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Friday 14 December, 2018
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Home Fintech Fintech Update: Regulators Join Together for Fintech Oversight

Fintech Update: Regulators Join Together for Fintech Oversight

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By Brian Korn

 

 

 

 

A key regulator has announced a cryptocurrency crackdown in conjunction with Canadian as well as U.S. federal and state regulators. Also, the CFTC has released new guidance for clearinghouses and exchanges, while a key state regulator has granted its seventh virtual currency license and allowed a separate entity to offer a permissioned, blockchain-based post-trade platform settlement service.

What happened

In the ever-changing cryptocurrency and fintech industries, state and federal regulators continue to jockey for position with regard to oversight and regulation.

Some agencies and regulators are electing to work together. The North American Securities Administrators Association (NASAA) announced a coordinated series of enforcement actions by state and provincial securities regulators in the United States and Canada, including the British Columbia Securities Commission, the Office of the New Jersey Attorney General and the Texas State Securities Board.

“Operation Cryptosweep” brought the various regulators together to crack down on fraudulent initial coin offerings, cryptocurrency-related investment products and the individuals behind them. The effort began in April, when NASAA organized a task force of its members to begin a coordinated series of investigations.

While some of the investigations are ongoing, others have resulted in 35 pending or completed enforcement actions.

“The actions announced today are just the tip of the iceberg,” Joseph P. Borg, NASAA president and director of the Alabama Securities Commission, said in a statement. “Despite a series of public warnings from securities regulators at all levels of government, cryptocriminals need to know that state and provincial securities regulators are taking swift and effective action to protect investors from their schemes and scams.”

Securities and Exchange Commission Chair Jay Clayton chimed in to “applaud” the operation, noting that the enforcement actions “should be a strong warning to would-be fraudsters in this space that many sets of eyes are watching.”

In another example of regulatory teamwork, the Commodity Futures Trading Commission (CFTC) announced a new agreement with NASAA and its members, intended to provide a framework for the sharing of confidential information between the CFTC and state securities regulators. Together, the various regulators will assist each other with enforcement of the Commodity Exchange Act—particularly with regard to cryptocurrency.

“Information-sharing is key to cooperative enforcement operations, and by working together, we can ensure that the rapidly evolving financial technology space has the appropriate oversight to pursue bad actors, protect market participants, and allow for market-enhancing innovations,” J. Christopher Giancarlo, chair of the CFTC, said in a statement.

Individual jurisdictions in NASAA will need to sign the memorandum of understanding in order to receive its benefits.

The CFTC followed up its new agreement with guidance for designated contract markets, swap execution facilities and derivative clearing organizations with respect to virtual currency derivative product listings.

Aimed at helping market participants in their efforts to design risk management programs that address the new risks imposed by virtual currency products, the guidance highlighted five areas that require attention: enhanced market surveillance, close coordination with CFTC staff, large trader reporting, outreach to member and market participants, and Derivatives Clearing Organization risk management and governance.

Finally, the New York Department of Financial Services (DFS) continues its oversight in the fintech industry with the announcement that the regulator granted its seventh virtual currency license. The state regulator began its licensing process in 2015 and has since issued a total of seven virtual currency charters or licenses (while denying applications that did not meet its standards). In addition, the DFS authorized a company to offer a permissioned, blockchain-based post-trade platform service.

“New York continues to lead the nation in regulating the growing fintech industry,” DFS Superintendent Maria T. Vullo said in a statement. “These approvals demonstrate DFS’s commitment to protecting consumers and the virtual currency market while encouraging innovation, such as the expanding use of blockchain, and providing strong regulatory oversight to new and existing market participants.”

To read the CFTC guidance, click here.

Why it matters

Will technology continue to move faster than regulation? Not so fast, regulators have pronounced. As the fintech market continues to grow, regulators continue to adapt their oversight, in some instances joining forces with other agencies (such as NASAA and the CFTC) or striking out on their own, like the DFS and its virtual currency licensing program. Likewise, responding to a lack of enforcement leadership from the federal government, states have become more active in policing unscrupulous tactics.