Multiple countries advanced cryptocurrency oversight last week through legal actions, guidance, and policy initiatives. Image by RareStock, Adobe Stock.
The past week brought several new major developments on the crypto regulation front. The SEC sued a major crypto exchange, IOSCO developed new international standards, Turkey pushed ahead with licensing requirements, Canada’s OSFI moved to refine industry rules, and NYDFS tightened token listing and delisting policies.
These key events are indicative of intensifying oversight of the booming digital asset sector.
SEC Sues Major Crypto Exchange Kraken
On Monday, the Securities and Exchange Commission leveled serious charges against cryptocurrency trading platform Kraken. The regulatory agency alleges Kraken illegally operated as an unregistered exchange since 2018, depriving investors of protection and oversight.
Specifically, the SEC claimed that Kraken acted as an exchange, broker, dealer, and clearing agency without proper registration or adherence to securities laws. The lawsuit also accused Kraken of deficient recordkeeping that put customer assets at risk.
Failing to register has “resulted in a business model rife with conflicts of interest that placed investors’ funds at risk,” SEC enforcement chief Gurbir Grewal said in a statement. “Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space.”
Kraken swiftly denied the allegations, asserting that courts have previously rejected claims that crypto assets are classified as securities. The action signifies the SEC’s intensifying crackdown on the crypto industry. Just this year, the agency has also targeted major players like Binance and Coinbase as it expands its authority over digital currencies.
In a Tuesday post on X, Kraken Co-founder Jesse Powell publicly criticized the SEC, referring to the agency as “USA’s top decel”—a derogatory tech sector term implying obstruction of progress. He accused the regulator of ongoing punitive actions against the trading platform after it agreed to pay $30 million in a recent settlement.
USA’s top decel is back with another assault on America. The masochists haven’t been happy with the beatings they’ve been taking in NY and are shopping for a different flavor of RegDom in CA. I thought we settled all their concerns for $30m in Feb. Now they’re back for seconds? https://t.co/SkfPJyneUz
— Jesse Powell (@jespow) November 21, 2023
IOSCO Issues Global Crypto Regulation Recommendations
The International Organization of Securities Commissions (IOSCO) released landmark guidance last week with the goal of harmonizing crypto regulation worldwide. IOSCO’s framework outlines key areas of focus for oversight based on assessments of risks to investors and markets.
The recommendations seek to establish a consistent international baseline for regulating crypto asset service providers (CASPs) like exchanges. IOSCO stresses the need to hold CASPs to the same conduct standards as traditional securities markets, supporting the principle of “same activity, same risks, same rules.”
Some specific guidelines in the report:
Addresses conflicts of interest, market manipulation, custody protections, cross-border risks, retail distribution, and more.
Advises robust information sharing between national regulators.
IOSCO’s board-level fintech task force chair Tuang Lee Lim called the regulatory approach “consistent with IOSCO’s principles and associated standards for securities markets regulation.” The focus is on outcomes over rigid rules.
The next steps involve the adoption of these recommendations by IOSCO’s large membership of national regulators. Consistent implementation will be key to achieving the global coordination goals.
IOSCO Chair Jean-Paul Servais touted the report as essential to balanced crypto oversight aligned with G20 objectives. He emphasized adequate investor safeguards amid financial innovation.
Turkey Focuses on Crypto Licensing to Avoid FATF Grey List
Turkey is developing new cryptocurrency regulations focused on implementing licensing standards, looking to strengthen oversight and avoid potential blacklisting by the Financial Action Task Force (FATF).
The proposed framework would require licensure for crypto exchanges and other virtual asset service providers. The goal is to curb risks like money laundering and financial crimes highlighted by the FATF.
Turkey’s consideration of licensing and tax regulations for crypto is a significant step towards improving its position on the gray-list. #crypto #Turkey #regulation#drwfirstgoal
— Mark Vega (@Markroxx34) November 16, 2023
In 2021, Turkey was added to the FATF grey list over deficient safeguards against illicit funding flows. Greylisted countries can face reputational damage and risk ratings downgrades. There is pressure for swift action.
According to Bora Erdamar, a director at Turkey’s BlockchainIST research center, the regulations prioritize verification of reserves and custody protections. Capital adequacy rules may also be introduced. Turkey ranked 4th globally in crypto transaction volumes last year.
The legal director of Turkish exchange Paribu, Mehmet Türkarslan emphasized the urgent need for regulation to exit the grey list quickly.
“We, as the pioneer player of the cryptocurrency industry in Turkey, shared our expectations and the sector’s necessities from the regulation with the authorized public institutions,” he told Cointelegraph. “We know it is crucial to be delisted from the grey list as soon as possible, so we expect a cryptocurrency regulation and a license for the virtual asset service providers with it.”
Rulemaking is still in the early stages, but momentum is building for strengthened Turkish crypto governance.
OSFI Seeks Input to Shape Crypto Regulation in Canada
Canada’s Office of the Superintendent of Financial Institutions (OSFI) took steps last week to refine upcoming crypto reporting rules for domestic banks. This consultation seeks to adapt global regulatory standards to the Canadian context.
OSFI is gathering direct feedback from banks on proposed disclosure requirements around crypto asset exposures and risks. The regulator sees public reporting as crucial for transparency and discipline.
Specific goals of the consultation:
Assess how to tailor the technical aspects of Basel Committee standards and templates for Canadian banks and insurers.
Understand key considerations for proportional disclosures.
Address other issues raised in the Basel consultation.
OSFI plans to integrate the feedback with Basel developments to shape its policy:
Draft rules are expected in fall 2024.
Finalization is anticipated in 2025.
The proactive approach shows OSFI’s recognition of the crypto industry’s growing impact. The regulator also emphasized the need to safeguard financial stability, however.
Enhanced disclosure seeks to improve assessments of crypto-related risks across the banking sector. OSFI’s consultation with stakeholders is an important step in designing optimal regulations for the Canadian context.
NYDFS Strengthens Token Listing and Delisting Rules
The New York State Department of Financial Services (NYDFS) announced tighter regulations around crypto token listings and delistings on November 15 to boost protections for crypto investors in the state.
The updated NYDFS guidelines require exchanges to submit their listing and delisting policies for approval. Regulators will assess if the rules sufficiently minimize risks.
Key aspects of the strengthened requirements:
Exchanges must give advance notice of delistings to avoid surprises.
Firms need to communicate transparently with users about removing token support.
Policies must be tailored to business models, operations, and other specific factors.
NYDFS will apply more stringent standards when evaluating listing choices.
According to NYDFS Superintendent Adrienne Harris, these measures will facilitate orderly delistings and shield consumers.
“This guidance continues the Department’s commitment to an innovative and data-driven approach to virtual currency oversight, keeping pace with industry developments,” Harris said.
Tighter listing and delisting governance reflects an increasing focus on investor protections amid market turmoil.
The Winding Road Toward Effective Crypto Regulation
The past week brought several impactful regulatory developments that continue the broader trend of tightened crypto oversight worldwide. From the SEC’s lawsuit against Kraken to NYDFS’ stricter token listing rules, regulators are asserting their authority to govern digital assets.
Consistent implementation of international standards like IOSCO’s recommendations will be crucial for coordinated governance. Nations like Turkey also face pressure to quickly strengthen local regulations.
The need for consumer protection and financial stability has become evident amid market volatility. Policymakers are still searching for the right balance.
Ongoing consultations with the industry like Canada’s OSFI initiative help ensure new rules are calibrated for maximum effectiveness. Gaps and uncertainties in crypto regulation persist, however.
As global regulatory scrutiny increases, the coming months will prove critical in shaping the future of regulatory oversight. The path forward must be guided by a nuanced, flexible approach that manages risks without stifling growth. Striking this delicate balance will require continued collaboration between regulators and market participants.
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