House Financial Services Committee Reviews PWG Stablecoin Report

House Financial Services Committee Scrutinizes PWG Stablecoin Report

During a hearing before the House Committee on Financial Services, the representatives considered legislative recommendations from the November 2021 President’s Working Group (“PWG”) report on stablecoins. (See also Majority Staff Memorandum.) As previously reported, SEC Chairman Gary Gensler and CFPB Director Rohit Chopra supported the recommendations and pledged that their agencies would take action to address the identified risks. in the report.

Undersecretary for Home Finance Nellie Liang testified about these risks, including: (i) the risk of a stablecoin run; (ii) payment system risks; and (iii) risks due to the concentration of economic power. Ms. Liang reiterated the recommendations of the PWG report, including: (i) limiting the issuance of stablecoins to insured depository institutions; (ii) empower supervisors of stablecoin issuers to set risk management standards; and (iii) putting in place measures to reduce concerns about the concentration of economic power. She pointed out that “[bank] The regulation provides a proven regulatory model that would protect against the prudential risks of stablecoins. »

Liang also said the Financial Stability Oversight Board is evaluating stablecoins for potential systemic risks, which could lead to certain stablecoin arrangements being designated as “systemically important payment activities.” She concluded that policy should not only focus on the digital assets themselves, but also on the regulation of intermediaries such as custodial wallet providers, and the systemic risks arising from investors’ leverage on digital assets.

UK and US financial authorities are working on CCP resolution issues

Senior officials from the Bank of England, FDIC, CFTC, SEC, and Federal Reserve Board reviewed joint progress on (i) central counterparty (“CCP”) resolution issues and ( (ii) the development of detailed operational planning to support prototype resolution strategies for UK and US CCPs.

OFAC issues Ethiopia sanctions regulations

OFAC issued sanctions regulations to implement President Biden’s Executive Order 14046 “Imposing Sanctions on Certain Individuals in Relation to the Humanitarian and Human Rights Crisis in Ethiopia.”

In addition, OFAC said it intends to issue more comprehensive regulations in the future, including “additional guidance and interpretative definitions, general licensing and other regulatory provisions.” The Ethiopia Sanctions Regulations will be effective upon publication in the Federal Register on February 9, 2022.

In addition, OFAC amended its regulations to implement the federal Civil Monetary Penalties Inflation Adjustment Act of 1990 for 2022, which adjusts the maximum penalty amount for inflation. civil pecuniary. This amendment will be effective upon publication in the Federal Register on February 9, 2022.

DOJ charges two people with conspiracy to launder billions in stolen cryptocurrency

The DOJ charged two people with conspiracy to launder money and conspiracy to defraud the United States, linked to stolen cryptocurrency in a 2016 hack of Bitfinex, a virtual currency exchange .

The criminal complaint against the two individuals alleges that they used various “sophisticated money laundering techniques”, including: (i) the use of fictitious identities for online accounts; (ii) use computer programs to automate transactions; (iii) deposit the stolen crypto funds into “accounts at various virtual money changers and darknet markets and then withdraw the funds”; (iv) convert bitcoin into other cryptocurrencies using a practice called “chain hopping”; and (v) the use of “US-based business accounts to legitimize their banking activity”.

The DOJ said it seized more than $3.6 billion in cryptocurrency linked to the hack.

Individual Settles FINRA Fees for Churning and Excessive Trading Violations

An individual formerly associated with multiple brokers has settled charges relating to brokerage account rotation and excessive trading.

According to an undisputed settlement offer (“settlement”), from 2014 to 2020, the individual shuffled and overtraded nine different accounts for seven clients in an effort to generate additional fee commissions. FINRA Enforcement said the individual made the same short-term trades across all accounts, sometimes using margin, which resulted in clients paying approximately $1.6 million in fees and other trading fees while suffering losses of $1.1 million. In doing so, the individual generated $1.5 million in commissions for himself and associated businesses. The FINRA application had alleged that the individual acted with intent to defraud his clients and failed to consider their best interests when engaging in trades.

According to the settlement, the individual was found guilty of violating SEA Rule 10b-5, FINRA Rule 2020 (“Use of Manipulating, Deceptive, or Other Fraudulent Devices”), FINRA Rule 2010 FINRA (“Business Honor Standards and Principles of Commerce”) and FINRA Rule 2111 (“Fitness”) and, therefore, he was prohibited from associating with a FINRA member.

Primary sources

  1. Virtual Hearing – Digital Assets and the Future of Finance: The President’s Task Force on Financial Markets Report on Stablecoins

  2. House Financial Services Committee Memorandum

  3. US Department of Treasury: Testimony of Under Secretary of Home Finance Nellie Liang to the Financial Services Committee, US House

  4. Joint Minutes of the Meeting of Heads of UK and US Authorities on Central Counterparty Resolution

  5. Joint Minutes of the Meeting of Heads of UK and US Authorities on Central Counterparty Resolution

  6. Publication of Sanctions Regulations in Ethiopia; Implementation of the Federal Civil Penalties Inflation Adjustment Act

  7. OFAC: Ethiopia Sanctions Regulations

  8. Executive Order 14046

  9. OFAC: Civil Monetary Penalty Inflation Adjustment

  10. DOJ Press Release: Two Arrested for Alleged Conspiracy to Launder $4.5 Billion in Stolen Cryptocurrency

  11. FINRA Settlement Offer: William Nicholas Athas

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XII, Number 40

Stephen V. Lee