US in Dire Need of Clear Rules on Crypto, Says Top Banking Regulator
Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
In a care[...]
The case against BitMEX is a compass pointing towards the future of crypto regulation
Cointelegraph | Shiraz Jagati | Oct 6, 2020
The CFTC and DOJ actions against BitMEX suggest that the crypto industry still has a lot of work ahead to meet KYC/AML standards.
Recent years have seen the crypto industry mature across the global economic landscape, but it still runs into high-profile snags. On Oct. 1, the United States Department of Justice filed criminal charges against four executives of the BitMEX trading platform — including its founder, Arthur Hayes — for violating the Bank Secrecy Act. One of the executives in question has been arrested, according to a DOJ statement.
See: How blockchain regulations will change in 2020
Furthermore, the Commodity Futures Trading Commission also filed a civil enforcement action against BitMEX and three of its executives for violating Anti-Money Laundering regulations.
The regulatory body claimed that BitMEX and its top brass have been engaging in shady activities for years, such as using weak Anti-Money Laundering and Know Your Customer policies that bad actors can exploit using various methods such as VPNs to mask their virtual identities, among others.
“BitMEX has been under investigation by the CFTC since early 2019 for allowing Americans to trade on the platform, and they were given time to improve their Customer Identification Program to effectively exclude US persons. It’s not that law enforcement hasn’t been following and warning BitMEX, but that BitMEX’s ongoing negligence and lack of compliance led to the hammer finally coming down on them.” John Jefferies, chief financial analyst at CipherTrace
Additionally, BitMEX makes use of a complex international corporate structure that includes a number of separate individual entities, and as a result, it’s not entirely clear where exactly the firm is based. Also, it’s worth noting that BitMEX openly promotes on its website that it’s registered in the Seychelles and has offices in premier destinations such as Hong Kong and New York.
See: City watchdog bans sale of risky cryptocurrency-linked products to protect retail investors against shock losses
“If BitMEX is found to have been operating unlawfully, in addition to the fines and penalties, the CTFC will also seek to ‘disgorge’ or recoup all of the profits generated by the exchange. This is consistent with the general idea that ‘wrongdoers’ should not profit from their unlawful activity.” Dean Steinbeck, chief operating officer of Horizen Labs
Regulatory action could be a game-changer for crypto industry
The allegations against BitMEX are serious and make a compelling case for decentralization. For its proponents, one of the more favorable attributes of decentralization is that no single entity or individual is in charge of the protocol because it’s run by its users through decentralized governance.
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Decrypt | Robert Stevens | Oct 6, 2020
US in Dire Need of Clear Rules on Crypto, Says Top Banking Regulator
In brief
- The acting Comptroller of the Currency, Brian Brooks, spoke at the LA Blockchain Summit today.
- He said he wants to help provide regulatory clarity about cryptocurrencies.
- Since assuming the role, he's clarified that banks can hold custody over cryptocurrencies.
Brian Brooks, head of the US regulatory agency that supervises the nation’s banks, spends his days trying to calm the cryptocurrency industry’s raging seas.
“If there’s bad activity in crypto, we need to get rid of it,” said the head of the Office of the Comptroller of the Currency (OCC) in an interview at the LA Blockchain Summit today. But, “If we’re going to get the benefit of these radical new technologies that will make credit more accessible, that will help those people who have not been included in the old system, we gotta figure it out.”
See: City watchdog bans sale of risky cryptocurrency-linked products to protect retail investors against shock losses
Brooks, formerly the top lawyer for leading US-based cryptocurrency exchange Coinbase, has advocated for clarity about cryptocurrencies since becoming the acting Comptroller of the Currency, a role he assumed in April of this year.
In July, the OCC clarified that regular banks could custody cryptocurrencies. And last month, it clarified that banks could hold the reserves of companies that issue stablecoins.
“Over time, these blockchains may really just be payment [systems],” said Brooks of stablecoins. “If so, we need to start providing some clarity to banks about the circumstances in which they can support those blockchains and at some time can use it in the future,” he said today. “We’re working with our other agencies to ensure that there’s clear and consistent messaging on that.”
Institutions are “hostile” to crypto, he said, though that’s because regulators haven’t put forward a framework to minimize risks. “What we’re trying to do is just provide clarity,” he said. “The market can only develop organically if there’s clarity.”
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