The big change in the SEC regarding crypto hit May 3, 2022. They practically doubled their size.
SEC Policy
They announced the allocation of 20 additional positions to the unit responsible for protecting investors in crypto markets and from cyber-related threats. The newly renamed Crypto Assets and Cyber Unit (formerly known as the Cyber Unit) in the Division of Enforcement will grow to 50 dedicated positions.
“The U.S. has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them,” said SEC Chair Gary Gensler. “The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets. By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity.”
Since its creation in 2017, the unit has brought more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms, resulting in monetary relief totaling more than $2 billion. The expanded Crypto Assets and Cyber Unit will leverage the agency’s expertise to ensure investors are protected in the crypto markets, with a focus on investigating securities law violations related to:
- Crypto asset offerings;
- Crypto asset exchanges;
- Crypto asset lending and staking products;
- Decentralized finance (“DeFi”) platforms;
- Non-fungible tokens (“NFTs”); and
- Stablecoins.
In addition, the unit has brought numerous actions against SEC registrants and public companies for failing to maintain adequate cybersecurity controls and for failing to appropriately disclose cyber-related risks and incidents. The Crypto Assets and Cyber Unit will continue to tackle the omnipresent cyber-related threats to the nation’s markets.
“Crypto markets have exploded in recent years, with retail investors bearing the brunt of abuses in this space. Meanwhile, cyber-related threats continue to pose existential risks to our financial markets and participants,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “The bolstered Crypto Assets and Cyber Unit will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges.”
The infusion of 20 additional positions into the Crypto Assets and Cyber Unit will bolster the ranks of its supervisors, investigative staff attorneys, trial counsels, and fraud analysts in the agency’s headquarters in Washington, DC, as well as several regional offices.
Crypto Lending
The U.S. Securities and Exchange Commission (SEC) is reportedly complicating matters for lenders in the crypto industry with some of its guidelines.
According to a report from Reuters, multiple large lenders from banks such as U.S. Bancorp, Goldman Sachs and JPMorgan Chase & Co are having trouble getting into the digital asset space because of the SEC’s policy on crypto lending.
Earlier this year, the SEC announced a set of guidelines that instructed crypto firms to start treating their users’ funds as their own liabilities on their balance sheets.
In the SEC’s bulletin from March 31st, it states:
“As long as Entity A is responsible for safeguarding the crypto assets held for its platform users, including maintaining the cryptographic key information necessary to access the crypto assets, the staff believes that Entity A should present a liability on its balance sheet to reflect its obligation to safeguard the crypto assets held for its platform users.”
According to Reuters, strict capital rules require banks to hold cash against liabilities on their balance sheet.
Reuters’ also sources say that this policy has thrown a “huge wrench” into the industry, and that lenders building out crypto offerings have had to cease moving forward with their plans pending any further action from the SEC and banking regulators.
Nadine Chakar, head of State Street Digital said,
“We do have an issue with the premise of doing that, because these are not our assets. This should not be on our balance sheet.”
A spokesperson from U.S. Bancorp tells Reuters the bank would still be servicing already existing clients in its Bitcoin custody service, but would be pausing all intake of additional clients while the company evaluates the regulatory situation.
Featured Image: Shutterstock/Marko Aliaksandr/Fotomay
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