Central Bank Digital Currency: the Future or…
Cryptocurrency is having its best year yet in 2021. While being one of the few industries to grow in 2020, with recent developments in the U.S. and around the world, virtual currencies are only becoming more popular, mainstream, and accessible.
In the last six months, the crypto economy experienced significant milestones, fueling the record surge of the digital asset; and the industry is expected to preserve momentum even after rallies come to an end. Although we only just entered the second quarter of the year, we have seen a number of noteworthy developments in the field of cryptocurrencies, some of which are highlighted below.
Overall, the emerging crypto market is not only attracting retail investors, but also traditional financial institutions and large corporations that are looking to profit from the emerging trend of digital assets. Accordingly, we are experiencing the greatest appreciation of cryptocurrency in history and it is becoming clear the field is here to stay.
Following the explosive rise of their price and popularity, cryptocurrencies have come under increased scrutiny from governments and regulatory bodies. Although the legislative field is still playing catch up with respect to players in the virtual currency arena, there have been enforcement actions and a renewed focus on the regulation of crypto activities and participants.
Most notably, the appointment of Gary Gensler by President Biden on April 14, 2021, as the new Chairman of the Securities and Exchange Commission (SEC), commences a new era for cryptocurrencies, and financial technologies in general. Before joining the SEC, following his public sector role as the Chairman of the Commodity Futures Trading Commission, Gensler was a professor at MIT, where his teaching and research focused on blockchain technologies and digital currencies – all of which signal there is more coming to the crypto-regulatory space.
Most recently, on April 23, 2021, The Office of the Comptroller of the Currency (OCC) announced preliminary conditional approval of the application to charter for Paxos National Trust. If granted, Paxos will become the third cryptocurrency firm to score a federal trust charter through the OCC.
Within the U.S. Federal government, the regulatory focus for cryptocurrencies has been at the administrative and agency-level including:
Each regulator has its own stance on the regulation of cryptocurrency, or on the contrary, deregulation. Additionally, the different classifications of cryptocurrency by the regulators often make it confusing. The SEC oversees digital assets that are considered securities; the CFTC treats virtual currency as a commodity, while the IRS treats it as property. Additionally, the divide between pro-cryptocurrency states such as Wyoming and Colorado, and states with tighter regulations such as New York, adds another layer to the messy web of rules for companies dealing with virtual currencies.
Our recent article covers regulatory requirements for crypto entities operating in the U.S., regarding anti-money laundering rules within FinCEN and licensing regulations at state level. In addition to FinCEN, there is a long list of regulatory bodies and ever-changing obligations that organizations dealing with cryptocurrencies need to consider.
Most recently, in February 2021, The Office of Foreign Assets Control Group (OFAC) fined BitPay Inc. for violations of multiple sanctions programs related to cryptocurrency transactions, with a settlement of $507,375. In March 2021, Coinbase, a digital currency exchange operator, paid a penalty of $6.5 million to settle charges from the CFTC for reporting violations and improper trading activity.
Considering the serious legal and financial consequences of non-compliance with regulations, it is critical for businesses to understand, monitor, and fulfil their regulatory requirements. All entities dealing with cryptocurrencies must comply with their associated registration, licensing, and reporting requirements, in an accurate, timely and efficient practice.
With our extensive abilities in regulatory compliance, including former U.S. regulators on staff, Sia Partners is ready to assist clients with regulatory requirements and help manage all types of compliance needs for crypto-dealing businesses. Sia Partners remains current on all state and federal level regulations applicable to cryptocurrencies, to provide clients with the best strategy and compliance solutions aligned with their business plans. If you would like to obtain more information, please reach out to your Sia Partners contact.
Read more about the latest developments in the crypto industry in our article 'Risks Stablecoins Pose to the Cryptocurrency Market'