Developments to watch. Senator Warren and others introduced new legislation to meet a purported need to close the gap in sanctions compliance. Digital Asset Sanctions Compliance Enhancement Act of 2022 A great summary on the debate about whether digital assets are a material conduit for economic sanctions. The EU passed a proposal to eliminate anonymous crypto transactions. Parliament Vote to Require AML for Self-Custody Wallets etc.
Responsible Innovation: President Biden Issues Executive Order Detailing National Policy Objectives for Digital Assets. President Biden issued an Executive Order (E.O.) calling for studies and reports within approximately 6 months. The EO was met by many as a nod to supporting smart regulation of blockchain projects. The E.O. itself does not propose additional requirements or regulations for digital assets. But rather, it brings to light the specific regulatory approaches for these assets.
Sustainability issues to track with blockchain projects: The EU vote on bitcoin mining provided a strong belief that crypto currency was not going to be a phase; rather, certain digital assets may be here to stay. The issue being discussed is the environmental impacts that are caused from crypto. The EU was determining if the activity of crypto mining was sustainable or not which could change the way that crypto may be approached by individuals due to global energy consumption.
SEC and Other Enforcement Actions
Digital Assets Make the List Again. For the 3rd year, digital assets and emerging technologies are included in 2022 SEC exam priorities. The exam focus for digital assets includes custody arrangements, assessment of all aspects of transactions, duty of care of understanding the products, review of compliance practices, risk disclosures and operational resiliency practices.
FINRA issues updated guidance & request for comment. Not a big surprise, FINRA treats crypto futures/crypto as “complex products” so that retail investors receive enhanced protections. “Mutual funds and ETFs that offer strategies employing cryptocurrency futures. In addition to their exposure to cryptocurrency, which could itself be considered complex, these funds track futures contracts rather than the underlying cryptocurrency.” FINRA requesting comment on complex products queries until May 9.
No Permission to Operate. Binance stops business in Ontario.
YOUR COMPLIANCE & RISK PROGRAM
More Institutional Interest in Digital Assets. Digital assets continue to be more relevant for compliance officers in traditional financial services firms. BlackRock filed with the SEC to launch the iShares Blockchain and Tech ETF which would allow the tracking of index comprising companies involved in development and deployment of crypto technologies in the US and abroad.
Sample Disclosures. The EU Financial Authorities offer 10 points of disclosure for digital assets that compliance officers can use for digital asset platforms. i.e., Disclosures cover topics such as warning consumers they are accepting speculative risks with loss of funds, price and liquidity are volatile and unpredictable and typical government protections re: complaints are not available.
Gift Policy Update. New Jersey Assembly Bill 3287 is a good reminder to review compliance policies and consider updating them to include this new asset class for gift limitations, prohibitions and pre-clearance requirements. The bill prohibits public officials from accepting virtual currency and non-fungible tokens as gifts.