This edition of CryptoLink follows the 2022 U.S. midterm elections, and lawmakers in Congress are now outlining ambitious agenda priorities for next Congress, putting digital assets near the top of the list. Following the FTX collapse and other high-profile liquidity-related issues in the crypto markets, U.S. investigators have re-doubled enforcement efforts and multiple congressional committees of jurisdiction have scheduled or expressed interest in hearings to address the continued volatility and recent business failures. On the legislative front, it is widely expected that the Stabenow-Boozman Digital Commodities Consumer Protection Act (DCCPA) will serve as the primary basis for crypto legislation in the new Congress, which officially begins on January 3, 2023. The DCCPA identifies the Commodity Futures Trading Commission (CFTC) as the primary regulator for the cryptocurrency space. It is probable that the bill is significantly modified in the new Congress and may include key provisions of the Lummis-Gillibrand Responsible Financial Innovation Act (RFIA). It is expected that the Senate Agriculture Committee will be the main Committee for legislative activity in the 118th Congress, increasing the likelihood that the CFTC will be chosen as the chief regulator in any legislation. Additionally, both the House Financial Services Committee (HFSC) and Senate Banking Committee (SBC) may focus their legislative efforts on stablecoin regulations, following the announcement of bipartisan efforts by Sens. Cynthia Lummis (R-WY), Kirsten Gillibrand (D-NY), retiring SBC Ranking Member Pat Toomey (R-PA), current HFSC Chairwoman Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC) to craft such bills before the end of the year.
Financial Stability Oversight Council Releases Report on Digital Asset Financial Stability Risks and Regulations
On October 3, 2022, the Financial Stability Oversight Council (FSOC) released its Report on Digital Asset Financial Stability Risks and Regulations (the Report), which was issued in response to Executive Order 14067 on Ensuring Responsible Development of Digital Assets. The Report reviews financial stability risks and regulatory gaps posed by the different types of digital assets and further provides recommendations to address such risks. For example, in the Report, the FSOC recommends the passage of legislation providing for rulemaking authority for federal financial regulators over the spot market for crypto assets that are not securities.
Statement by Securities and Exchange Commission Chair on Crypto Markets
Further information can be found here and here and Binance’s blog post can be found here.
OECD Releases Crypto-Asset Reporting Framework
On October 10, 2022, the Organization for Economic Cooperation and Development (OECD) published the final Crypto Asset Reporting Framework (CARF) and Amendments to the Common Reporting Standard. The CARF provides for the reporting of tax information on transactions in crypto assets in a standardized manner, with the objective of automatically exchanging such information with jurisdictions of residence of taxpayers on an annual basis. The CARF comprises rules that address the scope of crypto assets covered, the entities, individuals and transactions subject to the reporting requirements, and the due diligence procedures to identify crypto asset users and controlling persons.
The CARF can be found here.
Financial Stability Board Proposes Framework for International Regulation of Crypto Asset Activities
On October 11, 2022, the Financial Stability Board (FSB) published a proposed framework for the international regulation of crypto asset activities. The framework includes proposals in respect of (i) recommendations that promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to crypto asset activities and markets, and (ii) high-level recommendations for the regulation, supervision and oversight of global stablecoin arrangements. In its press release announcing the proposed framework, the FSB noted that high regulatory standards should apply to crypto assets that can be used as a means of payment due to the potential risks posed to financial stability
The FSB’s press release can be found here and the proposed framework can be found here.
European Commissions Calls for Reduced Electricity Consumption of Crypto Asset Actors and Potential Ban on Crypto Asset Mining
On October 18, 2022, in its Q&A on the EU action plan on digitalizing the energy system, the European Commission noted that the energy consumption of cryptocurrency mining had attracted considerable attention, increasing by 900 percent in the last five years and amounting to approximately 0.4 percent of worldwide electricity consumption. The European Commission urged EU member states to implement targeted and ambitious measures to reduce the electricity consumption of crypto asset actors, and further noted that in the event there was a need for load shedding in the electricity systems the member states must “be ready to stop crypto-assets mining”. Longer-term, the European Commission noted that it was important to end tax breaks and other fiscal measures benefitting crypto-miners presently in force in certain member states. The European Commission’s Q&A’s can be found here.
CFTC Releases Annual Enforcement Results
On October 20, 2022, the Commodity Futures Trading Commission (CFTC) issued the agency’s annual enforcement results for fiscal year 2022. Significantly, in fiscal year 2022, the CFTC:
