Lawmakers urge OCC to rescind, replace cryptocurrency guidance

U.S. Sens. Elizabeth Warren (D-MA), Dick Durbin (D-IL), Sheldon Whitehouse (D-RI), and Bernie Sanders (I-VT) recently forwarded correspondence to the Office of the Comptroller of the Currency Acting Comptroller of the Currency Michael Hsu, advocating for the previously issued cryptocurrency guidance to be rescinded and replaced.© Shutterstock “We write to inquire about the Office of […]

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U.S. Sens. Elizabeth Warren (D-MA), Dick Durbin (D-IL), Sheldon Whitehouse (D-RI), and Bernie Sanders (I-VT) recently forwarded correspondence to the Office of the Comptroller of the Currency Acting Comptroller of the Currency Michael Hsu, advocating for the previously issued cryptocurrency guidance to be rescinded and replaced.

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“We write to inquire about the Office of the Comptroller of the Currency’s (OCC) November 2021 interpretive letter authorizing banks to engage in certain cryptocurrency (crypto) activities and the activities that banks have been permitted to engage in under OCC’s guidance,” the legislators wrote. “Each of the prudential regulators, including the OCC, is responsible for safeguarding our financial system from undue risk and ensuring the safety and soundness of the banking system. In light of recent turmoil in the crypto market, however, we are concerned that the OCC’s actions on crypto may have exposed the banking system to unnecessary risk and ask that you withdraw existing interpretive letters that have permitted banks to engage in certain crypto-related activities.”

Under the previous acting comptroller, the OCC issued several interpretive letters related to cryptocurrency, which determined that banks were authorized to engage in certain crypto-related activities that included providing cryptocurrency custody services for customers, holding deposits that serve as reserves for certain stablecoins, and using independent node verification networks (INVNs) and stablecoins for payment activities.

“Given the risks posed by cryptocurrencies to banks and their customers, we request that you withdraw OCC Interpretive Letters 1170, 1172, 1174, and 1179 and coordinate with the Federal Reserve and the Federal Deposit Insurance Corporation to develop a comprehensive approach that adequately protects consumers and the safety and soundness of the banking system,” the legislators concluded.

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CFPB rule outlines digital marketing finance protection compliance

The Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule detailing when financial firm digital marketing providers must comply with federal consumer financial protection law. © Shutterstock “When Big Tech firms use sophisticated behavioral targeting techniques to market financial products, they must adhere to federal consumer financial protection laws,” CFPB Director Rohit Chopra said. […]

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The Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule detailing when financial firm digital marketing providers must comply with federal consumer financial protection law.

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“When Big Tech firms use sophisticated behavioral targeting techniques to market financial products, they must adhere to federal consumer financial protection laws,” CFPB Director Rohit Chopra said. “Federal and state law enforcers can and should hold these firms accountable if they break the law.”

Digital marketers executing the role of service providers can be held liable by the CFPB or other law enforcers for committing unfair, deceptive or abusive acts or practices, in addition to other consumer financial protection violations.

When digital marketing providers extend beyond traditional advertising, they are typically covered by the Consumer Financial Protection Act. The measure contains an exception for companies solely providing time or space for advertising a consumer financial product or service through print, newspaper or electronic media.

The CFPB maintains that the exception does not cover firms materially involved in developing a content strategy.

The CFPB’s interpretive rule, officials indicated, explains that digital marketers who provide material services to financial firms and other consumer protection enforcers can sue digital marketers to stop consumer financial protection law violations.

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NAFCU offers feedback to Treasury Department on development of digital assets

The National Association of Federally-Insured Credit Unions (NAFCU) provided feedback to the Treasury Department on its request for comments (RFC) on the responsible development of digital assets.© Shutterstock The Treasury Department has requested feedback on implications of the development and adoption of digital assets, such as a central bank digital currency (CBDC), and the changes […]

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The National Association of Federally-Insured Credit Unions (NAFCU) provided feedback to the Treasury Department on its request for comments (RFC) on the responsible development of digital assets.

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The Treasury Department has requested feedback on implications of the development and adoption of digital assets, such as a central bank digital currency (CBDC), and the changes that could be expected in financial markets and payment systems.

On the subject of private sector digital asset regulation, NAFCU Senior Counsel for Research and Policy Andrew Morris conveyed his thoughts in a letter to the Treasury. In summary, Morris outlined some overriding principles that NAFCU believes should be included in any future framework.

One of those key principles is to establish a level playing field for credit unions, banks, and other financial companies seeking to engage with digital asset technologies. Also, he advocated for the application of consumer protection laws to entities facilitating consumer engagement with digital assets. Finally, he said it should include support for responsible innovation within the credit union industry.

In addition, Morris asked the Treasury to clarify that references to insured depository institutions included in the President’s Working Group on Financial Markets’ Report on Stablecoins are inclusive of federally insured credit unions.

On the matter of a CBDC, Morris reiterates NAFCU’s position that the costs would outweigh the benefits. This is a position that the association has communicated previously to the Federal Reserve and Commerce Department. NAFCU contends that superior alternatives exist for accomplishing the same objectives.

“Given the lack of clarity regarding specific CBDC parameters and design features, NAFCU does not believe that sufficient evidence exists to justify development of a CBDC, particularly when better alternatives for achieving the same purported benefits already exist,” wrote Morris. “Credit unions are well positioned to improve underserved populations’ access to affordable financial products and their efforts do not depend upon the introduction of a CBDC.”

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CUNA advocates digital assets framework

Credit Union National Association (CUNA) officials are advocating that the Treasury Department consider a comprehensive digit assets framework that would enhance adoption efforts.© Shutterstock “Credit unions have a long history of serving their members in a direct, individualized way that encourages their financial health and well-being,” the CUNA wrote in correspondence to the Treasury Department […]

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Credit Union National Association (CUNA) officials are advocating that the Treasury Department consider a comprehensive digit assets framework that would enhance adoption efforts.

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“Credit unions have a long history of serving their members in a direct, individualized way that encourages their financial health and well-being,” the CUNA wrote in correspondence to the Treasury Department in the wake of its request for information on digital asset development. “Innovations related to digital assets provide a new and unique avenue for credit unions to continue this mission with a significant percentage of their members already invested in cryptocurrencies.”

CUNA officials indicated that the organization favors a comprehensive regulatory framework providing consistent oversight for similar products and services; clear data security and data privacy requirements; and a balance with regard to traditional financial services and fintechs as a means of ensuring consumers are able to utilize their most trusted financial partner.

Per the CUNA, digital assets possess the potential to provide an entry point for the unbanked to receive financial services. Officials added that credit union services extend far beyond deposit accounts.

In March President Joe Biden signed an executive order regarding innovation in digital assets. The document outlined a whole-of-government approach to addressing the risks while harnessing the potential benefits of digital assets and the underlying technology.

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Lawmakers seek diversity and inclusion practices of crypto, digital asset companies

Democratic lawmakers in Congress have asked major cryptocurrency and digital asset industry players to provide data on their diversity and inclusion practices.© Shutterstock Specifically, the lawmakers, including U.S. Rep. Maxine Waters (D-CA), chair of the U.S. House Financial Services Committee, sent the request to the nation’s 20 largest crypto, Web3, and digital assets companies, as […]

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Democratic lawmakers in Congress have asked major cryptocurrency and digital asset industry players to provide data on their diversity and inclusion practices.

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Specifically, the lawmakers, including U.S. Rep. Maxine Waters (D-CA), chair of the U.S. House Financial Services Committee, sent the request to the nation’s 20 largest crypto, Web3, and digital assets companies, as well as prominent venture capital firms with investments in crypto.

“The Committee on Financial Services in the United States House of Representatives has made diversity and inclusion a core pillar of its efforts to ensure that the U.S. financial services system works for everyone,” the lawmakers wrote in a letter to the 20 organizations. “There is a concerning lack of publicly available data to effectively evaluate the diversity among America’s largest digital assets companies, and the investment companies with significant investments in these companies. We believe transparency is a critical, first step to achieving racial and gender equity. That is why your participation in this snapshot is imperative in our efforts to understand how and whether the industry is working toward a more equitable environment for everyone.”

Along with Waters, the letter was signed by Reps. Joyce Beatty (D-OH), chair of the Subcommittee on Diversity and Inclusion; Al Green (D-TX), chair of the Subcommittee on Oversight and Investigations; Bill Foster (D-IL), chair of the Task Force on Artificial Intelligence; and Stephen Lynch (D-MA), chair of the Task Force on Financial Technology.

The letter was sent to the following companies: Aave, Andreessen Horowitz, Binance.US. Circle, Coinbase, Crypto.com, Digital Currency Group, FTX, Gemini, Haun Ventures, Kraken, OpenSea, PancakeSwap, Paradigm, Paxos, Ripple, Sequoia Capital, Stellar Development Foundation, Tether, and UniSwap.

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U.S. Senate bill looks to clarify digital asset reporting requirements in infrastructure law

A bipartisan bill was introduced in the U.S. Senate this week that seeks to clarify the digital asset reporting requirements in the Infrastructure Investment and Jobs Act (IIJA).© Shutterstock Specifically, the Senate approved an amendment to the infrastructure package last August that sought to clarify the definition of “broker” in relation to the person who […]

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A bipartisan bill was introduced in the U.S. Senate this week that seeks to clarify the digital asset reporting requirements in the Infrastructure Investment and Jobs Act (IIJA).

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Specifically, the Senate approved an amendment to the infrastructure package last August that sought to clarify the definition of “broker” in relation to the person who must report to the government information about a digital asset transaction. However, the amendment excluded from reporting requirements services like mining and wallet providers who do not take custody of other individuals’ cryptocurrency, nor are able to comply with the reporting requirements of a broker.

The Senate never had the opportunity to vote on this amendment last August due to a procedural hurdle. This new bill provides that opportunity, as it contains the exact same text introduced as a bipartisan amendment nearly one year ago.

“There’s been a lot of confusion about the reporting requirements included in the bipartisan infrastructure law,” Sen. Mark Warner (D-VA), one of the bill’s sponsors, said. “As a former venture capitalist and someone who’s enthusiastic about innovation, I want to maintain America’s lead in financial innovation, including distributed ledger technologies. This bipartisan bill will underscore that the reporting requirements in the IIJA do not apply to crypto validators and other actors not providing broker-like functions while maintaining sensible guidelines to ensure that financial networks aren’t enabling illicit activity.”

Sens. Pat Toomey (R-PA), Cynthia Lummis (R-WY), Kyrsten Sinema (D-AZ), and Rob Portman (R-OH) joined bill sponsor Warner in introducing the legislation, S. 4751.

“While there’s no question that digital asset exchanges behaving as brokers should be required to comply with existing reporting requirements, the bill signed into law last year would impose these requirements on many people who don’t even have the information needed to comply with them,” Toomey said. “By clarifying the definition of a broker, our legislation will protect innovation by exempting miners, network validators, and other service providers from onerous and unworkable requirements. This amendment had strong bipartisan support last August, and there’s no reason it shouldn’t be signed into law.”

The bill has broad support in the digital asset community. Several organizations support the measure, including the Coin Center, Crypto Council for Innovation, Chamber of Digital Commerce, Association for Digital Asset Markets, Global Digital Asset and Cryptocurrency Association, the Proof of Stake Alliance, and the Wall Street Blockchain Alliance.

“The proposed revisions to Internal Revenue Code regarding Information Reporting for Brokers and Digital Assets marks a key legislative opportunity that we believe will begin to unlock the best benefits of digital assets and blockchain,” Ron Quaranta, chairman of the Wall Street Blockchain Alliance, said. “By clarifying what it means to be a broker in light of this important innovation, the bipartisan legislation paves the way for further innovations that can evolve markets and ultimately improve the overall financial lives of Americans.”

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Senate bill seeks to regulate digital commodities markets

A bipartisan group of U.S. senators introduced legislation that would supply the Commodity Futures Trading Commission with new tools and authorities to regulate digital commodities. This mandatory framework will safeguard customers and our markets.© Shutterstock The Digital Commodities Consumer Protection Act of 2022 seeks to safeguard markets in several ways. It closes regulatory gaps by […]

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A bipartisan group of U.S. senators introduced legislation that would supply the Commodity Futures Trading Commission with new tools and authorities to regulate digital commodities. This mandatory framework will safeguard customers and our markets.

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The Digital Commodities Consumer Protection Act of 2022 seeks to safeguard markets in several ways. It closes regulatory gaps by requiring all digital commodity platforms—including trading facilities, brokers, dealers, and custodians—to register with the CFTC. Further, digital commodity platforms must prohibit abusive trading practices, eliminate or disclose conflicts of interest, maintain sufficient financial resources, have strong cybersecurity programs, protect customer assets, and report suspicious transactions.

In addition, it mandates that digital commodity platforms adhere to advertising standards and disclose information about digital commodities and their risks, bringing greater transparency and accountability to the marketplace. Further, it authorizes the CFTC to impose user fees on digital commodity platforms to fully fund its oversight of the digital commodity market. It also directs the CFTC to examine racial, ethnic, and gender demographics of customers participating in digital commodity markets and use that information to inform its rulemaking and provide outreach to customers.

“One in five Americans have used or traded digital assets—but these markets lack the transparency and accountability that they expect from our financial system. Too often, this puts Americans’ hard-earned money at risk,” said U.S. Sen. Debbie Stabenow (D-MI), chair of the Senate Committee on Agriculture, Nutrition, and Forestry. “That’s why we are closing regulatory gaps and requiring that these markets operate under straightforward rules that protect customers and keep our financial system safe.”

Stabenow is one of the bill’s sponsors, along with John Boozman (R-AR), ranking member of the Senate Committee on Agriculture, Nutrition, and Forestry.

“Digital assets and blockchain technology have already and will continue to change the way global markets function. Yet, this fast-growing industry is currently governed largely by a patchwork of regulations at the state level. That simply is not an effective way to protect consumers from fraud. Furthermore, relying solely on state regulation does not ensure that rules and regulations work for all stakeholders. Our bill will empower the CFTC with exclusive jurisdiction over the digital commodities spot market, which will lead to more safeguards for consumers, market integrity, and innovation in the digital commodities space,” Boozman said.

U.S. Sens. Cory Booker (D-NJ) and John Thune (R-SD) are also sponsors of the bill.

“As the number of Americans engaging with digital assets continues to grow, it is critical that we clarify and strengthen the regulation of our financial system,” Booker said. “This bipartisan legislation will enhance oversight over digital commodities, taking an important first step to ensure that the digital marketplace operates fairly with commonsense rules in place and protects consumers entering this market.”

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SEC charges 11 individuals with crypto Ponzi scheme

The Securities and Exchange Commission (SEC) charged 11 people for creating and promoting Forsage, a fraudulent crypto pyramid and Ponzi scheme.© Shutterstock The scheme raised more than $300 million from millions of retail investors worldwide, including in the United States. The SEC charged the four founders of Forsage, who were last known to be living […]

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The Securities and Exchange Commission (SEC) charged 11 people for creating and promoting Forsage, a fraudulent crypto pyramid and Ponzi scheme.

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The scheme raised more than $300 million from millions of retail investors worldwide, including in the United States. The SEC charged the four founders of Forsage, who were last known to be living in Russia, the Republic of Georgia, and Indonesia. It also charged three U.S.-based promoters who endorsed Forsage on its website and social media platforms, as well as members of the so-called Crypto Crusaders, a promotional group for the scheme that operated in the United States in at least five different states.

Vladimir Okhotnikov, Jane Doe a/k/a Lola Ferrari, Mikhail Sergeev, and Sergey Maslakov launched Forsage.io in January 2020. This website allowed millions of retail investors to enter into transactions via smart contracts operated on the Ethereum, Tron, and Binance blockchains. According to the SEC’s complaint, Forsage allegedly operated as a pyramid scheme for more than two years, in which investors earned profits by recruiting others into the scheme. Forsage also allegedly used assets from new investors to pay earlier investors in a typical Ponzi structure.

Cease-and-desist actions were taken against Forsage in September 2020 by the Securities and Exchange Commission of the Philippines and in March 2021 by the Montana Commissioner of Securities and Insurance. However, the defendants allegedly continued to promote the scheme while denying the claims in several YouTube videos and other means.

“As the complaint alleges, Forsage is a fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors,” Carolyn Welshhans, acting chief of the SEC’s Crypto Assets and Cyber Unit, said. “Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”

Along with the founders, the SEC charged Cheri Beth Bowen, of Pelahatchie, Miss.; Ronald R. Deering, of Coeur d’ Alene, Idaho; Samuel D. Ellis, of Louisville, Ky.; Mark F. Hamlin, of Henrico, Va.; Carlos L. Martinez, of Chicago, Ill.; Alisha R. Shepperd, of Dunedin, Fla.; and Sarah L. Theissen, of Hartford, Wis., with violating the registration and anti-fraud provisions of the federal securities laws.

The SEC is seeking injunctive relief, disgorgement, and civil penalties.

Without admitting or denying the allegations, two of the defendants, Ellis and Theissen, agreed to settle the charges and to be permanently enjoined from future violations of the charged provisions and certain other activity. Further, Ellis agreed to pay disgorgement and civil penalties, and Theissen will be required to pay disgorgement and civil penalties as determined by the court.

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FDIC issues fact sheet on crypto companies, FDIC insurance

The Federal Deposit Insurance Corporation (FDIC) published a new fact sheet on what the public needs to know about FDIC deposit insurance and crypto companies.© Shutterstock The fact sheet was developed following recent cases where crypto companies have misrepresented to consumers that crypto products are eligible for FDIC deposit insurance coverage or that customers are […]

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The Federal Deposit Insurance Corporation (FDIC) published a new fact sheet on what the public needs to know about FDIC deposit insurance and crypto companies.

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The fact sheet was developed following recent cases where crypto companies have misrepresented to consumers that crypto products are eligible for FDIC deposit insurance coverage or that customers are FDIC–insured if the crypto company fails. This is inaccurate and can cause consumer confusion about deposit insurance. The fact sheet addresses these and other misconceptions about deposit insurance coverage and its application.

The truth is — FDIC deposit insurance protects bank depositors in the unlikely event that an FDIC–insured bank fails. If that happens, the FDIC insures each bank depositor up to at least $250,000. Since the FDIC began insuring deposits in 1934, no depositor has lost any FDIC–insured funds due to a bank failure.

However, deposit insurance does not apply upon the failure of a non–bank, such as a crypto company. Further, deposit insurance does not protect consumers with non–deposit products such as stocks, bonds, mutual funds, securities, commodities, or crypto assets.

Along with the release of this fact sheet, the FDIC issued a financial institution letter (FIL) containing an advisory to FDIC institutions on deposit insurance and dealings with crypto companies. This advisory reminds FDIC-insured banks that deal with crypto companies to ensure that these crypto companies do not misrepresent the availability of deposit insurance.

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Sen. Brown seeks Google, Apple crypto app fraud protection insight

Senate Committee on Banking, Housing, and Urban Affairs Chairman Sherrod Brown (D-OH) recently forwarded correspondence to Google and Apple leaders, requesting insight regarding crypto app fraud protections. © Shutterstock Brown sent letters to Alphabet and Google CEO Sundar Pichai and Apple CEO to inquire about the companies’ mobile application safeguards in the wake of a […]

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Senate Committee on Banking, Housing, and Urban Affairs Chairman Sherrod Brown (D-OH) recently forwarded correspondence to Google and Apple leaders, requesting insight regarding crypto app fraud protections.

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Brown sent letters to Alphabet and Google CEO Sundar Pichai and Apple CEO to inquire about the companies’ mobile application safeguards in the wake of a Federal Bureau of Investigation (FBI) warning against fake cryptocurrency apps having scammed hundreds of investors for losses over $42 million.

“Cyber criminals have stolen company logos, names and other identifying information of crypto firms and then created fake mobile apps to trick unsuspecting investors into believing they are conducting business with a legitimate crypto firm,” Brown wrote. “Alarmingly, far too many investors have fallen victim to such scams with losses exceeding $42 million. While firms that offer crypto investment and other related services should take the necessary steps to prevent fraudulent activity, including warning investors about the uptick in scams.”

Brown maintains that app stores must have proper safeguards in place to prevent fraudulent mobile application activity.

Per the letter, Brown is requesting the companies describe the review process initiated before approving crypto apps to operate in their app store; describe the steps their app stores take to prevent cryptocurrency apps operating in their app store from circumventing app store policies by transforming into phishing apps; describe systems and processes the companies have in place for people to report fraudulent apps; and describe actions their app stores have taken to alert people about actual or potentially fraudulent activity associated with cryptocurrency investment apps.

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