Following U.S. Treasury Secretary Steve Mnuchin’s warning that the federal government will pursue “very, very strong” enforcement of existing cryptocurrency regulations, various federal agencies and self-regulatory organizations have started to take a step further in tightening oversight on the budding bitcoin industry.
Secretary Mnuchin first criticized the use of crypto assets in financing illicit activities on July 15. He stated that with the establishment of the Financial Stability Oversight Council’s Working Group on Digital Assets, regulators will work at full capacity to combat risks posed by the emerging asset class.
At the time, Mnuchin noted that crypto entities and money transmitters are to be regulated in the same way as banks and financial institutions in the U.S., essentially warning companies to watch their backs.
“The rules governing money service providers apply to physical and electronic transactions alike. As money service businesses, cryptocurrency money transmitters are subject to compliance examinations, just like every other U.S. bank. To be clear, FINCEN will hold any entity that transacts in bitcoin, Libra, or any other cryptocurrency to its highest standards.”
In a regulatory notice, the Financial Industry Regulatory Authority (FINRA) encouraged every member firm engaging in activities related to crypto assets to notify the organization.
“Firms that engage in activities related to digital assets, whether or not they are securities, are reminded to consider all applicable FINRA rules and federal and state laws, rules and regulations,” the document read.
FINRA has been cooperating with the U.S. Securities and Exchange Commission (SEC) to lead the approval process of broker-dealer custodians of crypto assets and said that members will have to open lines of communication on the matter throughout the short to medium term.
“As securities regulators continue to provide guidance to members regarding the unique regulatory challenges presented by digital assets – e.g., Joint Statement on Broker-Dealer Custody of Digital Asset Securities – FINRA believes it is important to keep the lines of communication with members open on this important topic.”
In early July, the SEC jointly stated with FINRA that firms that intend to provide custody of crypto assets have to register with FINRA and the SEC, even those that are already registered with the agency.
“Various unregistered entities that intend to engage in broker-dealer activities involving digital asset securities are seeking to register with the Commission and have submitted New Membership Applications (‘NMAs’) to FINRA. Additionally, various entities that are already registered broker-dealers and FINRA members are seeking to expand their businesses to include digital asset securities services and activities,” the SEC statement read.
With the skeptical stance of the Trump administration towards cryptocurrencies, FINRA and the SEC are expected to implement a rigorous approval process for broker-dealers.
Meanwhile, the Commodity Futures Trading Commission is reportedly probing BitMEX, the world’s largest crypto derivatives trading platform. Other industry giants including Bitfinex and Tether also remain under the regulatory spotlight.
All of this presents bitcoin investors with a mixture of good and bad news.
Stronger oversight of the cryptocurrency market could be seen as a protective safeguard for retail investors and could help institutional investors become more comfortable with the industry.
However, there’s also a concern that enhanced restrictions will hamper the industry’s growth, making it more difficult for legitimate bitcoin businesses to operate in the world’s largest economy.
Last modified: March 4, 2021 2:38 PM