Despite the minimal regulatory enforcement actions against blockchain game companies and NFT issuers, now is NOT the time to become complacent about regulatory issues. As indicated below, many U.S. agencies
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New York’s Superintendent of Financial Services Addresses BitLicense Delays
This January, Adrienne A. Harris was confirmed as superintendent of New York’s Department of Financial Services, which administers New York’s BitLicense program, among others. In a March 28 interview, Harris discussed the BitLicense program in detail and addressed some of its longstanding issues, including its slow response times to applicants and updating some of the outdated regulatory and operational aspects of the program.
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Uniswap and VC Backers Sued For Selling Unregistered Securities
A recent class-action lawsuit alleges that the “Uniswap Protocol” exchange is one of the largest crypto-asset exchanges in the world, which permits the unlawful promotion, offer, and sale of crypto tokens as unregistered securities. According to the complaint, Uniswap has no barriers to entry for users looking to trade or swap crypto tokens on the exchange. It requires no verification of an individual’s identity and conducts no “know-your-customer” (KYC) process, leading to rampant fraud. The complaint further alleges that Uniswap has enriched itself and the other defendants (including its VC backers) by collecting fees for issuers on every transaction executed on the exchange that is not disclosed in a transparent manner, in violation of securities laws. Other allegations are that Uniswap offered and sold unregistered securities throughout the United States on its exchange without registering as a national securities exchange or as a broker-dealer and without there being any registration statements in effect for the tokens it was selling, all in violation of applicable law.
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SEC Announces 2022 Examination Priorities, Includes Crypto-Assets
The U.S. Securities and Exchange Commission (“SEC”) has announced its examination priorities for the fiscal year 2022. Among them is crypto-assets. Specifically, the SEC is targeting robo-advisers, fractionalization, and other crypto-custody arrangement practices.
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When Does Cryptocurrency Mining Create a Taxable Event? IRS Does Not Clarify
A couple rejected a refund settlement offer from the IRS over its tax treatment of tokens they earned from mining. Instead, the couple has sought formal adjudication on the issue from the federal courts. The government has filed a motion to dismiss claiming the issue is moot. The relevant issue is whether tax is due when crypto tokens are mined and awarded to the miners, as the IRS contended, or whether tax is due when the mined tokens are converted to fiat or cryptocurrency or otherwise used.
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President Biden Signs Executive Order Outlining Crypto Policy
On March 9, President Biden signed a highly anticipated executive order outlining his administration’s cryptocurrency policy. We have previously blogged about the Biden administration’s working group on stablecoins and the Federal Reserve’s report on a potential U.S. central bank digital currency (“CBDC”).
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FinCEN Announces Intention to Require FBAR Reporting of Crypto Currency
FinCEN has issued a notice that it intends to amend the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts (FBAR) to include virtual currency as a type of reportable account under 31 CFR 1010.350. Currently, the Report of Foreign Bank and Financial Accounts (FBAR) regulations do not define a foreign account holding virtual currency as a type of reportable account. (See 31 CFR 1010.350(c)). As a result, the notice indicates that “at this time, a foreign account holding virtual currency is not reportable on the FBAR (unless it is a reportable account under 31 C.F.R. 1010.350 because it holds reportable assets besides virtual currency).”
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Regulatory Approaches to the Tokenisation of Assets
The Organisation for Economic Co-operation and Development (OECD) published a report on Regulatory Approaches to the Tokenisation of Assets (Jan. 2021). The report notes that: “Policy makers in different jurisdictions have approached tokenisation in different ways, either by applying existing financial regulations to tokenised assets; by introducing new tailor-made regulatory frameworks or by adapting existing rules to accommodate the application of DLTs in tokenisation.” Some of the key takeaways from the report are:
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Office of the Comptroller of the Currency Affirms Authority of a National Bank to Provide Cryptocurrency Custody Services
The Office of the Comptroller of the Currency (“OCC”) recently signaled its approval for banks to fully wade into the cryptocurrency custodian space. On in a July 22, 2020 interpretive letter, the OCC concluded that a national bank may provide cryptocurrency custody services on behalf of its customers, including by holding the unique cryptographic keys associated with cryptocurrency, so long as the institution is able to effectively manage the risks and complies with applicable law.
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The United States-Mexico-Canada Agreement – Paving the Way for a Cross-Border Fintech Sandbox
Key Takeaways
- The United States-Mexico-Canada Agreement (USMCA) provides for financial and digital trade regulations that harmonize the treatment of fintech companies.
- North American companies leveraging digital assets for payments should consider strategic regional opportunities available under the new USMCA fintech Framework.
- The USMCA Parties (member countries) continue to license fintech companies using cryptocurrency and create regulatory sandboxes to incentivize experimentation with the new technology under relaxed regulatory conditions.
FinCEN – We Will Identify Where Compliance Is Not Taking Place And Take Appropriate Action
Last week we reported that FinCEN had issued new guidance addressing cryptocurrency and other convertible virtual currency. The need for compliance was reinforced this week. In a speech by Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence, during blockchain week in NY, a stern warning was issued. The message was clear. Regulatory compliance is not an option and you must do it right from the start – not just after you got a call from regulators or law enforcement.
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