deceptive regulator
A federal judge may be close to sanctioning lawyers with the Securities and Exchange Commission (SEC) for allegedly lying to the Court about a request to seize assets without informing the defendant. Fortune’s Leo Schwartz and Jeff John Roberts reported on Friday, “In his Thursday order, U.S. District Judge Robert Shelby explained he had agreed to grant the SEC’s request because the agency’s lawyer, Michael Welsh, had said the crypto company was actively closing bank accounts—including 33 in the last 48 hours—as part of a bid to move the firm to Abu Dhabi and beyond the reach of U.S. regulators. This turned out to be untrue, however.” Read more. Shelby was nominated by President Barack Obama in 2011.
what you should know: Does this speak to a wider initiative within the SEC and government (i.e. Choke Point)? This anecdote looks like a “lay up” for further exploration by Congress – Senate Banking and House Financial Services, in particular.
alert to Hill staffers: New Congressional letters appear imminent. Can a hearing or investigation on this alleged SEC over-step be far behind given scrutiny around the Federal Deposit Insurance Corporation’s (FDIC) harassment scandal and the Office of the Comptroller of the Currency (OCC) fintech hiring mishap?
blockchain markup
The Energy & Commerce Committee led by Chair Cathy McMorris Rodgers (R, WA) and Ranking Member Frank Pallone (D, NJ) has a full markup hearing scheduled for tomorrow involving at least two bipartisan bills with blockchain technology implications among the 44 bills to be considered.
“H.R. ___, Deploying American Blockchains Act” from Reps. Larry Bucshon (R, IN) and Lisa Blunt Rochester (D, DE). The seeds of this bill was discussed at an E&C hearing in September.
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- The stated purpose of the bill is to enable the Secretary of Commerce to “promote the leadership of the United States with respect to the use of blockchain technology.” The bill lists examples of policies and recommendations that could arise such as “the issues of decentralized identity, cyber security, key storage and security systems, artificial intelligence, fraud reduction, regulatory compliance, e-commerce, health care applications, and supply chain resiliency.”
“H.R. 4814, Consumer Safety Technology Act” from Reps. Darren Soto (D, FL), Michael Burgess (R, TX), Lori Trahan (D, MA), and Brett Guthrie (R, KY).
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- This bill directs the Consumer Product Safety Commission to “establish a pilot program to explore the use of artificial intelligence in support of the mission of the Commission and to direct the Secretary of Commerce and the Federal Trade Commission to study and report on the use of blockchain technology and digital tokens, respectively.”
what you should know: These two pieces of legislation positively broaden the discussion around the use case for blockchain tech beyond just financial services.
Commissioner speaks
In a speech on compliance reforms titled “Beyond Policing for Fraud: Post-Crisis Crypto-Corporate Governance Reforms,” Commissioner Kristin Johnson of the Commodity Futures Trading Commission (CFTC) offers a tapestry of ideas coming out of resolution of the many recent CFTC enforcement cases and, in particular, the Binance settlement.
Johnson writes in part, “… one of the most interesting aspects of the Binance case is its implications for how the Commission can regulate the digital assets market, specifically the compliance obligations that the consent order imposes on Binance. As part of the resolution, Binance now needs to maintain three independent members of its Board of Directors—and now-former CEO Changpeng Zhao cannot be a member—and it must stand up Compliance and Audit Committees of the Board.” Read it.
the faces of AML legislation
The Block’s Sarah Wynn took the pulse of Congress and industry advocates last week as different forms of digital asset anti-money laundering (AML) legislation try to push through Congress.
Three amendments/bills are identified including the National Defense Authorization Act (NDAA) amendment [S.Amdt.712] which includes a study by U.S. Treasury for creating rule recommendations for Congress on crypto-asset products such as mixers. Sen. Cynthia Lummis (R, WY) tells The Block, “I hear rumors, and that’s all they are, that it may get caught up into some other negotiations and I don’t know whether it’s going to survive…” She said more should be known on the amendment early this week.
Senator Elizabeth Warren’s (D, MA) “Digital Asset Anti-Money Laundering Act” (S.2669) takes a brief bow in the article, and is, perhaps, the most discussed among all the digital asset AML-related bills. But, its next steps seem less clear in that it’s not in the “amendment” discussion (such at the NDAA) and the industry sees its draconian measures as a non-starter. Could another unforeseen catalyst in the news help this bill? I mean… what else could there possibly be?!
Anti-crypto Democrats and some Senate Republicans have been vocal in their support of S.2669, but the group (such as these co-sponsors or these letter signers) still doesn’t seem to have enough support to push it through the 118th Congress – especially the Republican-controlled House, where digital assets is on the innovation-focused, legislative agenda. Like most digital assets legislation, the 2024 general election looms large.
But, S.2669’s existence also serves the purposes of the “no regulation” digital assets camp (arguably led by Senate Banking Chair Sherrod Brown (D, OH)) by making little room for compromise. Therefore, digital assets is kept outside the regulatory perimeter of the U.S. financial system and slowing growth of the industry in the United States.
In The Block article, Digital Chamber of Commerce policy executive Cody Carbone says that The Financial Technology Protection Act [S.1340, H.R. 2969] is another NDAA possibility. The bicameral bill is another study creates a working group among federal agencies to provide recommendations on crypto-asset illicit financing to Congress. Carbone says the bill would be a welcome addition to the NDAA, “We’re hopeful and we’ve been advocating for that to get added.” Read more.
outside-funded fellows
Allegations by Tech Congress founder Travis Moore – a former legislative director for retired Rep. Henry Waxman (D, CA) – suggest that certain Capitol Hill staff fellowships have a conflict-of-interest given their roles are paid for by technology companies such as Google and Microsoft. Moore tells Politico, “It is a red flag for us when we have people that apply and they’re like, ‘I only want to work on crypto, I only want to work on AI.'” Read more.
what you should know: Could this issue be publicly explored by Congress? Or would opposing partisan interests threaten each other with “If you take down my policy fellow, I’ll take down yours”?
quote of the day
“New York Department of Financial Services (NYDFS) superintendent Adrienne Harris could eventually eclipse SEC chair Gary Gensler as the most influential crypto regulator.” – Axios
tomorrow
What’s going on with new technologies in service to U.S. financial regulators?
Tomorrow’s House Financial Services (HFS) Digital Assets, Financial Technology and Inclusion Subcommittee hearing may reveal the answer. Titled “Fostering Financial Innovation: How Agencies Can Leverage Technology to Shape the Future of Financial Services,” the committee memorandum reads, “While the private sector typically leads financial innovation, regulatory agencies play an important role in establishing a regulatory environment that supports and nurtures innovation.” Get the memo for Tuesday’s 10 a.m. ET hearing.
Witnesses include:
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- Valerie Szczepanik, Director of the Strategic Hub for Innovation and Financial Technology (FinHub), SEC
- Donna Murphy, Acting Deputy Comptroller for the Office of Financial Technology and Deputy Comptroller for Compliance Risk Policy, OCC
- Mark Mulholland, Deputy Chief Information Officer for Management, FDIC
- Ann Epstein, Assistant Director of the Office of Competition and Innovation, Consumer Financial Protection Bureau
- Charles Vice, Director of Financial Technology and Access, National Credit Union Administration
- Michael Gibson, Director of Division of Supervision and Regulation, Federal Reserve
Download prepared testimony from the HFS hearing page.
number go up
The biggest concern for anti-crypto interests in Washington could be the price of the large cap digital assets which it knows it can’t control.
Currently, the biggest catalyst for driving the price of Bitcoin, Ether and Solana is seen as the approval of the Bitcoin Spot ETF by the Securities and Exchange Commission (SEC). Keep in mind, these larger digital assets tend to move in lock step.
Think of all the news since Bitcoin hit its market bottom (~$16,600 USD last November) of the current cycle…FTX, Binance, enforcement actions, terrorist financing allegations… and yet, today it’s closing in on $40,000 USD if it hasn’t surpassed it already.
How long the SEC can hold off approval of a Bitcoin ETF – say, beyond the 2024 general election – may not even matter in that the market seems to sense the inevitable approval which will lead to easier on-ramps for U.S. investors to participate in crypto – let alone crypto’s global growth.
what you should know: With “number go up,” the digital asset discussion returns to the dinner table putting pressure on lawmakers to meet U.S. retail demand for digital assets and potentially exposing anti-crypto advocates – especially around the general election given current price momentum.
still more tips
FIELD HEARING NOTICE for this Friday, December 8: Subcommittee on Digital Assets, Financial Technology and Inclusion Field Hearing – financialservices.house.gov
Talking With an Ex-FDIC Chair; Crypto Firms Hit D.C.; SEC’s Own Investor Group Criticizes AI Rule – Capitol Account
The SEC Piles On – DeFi Education Fund
How the Winklevii’s Second Act Went Bad – Inside the twins’ crypto exchange, where they abandoned the rules to get bigger than they could handle. – New York Magazine
Opinion: Why crypto was the perfect tool for criminals and kleptocrats – Casey Michel on CNN
‘Tokens’ Book Review: Cash, Card or Ape? – The Wall Street Journal