Webinar Recap: Digital Assets and Cryptocurrency Regulations

The crypto regulatory landscape is a new frontier in commerce, and the industry is maturing at lightning speed. It’s more important than ever for crypto companies to be aware of current and emerging regulations surrounding cryptocurrencies and their transactions in order to prepare for what comes next. This is why Regology’s Director of Financial Services Industry, Esteban Santana, and Armanino’s Managing Director, Cristiano Brandalese, recently conducted a webinar on “Navigating Cryptocurrency & Digital Asset Regulations in the United States”.

The webinar highlighted recent regulatory announcements around cryptocurrency, examining the current state of cryptocurrency regulations in the US and discussing upcoming developments that we expect as we move forward.

Below are the key takeaways.

Clear Need for Standards

Esteban opened the panel by stressing that crypto regulation is needed now more than ever, particularly with all the noise surrounding crypto worldwide and many US states like Arizona, Colorado, Florida, and Ohio attempting to move forward with the acceptance of cryptocurrency for government services. “...one needs to remain hopeful the regulatory framework will speed up in a positive manner [...] All we can do is just learn from past lessons and the information available to us today.”Cristiano added that the blockchain and all the digital asset projects on top of it have clear advantages:

• There's a more inclusive way to access financial services;
• There's a considerable level of security;
• There's a possibility of a lower cost of transactions.

“There's clearly a need for standards – uniform standards that everybody can follow in order to do two things: one is to make sure that the good projects can excel in the space and two – in order to maximize the advantages for the consumers; in order to give the consumers what they want, and what they need, and make sure that they also have some stability in the investments.”

Impact of Biden’s Executive Order

The conversation continued on the subject of the signing of the Executive Order and the timelines of crypto regulations in the U.S.“…many businesses will either be ill-prepared waiting to see how things turn out with the Order or wait until the last day to catch up once regulations are announced,” said Esteban. “Success depends on preparedness – you either fail to plan or plan to fail.”“According to the Order, the report from the Secretary of the Treasury to the President is due within 180 days from the signing of the order, which puts us in September [...] These new rules regulations, and policies for the order should reduce the unpracticality, and it should also open the door to widely traded crypto-related financial products and bring about higher consumer and investor confidence. But I think educating people is a key component.”

“The Executive Order is calling out three main things that can be recognized,” elaborated further Cristiano, “Number one, crypto cannot be neglected, crypto is here and has been for a while. Number two, crypto needs to be regulated. The third one, the US would like to play a leading role in this space.”

He continued: “The idea is that we need to get prepared. How? It depends on how the regulations are going to play out, but [...] regulators are beefing up, so there's going to be an increase, probably, in compliance costs. Increasing compliance costs will, probably, create a barrier at the entrance for some of these new projects.”

“With an increased amount of spending on compliance, the second is automation. We've seen demos of more and more automatic tools that can help to stay abreast of regulatory changes or new regulations. [...] We've seen the possibility to use automated tools in order to track, monitor, and regulate some of the transactions. So, my opinion is that we'll see an uptick in these automated tools.“

The third one [...] every time you talk to [clients], it's “do you have a checklist? can you please provide me a checklist?” [...] Regulations are still vague…there is a possibility for regulators to sit down with technical aspects on the crypto space and understand, educate themselves on what crypto is.”

Regulators Responsible for Overseeing Crypto in US

The conversation, then, shifted to put the regulatory bodies to the forefront and what to expect from them in the near future.“The President's council in the financial stability oversight will play an important role in ironing out the regulatory differences definitions and jurisdictions,” elaborated Esteban. “The Order, in part, directed the coordination of 17 federal agencies and the input from another seven federal agencies as needed to implement the Order.”

“[...] the seven agencies who may or may not be asked for input or who may or may not be invited to attend meetings include, among others, the Federal Reserve, the Consumer Financial Protection Bureau, the Federal Trade Commission, and the SEC, the Federal Deposit Insurance Corporation, and the Office of the Controller of the Currency.”

“Although these agencies are independent and are considered quasi-government, they're the ones who have contact with financial institutions and enforce the rules or regulations of our financial system. Some argue it's chaotic, others argue it's organized chaos. All I know is that, during my years with the FDIC, I worked with these agencies, and I am confident they're not going to stand on the sideline without providing input. I believe that, once the rules and regulations are published, I expect all these agencies will regulate cryptocurrency and pursue criminal investigations in their own respective space.”

Learnings from Crypto-Friendly Countries

And on the topic of what type of regulations to expect, the panelists agreed that regulators should not reinvent the wheel, but leverage the existing framework that has been successful in other countries.“I believe Malta is on the right path,” said Esteban. “Cryptocurrency is not legal tender, but it's recognized as a medium of exchange […] it has some of the strictest cryptocurrencies regulations in the world…”“In 2018, the Maltese parliament passed three bills into laws, which established the first regulatory framework for blockchain, cryptocurrency, and distributed ledger technology, which made Malta the first country in the world to provide an official set of regulations. These laws provide cryptocurrencies with guidance to operate with regulations and within the regulatory bodies.”

“The three bills were the Multi-digital Innovative Authority Act, the Innovative Technology Enrichments and Services Act, and the Virtual Financial Assets Act.”

“I’d say Malta created a wheel that the US can realign to meet the needs of the US regulators,” he suggests. “Regulators should not reinvent the wheel but leverage what’s worked and what hasn’t worked in other countries.”

AML Will Be a Primary Regulatory Issue

According to the number of penalties and the hefty fines associated with them, anti-money laundering (AML) is predicted to be the number one concern for crypto companies, particularly on the record-keeping front.“Regulators have issued an estimated 2.5 billion from crypto-related penalties, for which approximately 183 million were for anti-money laundering violations,” notes Esteban.“...cryptocurrency falls under the regulatory scope of the BSA, the Bank Secrecy Act, which means that they have to register with FinCEN [...] and to comply with anti-money laundering and CFT programs, which include record-keeping and reporting requirements.”

“...ensure your organization has policies controls and procedures that effectively manage risk and this can be accomplished with an AML and know-your-customer compliance management program that not only keeps track of changes but provides associated risks and objectives to minimize risks. If your organization offers a new business product, the KYC and AML are critical regulations for crypto businesses to fully comply with, starting today - don’t wait!”

To learn more about how federal regulators evolving to address crypto businesses and what is the future of cryptocurrency companies as we move into 2023 and beyond, view the entire webinar by clicking on this link: https://resources.regology.com/cryptowebinarrecording

‍If you would like to know more about how Regology can help you navigate crypto regulations and focus on what’s important for your organization’s unique requirements, click here.