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  • FDIC Vice Chair delivers remarks on tokenization

    On March 11, FDIC Vice Chairman Travis Hill delivered prepared remarks on “Banking’s Next Chapter? Remarks on Tokenization and Other Issues.” The speech addressed the evolution of money and payment systems, focusing on the recent innovation of tokenizing commercial bank deposits and other assets and liabilities. Hill distinguished tokenization from assets like Bitcoin and Ether: “tokenization involves a representation of ‘real-world assets’ on a distributed ledger, including… commercial bank deposits, government and corporate bonds, money market fund shares, gold and other commodities, and real estate.” Hill highlighted the potential benefits of tokenization, such as improved efficiency in payments and settlements, 24/7/365 operations, programmability, atomic settlement (the settlement, or the act of transferring ownership of an asset from seller to buyer, combining instant and simultaneous settlements) and the creation of an immutable audit trail. He also mentioned that these innovations could streamline complex processes like cross-border transactions and bond issuances, offering notable advantages over traditional banking systems.

    The speech also acknowledged challenges and risks associated with tokenization, including technical, operational, and legal uncertainties. Questions remain about the structure of the future financial system, interoperability between different blockchains, and the legal implications of transferring ownership via tokens, Hill added.

    Regarding the regulatory approach to digital assets and tokenization, Hill expressed the need for as much clarity as possible, even in areas whether the technology is evolving quickly. For example, Hill noted that “it would be helpful to provide certainty that deposits are deposits, regardless of the technology or recordkeeping deployed, and if there are reasons to distinguish some or all tokenized deposits from traditional deposits for any regulatory, reporting, or other purpose, the FDIC should… explain how and why.”

    Bank Regulatory Federal Issues Digital Assets Bank Supervision Payments Federal Reserve

  • Department of Energy discontinues crypto mining survey following a settlement agreement

    Fintech

    On March 1, a cryptocurrency company (plaintiff) and the U.S. Department of Energy submitted a settlement agreement to the U.S. District Court for the Western District of Texas to discontinue an emergency crypto mining survey once approved by the Office of Management and Budget.

    According to the settlement agreement, the Department of Energy initiated an emergency three-year collection of a Cryptocurrency Mining Facilities Survey in January, which the plaintiff claimed did not comply with various statutory and regulatory requirements for the emergency collection of information. Following the court’s approval of the plaintiff’s temporary restraining order, which protected plaintiffs from completing the survey issued by the Department of Energy and protected any information they may have already submitted, the Department of Energy discontinued its emergency collection, and said it will proceed through notice-and-comment procedures for approval of any collection of information covering such data. As a result of the discontinuation of the emergency collection request, no entity or person is required to respond to the survey.

    As part of the settlement agreement, the Department of Energy will destroy any information it had already received from survey responses. In addition to a $2,199.45 payment for the plaintiffs’ litigation expenses, the Department of Energy also agreed to publish a new Federal Register notice of a proposed collection of information and withdraw its original notice. 

    Fintech Department of Energy Cryptocurrency Digital Assets Settlement Courts Bitcoin

  • SEC, DFPI charge unregistered crypto platform

    Securities

    On February 7, the SEC and DFPI announced charges against a Florida-based crypto platform, for failing to register the offer and sale of a crypto lending product that allowed U.S. investors to deposit or purchase crypto assets into an account in exchange for promised interest payments.  

    The SEC found that crypto asset accounts with the “interest feature” were offered and sold by the company as securities in the form of investment contracts but failed to register its offer and sale as required by law. Despite voluntarily halting the offering of the interest feature in 2022, the company agreed to pay a $1.5 million penalty to settle the SEC's charges. The SEC also noted that the company announced its intention to terminate all crypto-related products and services in the U.S. on February 22.   

    In addition, DFPI also entered a consent order with the platform to settle an investigation into the platform’s interest-earning program. The resolution is part of a multistate settlement facilitated by a task force led by California and Washington, comprising of eight state securities regulators. The investigation found that from 2020 through 2022, the platform engaged in the unregistered offer and sale of securities through its crypto interest-earning program. The platform offered the program to investors, allowing them to passively earn interest on crypto assets loaned to the platform. The platform maintained “total discretion” over revenue-generating activities to generate returns for investors, DFPI added. As part of the settlement with DFPI, the company agreed to pay a $1.5 million penalty to the DFPI on behalf of 51 U.S. jurisdictions, mirroring a similar settlement with the SEC for the same amount. 

    Securities DFPI SEC Registration Securities Exchange Commission Consent Order Digital Assets

  • OCC Acting Deputy Comptroller Murphy testifies on OCC’s Office of Financial Technology

    Federal Issues

    On December 5, the Acting Deputy Comptroller of the OCC’s Office of Financial Technology, Donna Murphy, testified before the U.S. House Subcommittee on Digital Assets, Financial Technology and Inclusion. Her testimony focused on the OCC’s supervision and regulation of new and emerging fintech products.

    Created in October 2022, the Office of Financial Technology regulates and supervises all aspects of fintech innovation in the federal banking system, including bank-fintech partnerships, artificial intelligence, and digital assets. Murphy testified that a strong risk management plan against third parties is essential. She referenced the joint guidance issued earlier this year by the OCC, Federal Reserve, and FDIC (previously covered by InfoBytes, here).

    Murphy also discussed the use of artificial intelligence and algorithms in banking, highlighting the many ways they can strengthen safety and soundness, enhance consumer protection, improve compliance, address financial crime, and increase fairness and access to the banking system. However, Murphy highlighted the need for banks to focus on software design, testing, security, and data management when implementing artificial intelligence. Lastly, Murphy iterated the OCC’s commitment to reducing inequality in banking and increasing access to financial services for all. 

    Federal Issues OCC Testimony House Financial Services Committee Digital Assets Fintech

  • DFPI opens comment period for the Digital Financial Assets Law

    On November 20, DFPI announced it is seeking public comment before it begins its formal rulemaking process on its Digital Financial Assets Law (DFAL), which was enacted on October 13. As previously covered by InfoBytes, DFAL created a licensing requirement for businesses engaging in digital financial asset business activity and is effective on July 1, 2025.

    For comments that recommend rules, DFPI encourages comments that “propose specific rule language and provide an estimate, with justification, of the potential economic impact on business and individuals that would be affected by the language.” Additionally, DFPI requests metrics, applicable information about economic impacts, or quantitative analysis to support comments. Among other topics, DFPI especially asks for comments related to (i) application fees and potential fee adjustments based on application complexity; (ii) surety bond or trust account factors; (iii) if capital minimums should vary by the type of activity requiring licensure; and (iv) its stablecoin approval process. 

    Comments must be received by January 12, 2024. On January 8, 2024, DFPI will host a Virtual Informal Listening Session with stakeholders to discuss feedback on this informal invitation for comments.

    Licensing State Issues Agency Rule-Making & Guidance DFPI California State Legislation Digital Assets Cryptocurrency

  • DFPI shares trends in consumer crypto complaints

    State Issues

    DFPI recently published a report on consumer crypto-related complaints collected through its new online complaint portal. According to the third-quarter 2023 CSO report, some of the most common complaints include (i) consumers being scammed into transferring digital assets from a legitimate crypto account to a fraudulent platform; (ii) consumers losing access to funds after transferring to an unknown wallet; (iii) consumers who invest in sham crypto investments by sending US dollars to a scammer’s platform, wallet, or bank; (iv) consumers making additional investments to scammers after receiving the first and only return; (v) consumers with concerns regarding their account activity on legitimate crypto platforms; and (vi) consumers approached by scammers via text message and social media. DFPI shared tips on how consumers can protect themselves against scams as well, noting that “[i]f it seems too good to be true, it probably is.” 

    State Issues Cryptocurrency DFPI California Digital Assets

  • SEC charges crypto firm for failing to register and mitigate risk factors

    Securities

    On November 20, the SEC filed a complaint in the U.S. District Court of the Northern District of California against a crypto trading platform, which allows customers to buy and sell crypto assets through an online market, for allegedly acting as an unregistered securities exchange, broker, dealer, and clearing agency. The SEC is also claimed defendant’s business practices, internal controls, and recordkeeping were inadequate and presented additional risks to consumers, that would also be prohibited had defendant been properly registered with the commission. For instance, the SEC cited practices including commingling billions of dollars of consumers’ cash and crypto assets with defendant’s own crypto assets and cash, which defendant’s 2022 independent auditor identified as “a significant risk of loss."

    Director of the SEC’s Division of Enforcement, Gurbir S. Grewal said, “[Defendant’s] choice of unlawful profits over investor protection is one we see far too often in this space, and today we’re both holding [defendant] accountable for its misconduct and sending a message to others to come into compliance.”

    The SEC seeks to (i) permanently enjoin defendant from violating Section 5 and section 17A of the Exchange Act; (ii) permanently enjoin defendant from offering or selling securities through crypto asset staking programs; (iii) disgorge defendant’s allegedly illegal gains and pay prejudgment interest; and (iv) impose a civil money penalty.

    Securities SEC Cryptocurrency Enforcement California Digital Assets Broker

  • IOSCO releases report advising country regulators on crypto asset regulation

    Securities

    On November 16, the International Organization of Securities Commissions (IOSCO) released a report titled “Policy Recommendations for Crypto and Digital Asset Markets” for centralized financial bodies to put forth parallel, global policies on crypto assets, including a country’s stablecoin.

    IOSCO’s report aims to protect retail investors from illegal crypto-asset market activities, including regulatory non-compliance, financial crime, fraud, market manipulation, and money laundering that have led to investor losses. The report puts forth 18 policy recommendations summarized within six key themes: conflicts from firms doing too much at once; market manipulation, insider trading, and fraud; cross-border risks and regulatory cooperation; operational and technological risks; and retail access, suitability, and distribution. ISOCO maintains its principles on global regulation are within the “same activities, same risks, same regulation/regulatory outcomes.” IOSCO also mentioned it plans on releasing a second report on decentralized finance before the year’s end.

    Securities International Of Interest to Non-US Persons Cryptocurrency Digital Assets Risk Management

  • NYDFS introduces guidelines for coin-listing and delisting policies in virtual currency entities

    State Issues

    On November 15, NYDFS announced new regulatory guidance which adopts new requirements for coin-listing and delisting policies of DFS-regulated virtual currency entities, updating its 2020 framework for each policy. After considering public comments, the new guidance aims to enhance standards for self-certification of coins and includes requirements for risk assessment, advance notification, and governance. It emphasizes stricter criteria for approving coins and mandates adherence to safety, soundness, and consumer protection principles. Virtual currency entities must comply with these guidelines, requiring DFS approval for coin-listing policies before self-certifying coins, and submitting detailed records for ongoing compliance review. The guidance also outlines procedures for delisting coins and necessitates virtual currency entities to have an approved coin-delisting policy.

    As an example under coin listing policy framework, the letter states that a virtual currency entity risk assessment must be tailored to a virtual currency entity's business activity and can include factors such as (i) technical design and technology risk; (ii) market and liquidity risk; (iii) operational risk; (iv) cybersecurity risk; (v) illicit finance risk; (vi) legal risk; (vii) reputational risk; (viii) regulatory risk; (ix) conflicts of interest; and (x) consumer protection. Regarding consumer protection, NYDFS says that virtual currency entities must “ensure that all customers are treated fairly and are afforded the full protection of all applicable laws and regulations, including protection from unfair, deceptive, or abusive practices.”

    Similar to the listing policy framework, the letter provides a fulsome delisting policy framework. The letter also stated that all virtual currency entities must meet with the DFS by December 8 to preview their draft coin-delisting policies and that final policies must be submitted to DFS for approval by January 31, 2024.

    State Issues Privacy Agency Rule-Making & Guidance Fintech Cryptocurrency Digital Assets NYDFS New York Consumer Protection

  • Bank of England and Financial Conduct Authority seek feedback on stablecoin regulatory proposals

    Securities

    On November 6, the Bank of England and the Financial Conduct Authority (FCA) requested feedback on their proposal to regulate a form of cryptocurrency known as stablecoins. Stablecoins are a cryptoasset that “maintain a stable value relative to a fiat currency by holding assets as backing” and fall within the UK Government’s plan to regulate them for future retail payment use. In addition to retail use, the Bank of England and FCA’s wish to regulate stablecoins is meant to “prevent money laundering… and safeguard financial stability.”

    The Bank of England published a handy road map with similar regulators on how to best navigate rolling out new technological payment innovations, such as the digital pound. Each of the financial regulators provided two white papers: (i) the FCA’s discussion paper outlines how the FCA can regulate cryptoassets under the Financial Services and Markets Act 2000, including providing information on backing assets, custody requirements, and allowing overseas stablecoins used as a form of tender in the UK; and (ii) the Bank of England’s discussion paper examines proposed regulations for sterling-dominated stablecoins in the hopes of becoming widespread for retail use. Furthermore, this paper details proposed regulations for everyday use, including money transfers and providing digital wallets.

    Both regulators’ comment period is open until February 6, 2024.

    Securities Of Interest to Non-US Persons Digital Assets Cryptocurrency Stablecoins

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