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BitMEX charges send ‘a message’ to global exchanges: Crypto Mom

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United States Securities and Exchange Commissioner Hester Peirce — better known as “Crypto Mom” — believes the recent action against BitMEX may be a wake up call for crypto firms. 

In an interview with “Unchained Podcast” on Oct. 13, Peirce told host Laura Shin that the recent charges laid against BitMEX by the U.S. Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) has put the international crypto industry on notice about U.S. anti-money laundering (AML) and know your customer (KYC) regulations.

“I think that the message has been coming to the industry fairly loud and clear on the AML/KYC front, and I’m sure it will continue,” said Pierce.

“It’s definitely sending a message to the crypto world that when there are U.S. users of a product or a service, there’s going to be enforcement of U.S. laws.”

On Oct.1, the CFTC filed a civil enforcement action against BitMEX and three of its executives for violating AML regulations. In addition, the DOJ filed criminal charges against four executives, including founder Arthur Hayes, for violating the Bank Secrecy Act. Hayes and two of his colleagues remain at large as of this writing, while BitMEX’s former chief technical officer, Samuel Reed, is out on bail.

Pierce also discussed the SEC’s apparent resistance to a Bitcoin exchange-traded fund (ETF). Such a product would offer a regulated means for institutional investors to access crypto without the risk of holding the underlying assets.

Though the Bermuda Stock Exchange announced it has approved a Bitcoin ETF in September, that’s outside the SEC’s jurisdiction. The Winklevoss twins, Wilshire Phoenix, and NYSE broker Arca have submitted proposals for Bitcoin ETFs with the SEC, and the commission has consistently rejected all of them over fears of market manipulation.

However, Crypto Mom believes an ETF should be “judged on its own merits” by the regulatory body. Bitcoin ETFs, she said, hold a lot of interest among investors and could be an easy way for people to get exposure to the cryptocurrency.

She criticized the commission’s resistance to a Bitcoin ETF as unfair to investors:

“In the past I think [the SEC has] taken an approach that is a merit regulation approach and is saying ‘we don’t think that investors can make wise decisions for themselves so we’re just going to cut this product off from them altogether.’ It just doesn’t make any sense to me.”

Peirce started her second term at the SEC in August and will remain at the commission until 2025.



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Philippines’ central bank isn’t ready to pull the trigger on a CBDC

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Philippine central bank governor Benjamin Diokno has announced that the institution’s “exploratory” study of central bank digital currency study suggests that much more work is needed to make a digital peso a reality.

During the summer, Bangko Sentral ng Pilipinas had confirmed it was investigating the feasibility and potential policy implications of issuing its own CBDC, or digital counterpart to the physical peso.

In a press briefing, Diokno reportedly rejected the possibility that a CBDC could be issued any time in the near future. The study so far has suggested that ongoing research is needed to look into capacity-building and the creating of networks between other central banks and financial institutions. 

So far, the bank’s study has covered basic issues surrounding CBDCs, focusing on implications for monetary policy, legal frameworks, payments and settlement systems, financial inclusion, and regulatory oversight.

The governor has said that CBDC research at the BSP could benefit from a study of the business models of private-sector digital currencies in the Philippines, as well as the use of industry sandboxes. The central bank plans to look into how to improve the country’s existing payment system and to draw upon other central banks’ CBDC research worldwide.

CBDC research in the Philippines has emerged against the backdrop of the central bank’s Digital Payments Transformation Roadmap, which aims to switch over 50% of retail payments into digital form by 2023, and to ensure that 70% of citizens have a bank account by the end of the period.

Ongoing CBDC research could require technical input from the International Monetary Fund and Bank of International Settlements, in the BSP’s view. 

The central bank remains committed to the view that CBDCs are superior to private digital currencies, and has indicated that its digital innovations will continue to evolve within the existing structure of fiat currencies. 



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Russian officials must now declare crypto holdings

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Russia’s public officials will be mandated to declare all private crypto assets holdings from New Year’s Day, 2021.

The requirements were announced on Oct. 20 by the office of Russian prosecutor general, Igor Krasnov, following a meeting with 15 fellow prosecutor generals representing member states of the Shanghai Cooperation Organization (SCO).

“Starting next year, civil servants will be required to declare [virtual] currencies on an equal basis with other assets,” Krasnov said.

In 2018, Russia’s labor ministry announced that public officials would not need to declare virtual asset holdings in their tax reports due to the unregulated status of crypto. As such, concerns have lingered that crypto assets may be the financial instrument of choice for bribery and corruptions

Over the past three years, the Prosecutor General’s Office claims to have confiscated more than $440 million worth of undisclosed, non-crypto assets from public officials.

The new requirements follow new laws signed by President Vladimir Putin in July that will classify crypto assets as akin to physical commodities from 2021 — recognizing virtual currencies in the country for the first time.

While the laws do not recognize cryptocurrencies as legal tender, they will legitimize crypto-related activities across Russia.

Alongside SCO member states Russia, India, Kazakhstan, China, Kyrgyzstan, Pakistan, Uzbekistan, and Tajikistan, the prosecutor generals of Afghanistan, Belarus, Mongolia, Iran, Azerbaijan, Cambodia, and Armenia — which are non-member partners and observer states to the SCO — were also present at the meeting. The gathering centered on the topic of combating corruption.

The Russian announcement on crypto reporting suggests similar laws may soon be enacted across the Eurasian region.

In August, Russia’s Federal Financial Monitoring Service claimed it had developed a way to “partially” de-anonymize transactions using Bitcoin (BTC), Ethereum (ETH) and the popular privacy coin Monero (XMR). The agency also noted that several “overseas countries have also shown interest in the system,” suggesting it is looking to sell the system to allied nations.



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US crypto derivatives merchants need to leave customer funds alone, says CFTC

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Per guidance released Wednesday evening, the Commodity Futures Trading Commission (CFTC) is advising businesses trading in crypto derivatives to hold customer funds very carefully.

The new guidance continues the CFTC’s interest in carving out rules for custodianship of virtual currencies — an area obviously distinct from any other asset class. Per the commission: 

“Custodians of virtual currencies are typically not subject to a system of comprehensive federal or state regulation and oversight, which includes safeguarding of these novel assets, and this raises potential risks to the protection of customer funds held at such custodians.”

The specific provisions of the guidance limit the locations that a “futures commission merchant” (FCM) can deposit customer virtual currency at to “a bank, trust company, or another FCM, or with a clearing organization that clears virtual currency futures.”

Moreover, the CFTC warns FCMs that they need to keep any such deposits in accounts clearly marked as customer funds, and will not allow gains in one account to make up for losses in another.

Effectively, the guidance seems most determined that customer crypto funds remain safe and untouched, barring FCMs from trading such funds in order to make collective gains. How big of a problem FCM trading of crypto deposits has shown itself to be goes unaddressed, but you can certainly imagine some catastrophic results of a crypto futures dealer deciding to play some volatile markets using crypto funds.

The CFTC has been busy trying to assemble a holistic framework for crypto assets. At the beginning of this month, the commission promised to protect the “burgeoning market” for these assets, an announcement that came immediately after the announcement of their pursuit of BitMEX for operating an unregistered derivatives exchange in the U.S. 



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