Weekly Blockchain Focus

  • U.S. House Financial Services Committee Hearing
  • New Jersey Attorney General Gurbir Grewal to join SEC as head of enforcement
  • FBI Bolstering Tactics Against Illicit Cryptocurrency Transactions and Cybercrimes
  • TP ICAP To Launch Cryptoasset Trading Platform
  • Proposed Regulatory Framework – Cryptoassets in South Africa


U.S. House Financial Services Committee Hearing

The U.S. House Financial Services Committee conducted a hearing on June 30, 2021, entitled “America on ‘FIRE’: Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?” to discuss the impact of increased trading of digital assets on the U.S. financial system.

Although primarily a fact-finding hearing, multiple representatives did express concern over the trading activities of retailer investors and hedge funds, the environmental impact of proof of work protocols, like Bitcoin, as well as the current lack of regulatory clarity.

The committee heard from industry experts, including legal experts from the private section, who called for congress to work with grassroots organizations to establish industry sponsored voluntary self-regulator associations, to provide regulatory clarity over agency jurisdiction, and to codify a unified standard on the security status of digital assets.

Various regulatory proposals were raised, including bringing the crypto asset spot markets under the authority of the Commodity Futures Trading Commission (CFTC) and permitting crypto exchange traded funds (ETF) on U.S. stock exchanges with a rationale that such regulated ETFs would be a safer investment for retail investors than the spot markets.

House Financial Services Subcommittee Hearing on Cryptocurrency | C-SPAN.org


New Jersey Attorney General Gurbir Grewal to join SEC as head of enforcement

New Jersey’s Attorney General Gurbir Grewal has been appointed to head the enforcement division of the Securities and Exchange Commission (SEC). In this role, he will be responsible for overseeing enforcement actions that address misconduct across the securities markets.

Prior to serving as the New Jersey Attorney General, Grewal served in local, statewide, and federal positions, including serving as the Bergen County Prosecutor, an Assistant U.S. Attorney in the Criminal Division of the U.S. Attorney’s Office for the District of New Jersey – where he held the position of Chief of the Economic Crimes Unit, and as an Assistant U.S. Attorney in the Criminal Division of the United States Attorney’s Office for the Eastern District of New York.

While at the New Jersey Bureau of Securities, Grewal partnered with the North American Securities Administrators Association which consists of 40 other state and provincial securities regulators in the United States and Canada on an international attempt to combat fraudulent Initial Coin Offerings.

SEC.gov | SEC Appoints New Jersey Attorney General Gurbir S. Grewal as Director of Enforcement

State of New Jersey (nj.gov)

FBI Bolstering Tactics Against Illicit Cryptocurrency Transactions and Cybercrimes

The United States Federal Bureau of Investigation (FBI) has significantly scaled up its activities and resources to address the increased use of cryptoassets in cybercrime. The FBI now actively accesses networks remotely and kicks attackers out in real-time during the attacks. In an interview with Bloomberg, Elvis Chan, the assistant special agent in charge of cyber investigations in the FBI’s San Francisco field office, explained that “[t]he FBI has definitely decided to be more aggressive,” partly resulting from an increase in the number of cybercrimes since the Covid-19 pandemic started. According to Mr. Chan, the pandemic has “supercharged the bad guys, which has led us [the FBI] to have to supercharge as well.”

In recent years, hackers have targeted U.S. critical networks, causing disruption in gas pipelines, food production and water supply. This increased FBI activity has already resulted in the successful recovery of cryptoassets, including the recovery of a private key associated with crypto wallets belonging to the hackers of the ransomware attack of the Colonial Pipeline. The FBI has not disclosed how it has accomplished that feat.

FBI Muscles Up Against Hackers With Breaches Going ‘Bananas’ – Bloomberg


TP ICAP To Launch Cryptoasset Trading Platform

TP ICAP Group plc (TP ICAP) has announced that it will be launching a platform that will serve as a wholesale electronic marketplace for spot trading cryptoassets, in collaboration with Fidelity Digital Asset Services, LLC (Fidelity Digital Assets), Zodia Holdings Limited (Zodia Custody) and Flow Traders group (Flow Traders).

Fidelity Digital Assets and Flow Traders are providing cryptoassets custodians services to the platform, with the intent “to ensure clients have a segregated and interoperable model for execution and settlement” while proving clients “to access liquidity at TP ICAP whilst their assets remain under custody at their digital asset custodian of choice” (TP ICAP Press Release). Flow Traders will provide liquidity to the platform.

In the TP ICAP Press Release, Simon Forster, Co-Head of Digital Assets at TP ICAP, explains that, “Client demand to trade spot cryptoassets is significant and growing, with interest coming from our traditional customer base across the different asset classes we operate in. But to date many of our clients have been prevented from accessing cryptoasset markets due to current limitations in market infrastructure, with most execution venues requiring pre-funding and also acting as custodian. This poses challenges from a conflict of interest perspective and results in fragmented liquidity. Our partnership, and resultant new platform, is a natural evolution in market structure that will make digital assets, such as Bitcoin, more accessible for the wholesale market.”

TP ICAP has applied for registration UK Financial Conduct Authority (FCA) and will be subject to regulation under the Money Laundering, Terrorist Financing and Transfer of Funds (Payer Information) Regulations 2017. The platform will not launch until the FCA registration process has been completed. However, as noted in the TP ICAP Press Release, “[t]he FCA’s responsibility under this regime is limited to AML/CTF registration supervision and enforcement only.” The TP ICAP platform will not be issued a FCA license and the FCA’s registration process does not serve as a recommendation or endorsement of the platform.


Proposed Regulatory Framework – Cryptoassets in South Africa

In light of increased fraud and criminal activity utilizing cryptoassets, including notably the collapses of Johannesburg-based Mirror Trading International and Africrypt, the South African government is now running an intergovernmental collaboration to create an effective regulatory framework. Although announcing increased and phased regulatory action by the Intergovernmental Fintech Working Group early this year, the South Africa government has signaled that the timeline for action has accelerated, with the official framework to be finalized in the next three to six months. The working group has made released this framework and is currently seeking comments from the public.

In a June 30, 2021 address by Ronald Lamola, Minister of Justice and Correctional Services, at the Digital Currencies and Anti-money laundering Dialogue in partnership with World Economic Forum and Financial Action Task, Mr. Lamola argued that the regulation of the financial markets can be used as a social justice tool and that “[e]nsuring the financial system is inclusive is paramount in the process of creating a more equal and just society.” Mr. Lamola explained that South Africa and other previously colonized states are especially at risk of financial misconduct as the legacy of apartheid is still present in the “incestuous” practice of the financial institutions and continued influence by foreign actors.

The Intergovernmental Fintech Working Group has outlined a risk-benefit analysis and a unified based approach to regulatory action that takes into account regulatory developments and requirements set by other standard-setting bodies.

20210630-WEF-DigitalCurrencies-Min.pdf (justice.gov.za)