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🇺🇸 The New York State Attorney’s Office suspends unregistered crypto asset lending firms with cease and desist letters.
Last week, New York’s Attorney General, Letitia James, distributed two cease and desist letters to crypto asset lending firms. Under state law, such lending platforms must register with the Office of the Attorney General (OAG) if they operate from New York or offer services to its residents. These services are regulated by New York’s Martin Act, which aims to protect investors when dealing with securities. These letters were released to the public, but the names of the companies should have been redacted. However, the file names clearly identified the two companies.
The first letter was sent to Nex, which has not registered as an issuer of securities in the State of New York. The state prosecutor stated that he “has evidence that [Nexo] unlawfully sells or offers for sale securities and/or goods in or out of New York State without registration as required.’ The OAG’s primary concern is that New Yorkers are exposed to ‘significant undisclosed risks’ from cryptoasset businesses.
The New York OAG noted that Nexo has until Oct. 28 to confirm that it has ceased such activities and provide more information to the attorney general about why the matter should not be investigated further. In response, Nexo CEO Antoni Trenchev stated that the company uses IP geoblocking to prevent New Yorkers from using their services. However, the state prosecutor urged Nexo to take all necessary measures to ‘preserve all physical and electronic records and data relating to the issues raised in this letter.’ This highlights the importance of establishing a strong compliance program. A similar letter was sent to Celsius asking it to clarify its ownership structure and other operating arrangements.
In addition, three unnamed crypto-asset platforms received letters requesting information from the OAG regarding their operational structure, activities and products. In addition, the letter requests details of the company’s policies that mitigate manipulative trading as well as suspicious transactions. This includes an audit of ‘all wallet addresses holding virtual currency’, a list of third parties that may hold cryptoassets on behalf of these platforms and ‘a list of transactions on or through your platform or service […] including all relevant details of the transaction.’ The OAG requested the receipt of all these materials and more by November 1, 2021.
Overall, these developments show that complex cryptoasset products are attracting increasing attention from regulators and highlight the importance of having robust compliance programs in place to mitigate exposure to illegal activities and meet legal requirements. Indeed, the OAG’s press release reminded the industry of the shutdown of Coinseed and the multimillion-dollar fines imposed on Bitfinex and Tether earlier this year. To learn more about how Elliptic can help you meet your regulatory obligations, contact us for a demo of our services.
🇺🇸 American lawmakers are asking Mark Zuckerberg to suspend all projects related to cryptoassets.
US lawmakers noted the launch of Facebook’s Novi digital wallet in the US and Guatemala earlier this week, which backs Paxos’ stablecoin USDP. In their letter, MPs “voice [their] the strongest opposition to any Facebook digital asset project”. Although Novi has secured money transmission licenses in most US states, it has not received approval from all US regulators. The letter also cites concerns about the pilots undertaken by the Diem Association (a replacement for Libra). Legislators are not satisfied with the measures to prevent money laundering and terrorist financing introduced by the association. Diem issued a statement stressing that it is independent from Facebook and has previously received positive feedback on its compliance framework from regulators such as FinCEN.
🇦🇺 An Australian Senate Committee publishes a report outlining a review of the Crypto Asset Ecosystem Regulation.
The Select Committee on Australia as a Technology and Financial Center has published a report with 12 comprehensive recommendations for establishing Australia as a technology and financial centre. Key recommendations include a special licensing regime for the exchange of digital assets, along with clarification of obligations related to the prevention of money laundering and terrorist financing; macroprudential requirements for improving financial stability; and changes in tax treatment, including, for example, tax credits for miners using renewable energy. This report has been well received by industry players. To learn more about regulatory developments in Australia, watch our on-demand webinar with Steve Vallas, CEO of Blockchain Australia.
🇺🇸 The US Treasury is reviewing its approach to sanctions and plans to invest in technology to increase monitoring of crypto assets.
In a nine-page report released last week, the US Treasury outlined its strategy for modernizing sanctions. Part of the report includes continued alignment of sanctions with US political and economic goals, increased coordination between entities and countries, and improved communication and engagement in sanctions enforcement, particularly when regulating the digital assets space. In previous years, digital means have somewhat limited the implementation of sanctions. To mitigate this, the report highlights the need for investment in technology, workforce and infrastructure, driven by the “evolving space for digital assets and services”. For further compliance insights, crypto companies can check out Elliptic’s 2021 Sanctions Compliance Report.
🗽 The first Bitcoin exchange-traded fund was launched on the New York Stock Exchange.
US authorities are allowing retail investors access to exchange-traded products that track crypto-asset prices. With the green light from the US Securities and Exchange Commission (SEC), the ProShares bitcoin futures ETF began trading this week on the New York Stock Exchange (NYSE). This is significant because the NYSE is the world’s largest stock market with the potential to attract traditional asset investors to the cryptocurrency world. This event coincided with (and partially caused?) bitcoin to hit an all-time high of more than $66,000 on October 20th. The listing is also notable because the SEC commented that it was comfortable with the product as it tracks cryptoasset prices (via futures contracts instead of directly investing in bitcoin) and trades on a regulated futures market.
🌍 Next week — FATF’s revised guidelines for virtual assets and VASPs
As the fifth FATF plenary draws to a close mentioned strategic initiative planned release of revised guidance on virtual assets and VASPs. This follows a private sector consultation earlier this year Elliptic responded to. The report is expected to be released on October 28.
Financial services, law enforcement regulations
