continue Reading NY DFS Releases Custodial Guidance on Crypto Insolvency
On January 27, the Federal Reserve Board (FRB) announced that it unanimously voted to deny a crypto firm’s application to become a member of the Federal Reserve System. This denial ends the crypto firm’s 27-month effort to obtain a “master account,” which allows companies to move money through the Federal Reserve System without having to use a federally insured bank.Continue Reading Fed Board Denies Crypto Firm’s Bid to Join Federal Reserve System
On November 22, the CFPB denied a crypto lending institution’s petition for an order modifying a pending civil investigative demand (“CID”) that the Bureau issued to the institution in December of 2021. The CFPB issued the CID as part of an investigation into the institution’s advertisement of certain product offerings, including lines of credit and its “Earn Interest Product” (“EIP”).
Continue Reading CFPB and State Regulators Hone in on Interest-Bearing Crypto Accounts
On September 7, Acting Comptroller of the Currency, Michael Hsu, discussed the long-term threats to trust in banking in remarks at the TCH + BPI Annual Conference. Hsu provided updates on key priorities at the OCC, including the impact of “fintechs and big techs” over their digitalization of banking through the advancement of crypto (we discussed Hsu’s previous remarks on crypto here and here). Hsu highlighted the OCC’s position of a “careful and cautious” approach to crypto. In doing so, he referred to Interpretive Letter 1179, which clarifies that national banks and federal savings associations should not engage in certain crypto activities unless they are able to “demonstrate, to the satisfaction of its supervisory office, that [they have] controls in place to conduct the activity in a safe and sound manner” (we discussed Letter 1179 in a previous blog post here). Hsu noted that the federally regulated banking system has been largely unaffected by the collapse of several crypto platforms because, at least in part, of the OCC’s careful and cautious approach.
Continue Reading OCC Highlights Focus on Crypto and Bank-FinTech Partnerships, Anticipates Stricter Scrutiny Going Forward
On July 27, CFPB Director Chopra was interviewed in multiple publications, here and here, about, among other topics, how the CFPB could seek to help mortgage borrowers strained by the Federal Reserve’s battle against inflation and how the agency is looking at cryptocurrency. Below are some of the more important updates from the interviews.
Continue Reading CFPB’s Chopra Has Payments and Crypto In Focus