All Things FinReg

New York has enhanced its fraud prevention tools, while consumers can identify crypto scams using California’s scam tracker. A week after the US Securities and Exchange Commission (SEC) proposed amendments to cover cryptoassets under the Custody Rule applicable to investment advisers, federal banking agencies issued a statement reminding banks of their risk management obligations in connection with holding crypto companies’ deposits. The United Kingdom is considering fund tokenization, particularly as it relates to retail investors, and the Hong Kong Securities and Futures Commission is gearing up for a crypto exchange platform licensing regime while considering whether retail investors should trade on licensed crypto platforms.

In the continuation of our new blog series highlighting recent developments in the digital asset space, this post details continued action policy and enforcement actions by US regulators.

In this new series, we will provide an overview of recent noteworthy developments in the digital asset space around the world. The start of February was a busy period for regulators in the United States, where the US Securities and Exchange Commission (SEC) settled charges against an exchange in connection with its staking services and where other regulators issued digital asset guidance. Both the United Kingdom and Dubai Virtual Asset Regulatory Authority introduced plans to regulate digital asset activities. The Hong Kong Monetary Authority released a framework for stablecoin regulation, but it is unclear whether a new law will be adopted or existing laws will be amended to incorporate the framework.

In the depth of a crypto winter, the New York State Department of Financial Services (DFS) issued guidance (the Guidance) on custodial standards for those with a BitLicense or that are registered as New York state limited purpose trust companies that engage in virtual currency (VC) business activity (VC Trust Companies and, together with BitLicensees, VC Custodians). In addition to providing customer segregation and compliance standards, DFS also announced in the Guidance its position that a VC Custodian that enters into a sub-custody arrangement must obtain prior DFS approval before the arrangement’s implementation.

On July 8, the staffs of the Division of Trading and Markets (TM) of the US Securities and Exchange Commission and of the Office of General Counsel of the Financial Industry Regulatory Authority, Inc. issued a joint statement on broker-dealer custody of digital assets that are also securities (Joint Statement).