The plan directs the agency to develop a robust regulatory framework to prevent market misconduct, as SEC officials’ public comments keep advancements in technology high on the agenda.
By Marlon Q. Paz, Stephen P. Wink, Donald Thompson, and Deric Behar
On August 25, 2022, the Securities and Exchange Commission (SEC) published a draft Strategic Plan (the Plan) for fiscal years 2022–2026. The Plan focuses on three goals that, according to SEC Chairman Gary Gensler, advance the SEC’s
The latest bipartisan crypto bill would give the CFTC new tools and authorities to regulate digital commodities, with a focus on market integrity and consumer protection.
By Yvette D. Valdez, Adam Fovent, and Deric Behar
On August 3, 2022, a bipartisan group of US senators[1] introduced the Digital Commodities Consumer Protection Act of 2022 (the Bill). The Bill is the latest legislative proposal seeking to bring clarity to digital asset markets and the allocation of regulatory responsibility
The CFTC would take center stage in the regulation of spot digital asset markets under Title IV of the RFIA.
By Yvette D. Valdez, Adam Bruce Fovent, and Emily Viola
Latham & Watkins presents a blog series on the Responsible Financial Innovation Act, which was introduced in the US Senate on June 10, 2022, to create a framework for digital assets, cryptocurrency, and blockchain technology. This third post in the series covers CFTC and commodities regulatory issues.
Title IV of the Responsible Financial Innovation Act ( RFIA) is arguably the keystone of the proposed regulatory framework and would make various amendments to the Commodity Exchange Act (CEA), ultimately giving the Commodity Futures Trading Commission (CFTC) principal regulatory authority over digital asset markets.
The RFIA is the most wide-ranging crypto bill yet.
Latham & Watkins presents a blog series on the Responsible Financial Innovation Act, which was introduced in the US Senate on June 10, 2022, to create a framework for digital assets, cryptocurrency, and blockchain technology.
On June 10, 2022, US Senators Cynthia Lummis from the Senate Banking Committee and Kirsten Gillibrand from the Senate Agriculture Committee introduced legislation to create a framework for digital assets, cryptocurrency, and blockchain technology. The much-anticipated bipartisan bill, titled the Responsible Financial Innovation Act (RFIA), is the most ambitious digital asset bill yet put forward to Congress, and covers a broad range of topics. The legislation is designed to balance innovation and responsibility, and seeks to safely integrate digital assets into the existing regulatory fold through definitional and jurisdictional clarity.
Popular and institutional interest in digital assets, decentralized applications, NFTs, and blockchain technology skyrocketed, and regulators sprinted to catch up.
By Todd Beauchamp, Yvette D. Valdez, Stephen P. Wink , Adam Bruce Fovent, Adam Zuckerman, and Deric Behar
For the digital asset markets, 2021 was a banner year. Among the milestones:
• Bitcoin prices hit an all-time high, exceeding $65,000, up from about $30,000 at the end of 2020.
• Total value locked in decentralized finance (DeFi) surged from under $20 billion to over $250 billion in 12 months.
• Market capitalization for all digital assets reached $3 trillion.
• Non-fungible tokens (NFTs) went from crypto curiosity to mainstream phenomenon, with a single NFT selling for $69 million at a traditional auction house and notable NFT collections reaching trading volumes in the billions.
• Valuations for crypto companies and cryptoassets soared, with at least 40 unicorns (valuation of $1 billion or more) minted.
• Venture capital (VC) firms invested an estimated $32.8 billion into crypto and blockchain-related startups, including $10.5 billion in Q4 2021 (up from an estimated $8 billion for all of 2020). Furthermore, 49 new crypto-focused VC funds were raised, with three of those funds raising over $1 billion and two topping $2 billion.
Regulators once again offered piecemeal guidance, while focusing on risks and enforcement. Meanwhile, innovation and institutional adoption took off.
By Stephen P. Wink, Todd Beauchamp, Yvette D. Valdez, Eric S. Volkman, Adam Bruce Fovent, and Deric Behar
Last year, Latham & Watkins sounded a hopeful note that 2020 would provide a clearer vision than 2019 for the regulation of digital assets in the US. In the wake of the emergence of COVID-19, priorities changed, along with forecasts and expectations. The second and third quarters of 2020 had regulators of all stripes in triage mode, and any attention they may have directed at cryptoassets was understandably shelved. On the other hand, far from sidelining digital asset growth, the pandemic appears to have spurred further innovation and adoption. Regulators are now continuing to reckon with an asset class that remains without a comprehensive regulatory framework in the US.
The CFTC issues stringent guidelines for FCMs seeking to custody digital assets in connection with physically delivered futures contracts or swaps.
By Yvette D. Valdez, Adam Bruce Fovent, and Deric Behar
The US Commodity Futures Trading Commission’s (CFTC’s) Division of Swap Dealer and Intermediary Oversight (DSIO) issued CFTC Staff Letter No. 20-34 (the Advisory) on October 21, 2020, clarifying its views on the acceptance, holding, and reporting of virtual currency (e.g., bitcoin or ether) in segregated accounts by futures commission merchants (FCMs) and the development of appropriate risk management programs in relation thereto.
Specifically, the Advisory relates to virtual currencies deposited by customers with FCMs in connection with physically delivered futures contracts or swaps. Due to the “custodian risk” associated with holding virtual currency as segregated funds, the Advisory lays out specific guidance for FCMs on virtual asset acceptance and custody, and their responsibility to implement appropriate policies, procedures, and oversight programs. The Advisory does not address virtual currency held by FCMs on behalf of customers trading derivatives on markets outside of the US, or virtual currency held by FCMs on their own behalf, including in a proprietary account.
The OCC greenlights bank custody of cryptoassets, opening a significant door to mainstream adoption and innovation.
By Alan W. Avery, Todd Beauchamp, Yvette D. Valdez, Pia Naib, Loyal T. Horsley, Charles Weinstein, and Deric Behar
On July 22, 2020, the US Office of the Comptroller of the Currency (OCC) issued Interpretive Letter #1170 (the Letter), giving national banks and federal savings associations (FSAs) the greenlight to provide customers with custody services for cryptocurrencies and digital assets that are not broadly used as currencies (collectively, cryptoassets). The Letter, addressed to an unspecified recipient bank seeking to offer cryptoasset custody services as part of its existing custody business, noted that the opinion applies to national banks and FSAs of all sizes.
The long-awaited guidance clarifies the application of the “actual delivery” exception to leveraged virtual currency transactions with retail purchasers.
By Yvette D. Valdez, J. Ashley Weeks, and Deric Behar
Earlier this year, the US Commodity Futures Trading Commission (CFTC) approved final interpretive guidance (Guidance) concerning retail commodity transactions involving certain digital assets. The Guidance clarifies the CFTC’s views regarding the “actual delivery” exception to Section 2(c)(2)(D) of the Commodity Exchange Act (CEA) in the context of virtual currencies, and is intended for exchanges, trading platforms, custodians, and other market participants transacting in virtual currencies that are considered commodities (such as Bitcoin and Ether) and traded via leverage, margin, or other financing provided by the seller, trading platform, or other third party.
Product innovation (including in pooled investment vehicles) is encouraged, but innovation must be consistent with the law.
By Yvette D. Valdez, Douglas K. Yatter, J. Ashley Weeks, and Deric Behar
The US Commodity Futures Trading Commission’s (CFTC’s) Division of Swap Dealer and Intermediary Oversight (DSIO) Director Joshua B. Sterling issued a statement on February 10, 2020, supporting responsible digital asset product innovation, including pooled investment vehicles seeking exposure to digital assets and digital asset derivatives. The statement included an offer to assist innovators with the evaluation of new digital asset products that may not be subject to existing National Futures Association (NFA) disclosure and document review requirements.
Operators of pools that trade futures and options, swaps, or leveraged transactions referencing commodities (including digital assets such as Bitcoin and stablecoins) are required to register as commodity pool operators (CPOs) and must comply with attendant disclosure, record-keeping, and reporting requirements (unless otherwise exempt). Regardless of whether CPOs are exempt from supervisory oversight by the CFTC, they remain subject to the anti-fraud provisions of the Commodity Exchange Act when they market and offer interests in commodity pools to investors, in addition to regulatory and enforcement authority by the US Securities and Exchange Commission.