Home Blockchain Cadwalader Cupboard: Addressing Blockchain – The Nationwide Legislation Assessment

Cadwalader Cupboard: Addressing Blockchain – The Nationwide Legislation Assessment

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OCC Performing Comptroller Argues that Financial institution Regulation Would Mitigate Crypto Threat

OCC Performing Comptroller Michael J. Hsu addressed the way forward for crypto-assets and potential advantages of banking regulation.

In remarks earlier than the British-American Enterprise Transatlantic Finance Discussion board, Mr. Hsu recognized among the dangers related to stablecoins and advised that the regulation of issuers as banks might really allow extra sturdy innovation. He acknowledged the significance of stablecoins as a bridge between the fiat and crypto worlds, together with stablecoins’ pivotal function in decentralized finance. He additionally famous, nevertheless, that stablecoins could also be inclined to potential runs by buyers if belief in these property fades, particularly these with “questionable and opaque reserve administration procedures.” He in contrast such a possible run on stablecoins to the 2008 monetary disaster, the place runs affected banks, securities corporations, structured finance automobiles and cash market funds.

Mr. Hsu proposed that banking rules might mitigate the dangers of potential investor runs by giving these property the looks of being as protected as abnormal financial institution deposits. He advised that the presence of (i) reserve funds, (ii) oversight by financial institution supervisors and (iii) entry to a central financial institution’s low cost window for liquidity might instill client confidence. He argued that “sturdy, focused federal regulation of cash and banking may help set up a stable basis for the economic system enabling wholesome innovation and progress.”

Mr. Hsu additionally described how crypto-assets have gotten more and more intertwined with the remainder of the economic system, requiring a coordinated regulatory response. For instance, he highlighted the OCC’s cooperation with the Federal Reserve and FDIC in establishing a standard set of outlined phrases, dangers and roadmaps for crypto-asset rules (see prior coverage). He famous, nevertheless, that enormous crypto intermediaries don’t at the moment face a single, complete regulatory authority and, as they proceed to increase, the dangers related to the shortage of interagency collaboration will develop.

CFTC Commissioner Stump Describes Regulatory Challenges Introduced by Innovation

CFTC Commissioner Daybreak D. Stump described regulatory challenges introduced by monetary know-how market innovation.

In remarks earlier than the Chamber of Digital Commerce, Commissioner Stump stated that the tempo of market improvements within the areas of economic know-how, akin to digital property and decentralized finance, was more and more presenting the CFTC with “novel points” that require “complete considering” by regulators. She acknowledged that the CFTC’s present method of counting on enforcement actions to resolve these points was “inadequate,” and that the present regulatory framework wanted to evolve to fulfill market calls for. She argued that the CFTC should “bridge the hole between its enforcement and oversight capabilities by setting extra clearly outlined regulatory expectations for brand spanking new, modern purposes within the derivatives market infrastructure.”

Ms. Stump recognized three areas the place the CFTC wants to handle regulatory challenges posed by innovation:

  • buying and selling platforms (designated contract markets and swap execution amenities) – how one can obtain efficient regulation in ways in which enable infrastructure suppliers and their prospects to revenue from innovation;

  • clearinghouses (derivatives clearing organizations) – how one can accommodate new retail-focused derivatives clearing organizations which are transferring away from an middleman mannequin in a method that maintains client security whereas encouraging progress; and

  • brokers and counterparties (futures fee retailers) – how the CFTC’s guidelines for a futures fee service provider ought to apply to retail commodity transactions involving digital property, akin to Bitcoin.

FRB Governor Brainard Prioritizes Controlling Inflation at Nomination Listening to

At a listening to earlier than the Senate Banking Committee on her nomination to turn out to be Vice Chair of the Federal Reserve Board (“FRB”), Governor Lael Brainard argued that financial insurance policies should be “targeted on getting inflation again all the way down to 2 p.c whereas sustaining a restoration.”

Governor Brainard addressed rising charges of inflation, stating that reducing the speed is a very powerful activity for the FRB transferring ahead. Governor Brainard additionally highlighted the economic system’s sturdy rebound by way of progress and unemployment, noting that this has been the strongest financial restoration in 50 years.

Governor Brainard referenced her prior expertise coping with financial misery, together with on (i) stabilizing monetary markets throughout the pandemic, (ii) supporting a restoration post-International Monetary Disaster, and (iii) defending the economic system towards contagion results from financial crises overseas. She reiterated her dedication to the FRB’s targets of value stability, most employment and sustaining the integrity of the monetary system.

Governor Brainard was nominated by President Joseph R. Biden for Vice Chair of the FRB on January 4, 2022. She served on the FRB since being nominated and confirmed in 2014 beneath President Barack Obama’s Administration.

NFA Reminds Members of Deadline on Exemptions for CPOs and CTAs

NFA reminded corporations that the CFTC requires any CPO that claims an exemption from registration to file a discover of exemption by March 1, 2022.

NFA said that CPOs might declare (i) an exclusion from CFTC Guidelines 4.13(a)(1), (a)(2), (a)(3) and (a)(5) (“Exemption from registration as a commodity pool operator”), (ii) an exclusion from CPO registration beneath CFTC Rule 4.5 (“Exclusion for sure in any other case regulated individuals from the definition of the time period ‘commodity pool operator’”), or (iii) an exemption from registration as a CTA beneath CFTC Rule 4.14(a)(8) (“Exemption from registration as a commodity buying and selling advisor”). Those that fail to file by the deadline could also be required to be registered.

NFA additionally offered info as to how CFTC registrants might test on the registration standing of their shoppers. Particularly, NFA Members can determine whether or not an exempt CPO/CTA has affirmed its exemption in two methods: (i) by utilizing NFA’s BASIC System, and/or (ii) by accessing a spreadsheet within the Member’s Annual Questionnaire that lists all of those who have exemptions on file with NFA that should be affirmed on an annual foundation. NFA cautions Members to contact any of their prospects that haven’t renewed their claims for an exemption and decide whether or not it’s applicable to proceed doing enterprise with them.

MSRB Annual Report Highlights Modernization Efforts

In its 2021 Annual Report, the MSRB highlighted the group’s ongoing modernization efforts amid the challenges posed by the worldwide pandemic.

The MSRB famous progress on 4 strategic targets:

  • modernizing market transparency programs, together with the Digital Municipal Market Entry (or “EMMA®”) web site;

  • bettering knowledge platforms by leveraging cloud computing and knowledge analytics;

  • modernizing market regulation by retiring outdated steerage and offering focused regulatory aid in gentle of the COVID-19 pandemic; and

  • upholding the general public belief by a dedication to range, fairness and inclusion.

The MSRB additionally said that it plans to undertake an examination of its funds and payment construction to make sure an equitable and sustainable steadiness of funding.

Main Sources

  1. OCC Speech, Michael Hsu: The Future of Crypto-Assets and Regulation

  2. CFTC Public Statement: Remarks of Commissioner Dawn D. Stump – We Can Do Hard Things

  3. FRB Governor Lael Brainard: Nomination Hearing Testimony

  4. Senate Banking Committee: Nomination Hearing

  5. Senate Banking Committee: Toomey Opening Statement at Brainard, Thompson Nomination Hearing

  6. NFA Notice I-22-01

  7. NFA’s BASIC System

  8. NFA Annual Questionnaire

  9. MSRB Annual Report 2021: Building the Foundation for the Future

  10. MSRB Press Release: MSRB Publishes 2021 Annual Report and Audited Financial Statements


© Copyright 2022 Cadwalader, Wickersham & Taft LLP
Nationwide Legislation Assessment, Quantity XII, Quantity 15

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