No Result
View All Result
SUBSCRIBE | NO FEES, NO PAYWALLS
MANAGE MY SUBSCRIPTION
NEWSLETTER
Corporate Compliance Insights
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
No Result
View All Result
Corporate Compliance Insights
Home Compliance

Regulators Catching Up with the Crypto Craze

by Jesse Brown
April 13, 2018
in Compliance, Featured
pile of cryptocurrency coins

The Risk to Investors

Despite the proliferation of Bitcoin and other cryptocurrencies, financial regulators have been slow to introduce rules to govern them. Cordium’s Jesse Brown surveys the current state of regulation regarding investment in cryptocurrencies and ICOs and discusses the compliance considerations investors should make before pursuing investments in the crypto space.

Cryptocurrency and its applications within the financial industry are now mainstream news, and new instruments, products and price fluctuations capture the headlines daily. Many investors are eager to jump in, but the speed with which the underlying technology has developed means that regulatory bodies are working from behind, rushing to create rules governing the new types of investments that cryptocurrencies have given rise to. While some major markets, such as China, have banned digital currency exchanges entirely, developments in the United States suggest that regulators are pursuing less drastic measures, working to apply rules and oversight to the industry rather than imposing an outright prohibition.

The SEC Office of Compliance Inspections and Examinations recently announced that cryptocurrencies, initial coin offerings (ICOs), secondary market trading and blockchain are on its list of exam priorities for 2018. Given the mounting popularity and intense media attention directed at these issues, the SEC is under pressure to address possible regulation. Until they do so comprehensively, investors will be forced to navigate a patchwork regulatory structure based on isolated individual decisions and oblique signals. International rules create an entire additional set of issues.

To make sure they stay compliant, investors should take a cautious approach as they wait for additional signals from governing bodies about the classifications of these new instruments. And of course, it’s always important to be well-versed in the definitions and current regulatory status of the technologies and processes involved.

Cryptocurrencies

So what are cryptocurrencies, and are they regulated? Simply put, cryptocurrencies are a digital form of currency which can be used as a unit of exchange. Cryptocurrencies are currently being examined by regulators throughout the world to determine if they fall within their respective jurisdictions. While the SEC has yet to apply any of its existing regulatory guidelines to cryptocurrencies, they have stated that certain cryptocurrencies are within their jurisdiction depending on their uses and characteristics, which has led to the announcement of a focus on ICOs. The Internal Revenue Service (IRS) treats cryptocurrencies as a unit of account, meaning they do not have legal tender status. If an investor were to hold Bitcoin as an investment, it would be taxed as a capital asset, meaning capital gains and losses can apply.

Initial Coin Offerings

An initial coin offering is similar to an initial public offering (IPO). An ICO is a project in which raising capital is completed through issuing a cryptocurrency or token, which investors can purchase. These tokens are generally used as a form of currency within the company for products or services. If an ICO markets its tokens as having the ability to increase in value, those tokens can be considered securities by the SEC. As of December, no ICOs had been registered with the agency. This process is unregulated and may pose a threat to retail investors. Although many ICOs are legitimate business functions, the SEC warns that ICOs can defraud investors through misinformation and lack of transparency, aided by a lack of oversight from regulators. Ernst & Young has reported that 10 percent of the $3.7 billion raised in initial coin offerings has been lost or stolen.

In January, the SEC sued AriseBank for alleged fraud. AriseBank launched an ICO that promised investors the company was purchasing an FDIC-insured bank. The marketing campaign touted that the bank purchase would enable customers to have FDIC-insured accounts within a cryptocurrency-focused banking firm. The SEC claims that the token sale and nature of the ICO implied that the tokens will increase in value, making them fall under the SEC definition of a security. This action corresponds directly with the 2018 exam priorities announced by the SEC, and enforcement actions seem likely to continue. On February 28, news emerged of a sweeping SEC probe in which dozens of subpoenas and information requests were issued to companies involved in the cryptocurrencies market.

Regulatory Trends

Cryptocurrency speculation by retail investors is largely based on regulatory and media announcements. Recent extreme volatility in cryptocurrency markets has focused attention on what regulators will do to protect and inform everyday investors.

United States regulators have so far been open to the inclusion of cryptocurrencies in the financial system. However, the SEC has denied all cryptocurrency exchange-traded fund applications to date. Citing the number of unknowns in the space, the SEC is still examining its regulations to see if and how they apply to cryptocurrency products. Some foreign regulators, such as the China Securities Regulatory Commission (CSRC), have banned all cryptocurrency exchanges. This effectively prohibits cryptocurrencies in what would be their largest market. In South Korea, where the Won is one of the most common currencies used to trade Bitcoin, the Financial Services Commission has announced a focus on creating higher levels of transparency. It has taken this course rather than implementing a ban, as they had previously suggested. In the case of cryptocurrency products, the major financial regulators throughout the world are keeping close eyes on each other. Overall, we expect the SEC to continue engaging in enforcement actions against illegitimate cryptocurrency exchanges and ICOs in the near future, as they continue to act upon Chairman Jay Clayton’s assertion that “many promoters of ICOs and cryptocurrencies are not complying with our securities laws.”

In the meantime, it will be up to investors to use their best judgment and carefully vet incoming opportunities to ensure they are legitimate and in alignment with the investor’s objectives. As in most cases where new technology is accompanied by a media frenzy, the market is rife with get-rich-quick schemes and potential traps for investors. For those looking to remain safe and compliant, a healthy dose of caution is needed.


Tags: BlockchainCryptocurrencySEC
Previous Post

Most Organizations Have Sexual Harassment Policies in Place But Only 38% Plan to Update Them

Next Post

Data is Power: Wield it Wisely

Jesse Brown

Jesse Brown

Jesse Brown is a Compliance Associate in Cordium’s compliance consulting division. Jesse helps investment managers successfully implement and maintain a comprehensive compliance program. His clients utilize a broad range of investment strategies including but not limited to private equity, hedge fund and fund of fund strategies. Prior to joining Cordium, Jesse worked as an intern focused on due diligence of senior leadership appointments within the Department of Peacekeeping at the United Nations, an intergovernmental organization to promote international co-operation. Previous to the United Nations, Jesse also held an internship with Lapides Asset Management, a SEC-registered investment manager offering value-oriented portfolios of smaller capitalization equities. Jesse comes to Cordium with a growing background in finance and international governance. Jesse received both a BBA in International Business and an MBA in Financial Management from Iona College.

Related Posts

call of duty activision

Activision Settlement Highlights Where Companies Often Go Wrong With Whistleblowers

by Katherine Krems
March 8, 2023

The SEC has long relied on whistleblowers to enforce securities law, often making it worth their while to the tune...

ftx arena miami

2023: The Year of Crypto Compliance

by Ben Richmond
January 11, 2023

The November collapses of FTX and BlockFi, two of the world’s biggest cryptocurrency exchanges, were shocking — and devastating for...

esg sec clawback confusion

Unpacking the SEC’s Executive Compensation Clawback Rule

by John Peiserich
January 4, 2023

The SEC has finalized its long-awaited clawback policy mandated by the Dodd-Frank Act, issuing final rules that are scheduled to...

cci top 10 stories collage

Top 10 Compliance Stories of 2022

by Jennifer L. Gaskin
December 7, 2022

The more things change, the more they stay the same. This time last year, we summarized the top 10 ESG...

Next Post
man at laptop

Data is Power: Wield it Wisely

Compliance Job Interview Q&A

Jump to a Topic

AML Anti-Bribery Anti-Corruption Artificial Intelligence (AI) Automation Banking Board of Directors Board Risk Oversight Business Continuity Planning California Consumer Privacy Act (CCPA) Code of Conduct Communications Management Corporate Culture COVID-19 Cryptocurrency Culture of Ethics Cybercrime Cyber Risk Data Analytics Data Breach Data Governance DOJ Download Due Diligence Enterprise Risk Management (ERM) ESG FCPA Enforcement Actions Financial Crime Financial Crimes Enforcement Network (FinCEN) GDPR HIPAA Know Your Customer (KYC) Machine Learning Monitoring RegTech Reputation Risk Risk Assessment SEC Social Media Risk Supply Chain Technology Third Party Risk Management Tone at the Top Training Whistleblowing
No Result
View All Result

Privacy Policy

Founded in 2010, CCI is the web’s premier global independent news source for compliance, ethics, risk and information security. 

Got a news tip? Get in touch. Want a weekly round-up in your inbox? Sign up for free. No subscription fees, no paywalls. 

Follow Us

Browse Topics:

  • CCI Press
  • Compliance
  • Compliance Podcasts
  • Cybersecurity
  • Data Privacy
  • eBooks Published by CCI
  • Ethics
  • FCPA
  • Featured
  • Financial Services
  • Fraud
  • Governance
  • GRC Vendor News
  • HR Compliance
  • Internal Audit
  • Leadership and Career
  • On Demand Webinars
  • Opinion
  • Resource Library
  • Risk
  • Uncategorized
  • Videos
  • Webinars
  • Well-Being
  • Whitepapers

© 2022 Corporate Compliance Insights

No Result
View All Result
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe

© 2022 Corporate Compliance Insights

Welcome to CCI. This site uses cookies. Please click OK to accept. Privacy Policy
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT