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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 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”).
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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.
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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.
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Continue Reading CFPB’s Chopra Has Payments and Crypto In Focus

On July 11, the Financial Stability Board (FSB) published a letter sent to G20 finance ministers and central bank governors outlining concerns over the rapid growth in crypto-assets and vulnerabilities facing the global financial system. The letter highlighted the following:
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Continue Reading FSB Highlights Vulnerabilities Crypto-assets for Global Financial System

Recently, the Louisiana lawmakers and regulators have taken steps to legalize operations in the state involving virtual currencies. On June 15, the Louisiana governor signed a bill that, effective August 1, 2022, will allow financial institutions and trust companies to provide virtual currency custody services to their customers as long as they satisfy certain requirements on risk-management and compliance. On June 20, the Louisiana Office of Financial Institutions (OFI) published proposed rules on licensing and regulation of virtual currency businesses in the state pursuant to the Louisiana Virtual Currency Business Act, which went into effect on August 1, 2020.
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Continue Reading Louisiana Approves Virtual Custody Services and Proposes Virtual Currency Business Licensing Rules

On June 14, CFTC Commissioner Christy Goldsmith Romero discussed cryptocurrency regulation, rejecting suggestions that the agency would take a relaxed approach toward regulating cryptocurrency and affirming that the CFTC is positioned to protect consumers if given more authority. Romero said she welcomed efforts to close regulatory gaps through the recent Responsible Financial Innovation Act (RFIA) that was introduced in the Senate earlier this month and another similar bill that will be introduced by Senators Stabenow (D-MI) and Bozeman (R-AR) that would designate the CFTC as crypto’s top regulator. When asked about the possibility of regulation slowing the crypto market, Romero responded that “companies can’t scale up the way they need to without a lot of the financial institutions investments,” and that “regulation is needed.”
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Continue Reading CFTC: Agency Prepared to Regulate Crypto

On June 8, the New York State Department of Financial Services (DFS) released its Guidance on the Issuance of U.S. Dollar-Backed Stablecoins meant to set foundational criteria for USD-backed stablecoins issued by DFS-regulated entities on the issues of redeemability, assets reserves and attestations about such reserves. Here are some of the highlights from the guidance.
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Continue Reading New York Releases Stablecoin Guidance