U.S. Lawmakers Learn More About Cryptoassets In Hearing With Crypto Executives

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🇺🇸 U.S. Lawmakers Learn About Crypto Assets During Hearing With Crypto Executives

On December 8, 2021, the United States House of Representatives Financial Services Committee held a hearing on “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States”. United “. This was the first congressional hearing devoted solely to cryptoassets. Executives from major crypto companies have been invited to testify and answer questions from the committee on this matter.

In his opening statement, ranking committee member Patrick McHenry said that “the goal today is to listen, learn and ask questions”. Indeed, throughout his statement, the congressman stressed the importance for policymakers to know more about cryptoassets before making rushed and uninformed legislative decisions. During the hearing, most lawmakers agreed that a balance must be struck between innovation and regulation to move the United States forward in this industry.

Committee members posed questions on a number of topics that could inform future policy initiatives such as:

Regulatory Clarity: Industry executives invited to the hearing were asked if the industry needs regulatory clarity. Most participants reiterated that the industry was already regulated and that many requirements applied to them contrary to the belief of some conventioneers. Nonetheless, they agreed that the market would benefit from regulatory clarity, especially with regard to definitions that would determine, for example, the scope of regulations of the Securities and Exchange Commission (SEC) and Commodity Futures Trading. Commission (CFTC). This would establish much-needed regulatory parity between crypto-asset firms and traditional financial institutions.

Regulatory Structure: Witnesses also made suggestions on the regulatory structure. They advocated for the creation of a crypto-asset regulator that would act as a single point of contact and oversight of the industry. Executives were concerned about the inability of regulators to keep up with the speed of developments in the industry.

Financial inclusion: Using cryptoassets as a tool for financial inclusion and ensuring they reach underserved communities. Industry participants shared that users of cryptoassets in the United States tend to be younger and more diverse than most mainstream financial services. Lawmakers have asked the panel to provide more data on this issue.

Preserving the environment: Committee members discussed the environmental impact of crypto-assets and the differences in energy intensity of different blockchain protocols. Witnesses agreed that the industry should work on solutions that could make the ecosystem sustainable.

Dollar Dominance: The hearing also focused on the dollar’s decline in dominance over China. Lawmakers have learned more about the potential of “internet-enabled dollars” to help strengthen the dollar’s position. The discussion has shifted to the potential stablecoin regulation regarding disclosure and liquidity requirements.

Financial Stability: Committee members also discussed the need to investigate the financial stability risks of crypto-assets.

Fight against money laundering: the discussion focused on the exploitation of crypto-assets by malicious actors. The May 2021 Colonial Pipeline hack was cited as an example of how the industry worked with law enforcement to seize the proceeds of this ransomware attack. Elliptic was cited by Denelle Dixon, CEO of Stellar Development Foundation, as a company helping to protect the industry.

The full recording of this hearing is available here. Elliptic supports the efforts of lawmakers to engage with industry to shape regulation that supports innovation.

🔭 BIS highlights the centralization of DeFi and the scope of regulatory oversight

The Bank for International Settlements (BIS) released a Decentralized Finance (DeFi) report on December 8, 2021. The report argues that smart contracts executed on the blockchains that underpin DeFi are not as decentralized as they claim. . The authors argue that there is a certain level of centralization that revolves around those who write the protocol and set the strategic priorities. These actors “are the natural entry points for political decision-makers” seeking to regulate the DeFi space. In addition, the report highlights some regulatory loopholes for these protocols, such as the lack of deposit insurance for investors. It also highlights the problem of high leverage, washouts and liquidity mismatches in DeFi, which are heavily regulated in traditional finance. The authors argue that “the rule of thumb” same risks, same rules “should apply” to the DeFi space as those covering banks and other financial institutions. In addition, the absence of KYC and anti-money laundering provisions can facilitate the exploitation of DeFi by malicious actors. The report urges authorities to focus on legislation to regulate these protocols as authorities gain an understanding of DeFi governance arrangements.

Read Elliptic’s DeFi report to learn more about these services, criminal activity in DeFi (what Elliptic calls DeCrime), and considerations for policymakers and compliance teams.

🇺🇸 OCC cites Cryptoassets in its half-year risk perspective

The United States Office of the Comptroller of the Currency (OCC) National Risk Committee has released its semi-annual risk report. It reviews the main issues facing banks with an emphasis on financial soundness and regulatory compliance. The OCC reiterated that it approaches the provision of crypto services by banks with “a high degree of caution and expects its supervised institutions to do the same.” He recognizes the opportunities that crypto-assets present, but expects financial institutions “to do due diligence and risk management as with other new, changed and expanded services.” The report summarizes some of the key work that U.S. authorities have been working on regarding crypto-assets covered by Elliptic, such as the Digital Asset Policy Initiative and the President’s Stable Coins Task Force Report. Overall, the section of the OCC report covering cryptoassets is high profile and lacks quantitative evidence to support the agency’s current position that banks should not engage in related services. to crypto-assets. Greater regulatory clarity is needed for U.S. banks and crypto-asset firms to maximize opportunities.

To learn more about how your bank can mitigate crypto-asset risk and update its compliance program, watch Elliptic’s on-demand webinar.

🇹🇭 Thailand wants to keep banks away from crypto-assets

Bank of Thailand (BoT) Senior Director Chayawadee Chai-Anant said the BoT did not want banks to be “directly involved” in crypto-asset trading. The senior director cited volatility, cybercrime and money laundering as justifications for the BoT’s position. Elliptic believes that risk reduction measures such as those offered by the BoT limit access to financial services for crypto-asset firms and can push entities into unregulated channels. Elliptic promotes the implementation of a risk-based approach for effective AML / CFT compliance that maximizes economic opportunities. Days earlier, another BoT official feared that the increase in the use of cryptoassets for payments could hamper its ability to oversee the economy. Nonetheless, the central bank said it was working on a regulatory framework for cryptoassets.

To learn more about how your bank can limit its exposure to risk while launching safe and compliant crypto-asset services, schedule a demo.

🇯🇵 Japan should tighten its regulation of stablecoins

Reports suggest that Japan will impose restrictions on the issuance of stablecoins. Japan’s Financial Services Agency would limit the issuance of stablecoins to a small number of institutions such as banks and wire transfer companies. It is expected that issuers will be subject to oversight ranging from liquidity, disclosure and anti-money laundering requirements. In turn, the Bank of Japan argues that this will limit financial risks and increase consumer protection. This approach would reflect the recommendations of the stablecoin report by the President’s Financial Markets Task Force that only licensed banks should be able to undertake stable business.

Contact us to learn more about how your business can manage or launch stablecoins while complying with anti-money laundering regulations.

Please note that next week’s Crypto Regulatory Affairs Weekly Update will be the last for 2021. We will be back the week of January 10, 2022 to provide a full summary of key developments over the holiday season.

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