Congress Members Propose Legislation Aimed at Better Clarifying Digital Asset Regulation
House Representatives Patrick McHenry (R-N.C.) and Stephen Lynch (D-Mass.) introduced legislation on March 9, 2021 aimed at authorizing regulatory agencies to better clarify cryptocurrency definitions. Among other actions, H.R. 1602, the “Eliminate Barriers to Innovation Act of 2021,” would authorize the creation of a working group composed of industry experts and representatives from the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) to evaluate the current legal and regulatory framework around digital assets in the U.S. and prepare a report providing analysis and recommendations within a year of being formed.
On the same day, House Representative Warren Davidson (R-Ohio) introduced legislation to clarify the categorization of digital assets. H.R. 1602, the “Token Taxonomy Act of 2021” proposes to amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to:
You can read the text of the Eliminate Barriers to Innovation Act here.
You can read the text of the Token Taxonomy Act of 2021 here.
SEC Division of Examinations Risk Alert Signal Continued Focus on Digital Assets
The Securities and Exchange Commission’s (“SEC”) Division of Examinations (the “Division”) issued a Risk Alert on February 26, 2021 reflecting the Division’s continued focus on digital asset securities. The Alert both (1) provides Division observations from examinations of investment advisers, broker-dealers, and transfer agents regarding digital asset securities, and (2) outlines areas of focus for the Division’s future examinations of those entities.
In the announcement of the Risk Alert, the Division stated that it “encourages market participants to reflect upon their own practices, policies and procedures, as applicable, and to promote improvements in their supervisory, oversight and compliance programs.”
The Division highlighted six areas of primary risk for investment advisers that manage digital assets based on past examinations: portfolio management, recordkeeping, custody issues, investor disclosures, pricing client portfolios, and appropriate registration requirements. The Division also pointed to six areas of regulatory and compliance risk for broker-dealers: safekeeping funds and operations, registration requirements, disclosing conflicts, anti-money laundering procedures and controls, offerings, conflicts of interest disclosures, and outside business activities procedures and controls.
Federal Reserve Publishes White Paper on Central Bank Digital Currency
On February 24, 2021, staff of the U.S. Federal Reserve published a paper identifying preconditions for a central bank digital currency that is of daily use by the general public. The paper notes that the preconditions fall into five areas:
The white paper explains that it is intended to “spark further inquiry.” Nevertheless, the white paper cautions “[e]ach of the preconditions on its own will take significant time to achieve, and these preconditions represent only a starting point. As Federal Reserve Chair Jerome Powell recently remarked on CBDCs, ‘[T]here is a great deal of work yet to be done.’”
BitPay, Inc. Reaches Settlement with OFAC
On February 18, 2021, the Treasury Department announced that the Treasury’s Office of Foreign Assets Control (“OFAC”) reached a settlement with payment processer BitPay, Inc. OFAC alleged that between approximately June 10, 2013 and September 16, 2018, BitPay processed 2,102 transactions on behalf of individuals who, based on IP addresses and information available in invoices, were located in jurisdictions that were subject to U.S. sanctions. BitPay agreed to a
$507,375 payment to settle the alleged violations.
Coinbase Announces Filing of Registration Statement
Coinbase Global, Inc. announced it filed a registration statement on Form S-1 with the SEC. Coinbase stated in a February 25, 2021 press release that its Class A common stock will be listed on the Nasdaq Global Select Market under the ticker symbol “COIN”. As we previously reported, Coinbase submitted a draft registration statement on December 17, 2020. On January 28, 2021, Coinbase published a press release providing additional details regarding the proposed filing.
You can view the filing here.
Wisdom Tree Files Bitcoin ETF Proposal
On March 11, 2021, New York City-based asset manager WisdomTree Investments filed a registration statement with the U.S. Securities and Exchange Commission to launch a Bitcoin exchange-traded fund (ETF). According to the filing, The WisdomTree Bitcoin Trust would be an exchange-traded fund that issues common shares listed on the Cboe BZX Exchange, Inc. and traded under the ticker symbol BTCW.