Bracewell Law Firm in Crypto and Digital Currency Market

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Thursday, November 18, 2021

In this episode of Bracewell Sidebar, hosts Matthew Nielsen and Phil Bezanson continue their conversation with Anne Termine on cryptocurrency, including how different regulators are trying to create order in hard-to-regulate crypto markets. currencies.

Anne joined the firm in June 2021, with over 20 years of experience representing clients in investigations, enforcement actions and disputes involving commodities, derivatives and, more recently, cryptocurrency markets. She brings an insider perspective on these issues, having served as Chief Counsel in the U.S. Commodity Futures Contract (CFTC) Enforcement Division from 2003 to 2016.

There seems to be a turf war over how cryptocurrency is going to be regulated, if it is going to be regulated and then who should regulate it. Can you summarize all of this for us?

Cryptocurrencies are already regulated by the alphabet soup of government agencies inside the Beltway. Right now, some of these alphabets are trying to capture flag land grabbing in regulatory space, starting with the SEC.

Talk a bit about the current regulations and the general discussion about whether and how it will be regulated in the future.

There are a lot of misconceptions about the cryptocurrency industry as to whether it is even regulated or not. The point is, yes. They already face a whole host of regulations imposed by a number of regulators. Start with FinCEN and OFAC with their anti-money laundering regulations. These companies, because they engage in a certain level of currency trading, must have customer policies and monitor their accounts for any suspicious activity. Separately, because they actually receive money from customers, these businesses face state-by-state regulations as money transmitters. There are federal alternatives to those offered by the Office of the Comptroller of the Currency, special purpose charters for payments and for FinTech. Very few of them have been granted by the OCC, and they are under the battle of the states that have sued the OCC for their right to bring these special charters.

This was all set up under the previous administration, so under the Biden administration, the current Acting Comptroller of the Currency and the current candidate for that same position have been fierce critics of digital assets. On top of that you have other regulators coming in like the CFTC which says if you want to offer a product to retail clients that is on margin or leveraged or funded then you have to be registered with of the CFTC. If you are offering a token for services, it could be security under the SEC. And if you do anything in one way or another that could harm clients, then you are faced with the enforcement jurisdiction of a whole host of agencies, including the CFTC, the SEC, and the FTC who have looked into the matter. The CFPB is now looking into this issue. But at the end of the day, there is a level of regulation, it’s just not organized under one regulator.

Is there something in the works to shape this comprehensive regulatory regime so that there is perhaps a little less uncertainty?

There is a whole series of suggestions, and I think they are all explored at different levels. The SEC, headed by President Gensler, has been proactive enough to address the issue with the Hill. And not to come up with a full policy or suggestions on what regulation should exist, but to take a pretty strong stance, at least on those things, the Howey test, which is the test the SEC uses to determine whether our product is security or not, is applicable for now.

I think in summary, the development of the industry has become so rapid and rapid that it is not clear that the current state of regulations under agencies like the CFTC and the SEC, can remain completely applicable. This is why the Hill becomes an option. There have been suggestions from the industry itself, should there be a single regulator? Coinbase, for example, has published its own article on this subject. Others have said, rethink the current regulations. When you look at the SEC and CFTC regulations, they’re 30, 80 years old. They’re trying to use very old structures for very new things, things that were designed to be completely different from the way the financial industry works today. Is it fair to add this old traditional regulatory structure to something completely new? Are we dealing with a square peg, round hole type situation?

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