Lawmakers seek better oversight of crypto, citing digital currency fraud

According to the latest “Data Spotlight” from the Federal Trade Commission, consumers reported losing over $1 billion to fraud involving cryptocurrencies from January 2021 to March 2022.

According to the report, crypto investment scams, tempting consumers with the promise of high returns, have resulted in one in four dollars lost to scammers. Between geographic fragmentation, lack of government support, and scarcity of case law to determine the legality of smart contracts, consumers have little recourse when they are victims of fraud. More than ever, consumers are increasingly investing in crypto assets and policymakers are starting to take notice. In March of this year, President Joe Biden signed his Executive Order (EO) on ensuring responsible development of digital assets. According to the EO, “the rise of digital assets creates an opportunity to strengthen American leadership in the global financial system and at the technology frontier, but also has substantial implications for consumer protection, financial stability, national security and climate risk. The United States must maintain its technology leadership in this rapidly growing space, supporting innovation while mitigating risks to consumers, businesses, the broader financial system, and the climate. And, it must play a leading role in international engagement and global governance of digital assets in accordance with democratic values ​​and the global competitiveness of the United States.

Biden’s executive order focuses on six areas:

1. Protect consumers, investors and businesses.

2. Protect US and global financial stability and mitigate systemic risk.

3. Mitigate the illicit finance and national security risks posed by the illicit use of digital assets.

4. Promote American leadership in technology and economic competitiveness to strengthen American leadership in the global financial system.

5. Support technological advances and ensure the responsible development and use of digital assets.

6. Promote equitable access to safe and affordable financial services.

The EO grants broad authority to the Treasury Department, in consultation with other financial regulators, to play a lead role in making policy recommendations. This interagency effort should culminate in a progress report sent back to the President’s office.

California Governor Newsom also signed Executive Order N-9-22, which directs the Department of Financial Protection and Innovation, the Governor’s Office of Business and Economic Development, and the Agency for Business, Services consumers and housing to solicit feedback from crypto asset stakeholders on the development. of a regulatory framework.

Within 60 days of the release of the aforementioned report by the US Treasury, state authorities must also produce a report summarizing their findings and recommendations. The ABC recently provided comments to the Department of Financial Protection and Innovation’s Digital Assets Invitation to Comment, where we suggested that state regulators expand California’s consumer protection law to include a clear and straightforward regulatory framework for entities that offer products and services that mirror those offered by regulated commercial banks.

Despite Biden and Newsom’s efforts, some lawmakers worry that the need to protect consumers from financial harm may warrant faster and more definitive action. Assemblyman Tim Grayson, chairman of the Assembly Banking Committee, is the author of a bill requiring licensing of digital asset providers. AB 2269 creates the Digital Financial Assets Act and grants regulatory authority to the Department of Financial Protection and Innovation to license and supervise all digital asset activity in the state, except where the activity is conducted by a commercial bank. The measure defines “digital assets” as any digital representation of value used as a medium of exchange, unit of account or store of value, and which is not legal tender. AB 2269 requires that the implementation of the Department’s new authority be finalized by January 1, 2024.

While the crypto landscape appears to be as ever-changing as the technology that catapulted it into the mainstream of finance, it now seems almost certain that the digital asset ecosystem will not escape regulatory scrutiny for long. -Jason Lane is vice president/assistant director of government relations for the California Bankers Association. Learn more about calbankers.com.