[{"id":508,"date":"2023-10-06T15:09:49","date_gmt":"2023-10-06T19:09:49","guid":{"rendered":"https:\/\/blogs.orrick.com\/blockchain\/?p=508"},"modified":"2023-10-18T17:46:00","modified_gmt":"2023-10-18T21:46:00","slug":"california-the-next-frontier-in-digital-asset-regulation","status":"publish","type":"post","link":"https:\/\/blogs.orrick.com\/blockchain\/california-the-next-frontier-in-digital-asset-regulation\/","title":{"rendered":"California: The Next Frontier in Digital Asset Regulation"},"content":{"rendered":"<p><em>Update: Governor Newsom signed Assembly Bill 39, establishing the Digital Financial Assets Law on October 13, 2023. In signing, he called for more clarification in the regulatory process and in legislation. See his signing statement <a href=\"https:\/\/www.gov.ca.gov\/wp-content\/uploads\/2023\/10\/AB-39-Signing-Message.pdf\">here<\/a>.<\/em><\/p>\n<p>The California Department of Financial Protection and Innovation (DFPI) may soon have another regulatory regime under its belt\u2014answering the long-open question of digital asset regulation in California.<\/p>\n<p>California legislators have passed the Digital Financial Assets Law that would require a license to \u201cengage in digital financial asset business activity\u201d with or on behalf of any Californians. Gov. Gavin Newsom is expected to sign it into law. If he does, the law will take effect July 1, 2025.<\/p>\n<p>California will join with New York and Louisiana in requiring licenses for certain digital asset activities<\/p>\n<p><strong>Who Needs a License?<\/strong><\/p>\n<p>The California bill would require a license to engage in or imply the ability to engage in \u201cdigital financial asset business activity,\u201d which the bill defines as:<\/p>\n<ul>\n<li>Exchanging, transferring or storing a digital financial asset or engaging in digital financial asset administration directly or through a vendor.<\/li>\n<li>Holding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals.<\/li>\n<li>Exchanging one or more digital representations of value used within one or more online games, game platforms or family of games for:<\/li>\n<li>A digital financial asset offered by or on behalf of the publisher from which the original digital representation of value was received.<\/li>\n<li>Legal tender or bank or credit union credit outside the game, platform or family of games offered by or on behalf of the publisher from which the original digital representation of value was received.<\/li>\n<\/ul>\n<p><strong>Exemptions, Conditional Licenses and Penalties<\/strong><\/p>\n<p>The proposed bill excludes:<\/p>\n<ul>\n<li>Most government entities.<\/li>\n<li>Certain financial institutions.<\/li>\n<li>Most people who solely provide connectivity software, computing power, data storage or security services.<\/li>\n<li>People engaging with digital assets for personal, family, household or academic use\u2014or people whose digital financial asset business activity is reasonably expected to be valued at no more than $50,000 per year.<\/li>\n<\/ul>\n<p>The bill also exempts a significant amount of activity covered by laws such as the Securities Exchange Act of 1934 and the Electronic Fund Transfer Act of 1978.<\/p>\n<p>A conditional license may be available for people who were licensed under New York\u2019s BitLicense regime before January 1, 2023, as long as the person pays all appropriate fees and complies with the Digital Financial Assets Law.<\/p>\n<p>Conditional licenses expire upon issuance of an unconditional license, denial of a license application or certain disapprovals or revocations in connection with New York virtual currency business approvals.<\/p>\n<p>The state may impose civil penalties of up to $100,000 per day for unlicensed activity and $20,000 per day for material violations by a licensee or covered person.<\/p>\n<p><strong>Application Requirements<\/strong><\/p>\n<p>Much of the application process is similar to the process for a money transmitter license\u2014business plan, corporate background information, disclosure questions, personal information about control persons and an application fee.<\/p>\n<p>The law also requires the DFPI to investigate whether the applicant \u201chas a reasonable promise of success in engaging in digital financial business activity\u201d and is likely to comply with applicable laws and regulations.<\/p>\n<p>The law permits use of the Nationwide Multistate Licensing System (NMLS) to collect and maintain records and process fees in connection with the license. As most states use NMLS for money transmission and digital asset licenses, this will likely streamline the application process for an established entity with a robust NMLS profile.<\/p>\n<p>Approvals may be conditional, requiring an applicant to accept conditions the DFPI specifies.<\/p>\n<p><strong>Ongoing Compliance<\/strong><\/p>\n<p>As with money transmission, digital asset licensees must maintain surety bonds and meet capital and liquidity requirements. In addition, a licensee must show compliance with multiple requirements in an annual report and request renewal each fall. Failure to timely comply may lead to enforcement actions, possibly including suspension or revocation of a license.<\/p>\n<p>Licensees will also be subject to periodic examination, at their own expense. The law allows regulators at various agencies to share information with other regulators and regulatory agencies. This information sharing may minimize individual examinations as regulators have been doing in the money transmission space, lessening costs and administrative burdens for both licensees and regulators.<\/p>\n<p><strong>Securing Digital Finance<\/strong><\/p>\n<p>Following the New York Department of Financial Services\u2019 Cybersecurity Regulations\u2014arguably the most robust state cybersecurity framework imposed on nonbank financial services\u2014California plans to impose a similar expansion of cyber-related requirements on digital finance asset business activity.<\/p>\n<p>Traditional cybersecurity regulations mandate a comprehensive written information security (INFOSEC) program, as in the case of the Digital Financial Assets Law<em>.<\/em> Unlike other cybersecurity regulations, the California law would focus on the technological aspects of digital assets. It also would require the development and implementation of an operations security (OPSEC) program.<\/p>\n<ul>\n<li><strong>INFOSEC<\/strong> programs focus on mitigating the risks associated with information technology assets, such as preventing unauthorized access to information systems.<\/li>\n<li><strong>OPSEC<\/strong> programs integrate daily information technology development and information security processes into a single operational unit. OPSEC programs:<\/li>\n<li>Focus on collaboration, shared responsibility and agility in applying security concepts to each stage of the software development life cycle.<\/li>\n<li>Are in the early stages of development in financial services but have been extensively discussed by technology firms and government contractors.<\/li>\n<\/ul>\n<p>The new law requires a licensee\u2019s information security and operational security policies and programs to:<\/p>\n<ul>\n<li>Include reasonable and appropriate administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of nonpublic personal information or digital financial assets it receives, maintains or transmits.<\/li>\n<li>Incorporate traditional cybersecurity goals and objectives instead of the more limited goal of protecting \u201csecurity\u201d and \u201cconfidentiality.\u201d That means INFOSEC programs that only cover data breaches would no longer be compliant.<\/li>\n<li>Be informed by a \u201ccomprehensive risk assessment designed to ensure consumers are adequately protected from cybersecurity risk, risk of malfeasance, including theft, risks related to code or protocol defects, or market-related risks, including price manipulation and fraud.\u201d<\/li>\n<li>The risk assessment must cover more than just cybersecurity risk; it must also cover concepts such as account takeover and, potentially, fraudulent activity designed to cause a loss of digital assets.<\/li>\n<\/ul>\n<p>OPSEC programs must:<\/p>\n<ul>\n<li>Address \u201ccode or protocol defects,\u201d i.e., vulnerabilities introduced in development, which can be a critical component of digital asset exchanges.<\/li>\n<li>Consider digital manipulations that could influence the value of the digital assets.<\/li>\n<\/ul>\n<p>These concepts are all relatively new, generally untested as to robustness and lacking in any third-party standards, unlike traditional cybersecurity frameworks such as NIST Cybersecurity Framework and ISO\u00a027001.<\/p>\n<p>Finally, in addition to introducing an OPSEC requirement, California has created a catch-all rule, requiring INFOSEC programs to comply with relevant state or federal laws. In other words, the heightened standards of the amended Safeguards Rule will also apply to digital finance asset business activity (the Safeguards Rule requires certain financial institutions to implement measures to keep customer information secure).<\/p>\n<p>All of these new concepts require digital asset businesses to consider investments in cybersecurity processes, infrastructure and people. A failure to fully capture operational and cybersecurity risk and implement reasonable security controls may ultimately put the license at risk.<\/p>\n<p>For companies doing business in digital financial assets, California\u2019s law may help fill the gap between regulating with legislation and with enforcement. However, given the increased scrutiny on digital assets, it remains to be seen whether the law walks the line between regulation that provides a viable way to operate successfully while providing sufficient consumer protection to achieve the state\u2019s goals.<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Update: Governor Newsom signed Assembly Bill 39, establishing the Digital Financial Assets Law on October 13, 2023. In signing, he called for more clarification in the regulatory process and in legislation. See his signing statement here. The California Department of Financial Protection and Innovation (DFPI) may soon have another regulatory regime under its belt\u2014answering the [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":1005,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[131],"tags":[159,289],"coauthors":[286,287,288],"class_list":["post-508","post","type-post","status-publish","format-standard","hentry","category-other-regulatory-issues","tag-digital-assets","tag-licensing"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>California: The Next Frontier in Digital Asset Regulation - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/california-the-next-frontier-in-digital-asset-regulation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"California: The Next Frontier in Digital Asset Regulation - On the Chain\" \/>\n<meta property=\"og:description\" content=\"Update: Governor Newsom signed Assembly Bill 39, establishing the Digital Financial Assets Law on October 13, 2023. 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While every product and token are different, below are 6 key questions that any founder should ask themselves as they launch their product or token:<\/p>\n<ol>\n<li><strong><u>Are you advertising to the public?<\/u><\/strong> If a company advertises to the public, anti-fraud and consumer protection laws are relevant. Regulators in the U.S. from the Federal Trade Commission and the Consumer Financial Protection Bureau, along with state attorneys-general, enforce rules to ensure advertisements and public statements do not contain (among other things) statements or promises that are false, misleading, or deceptive. Companies should screen public messages with their counsel before publishing them.<\/li>\n<li><strong><u>Where do you plan to launch your product or token?<\/u><\/strong> Companies should be aware of sanctions programs in jurisdictions in which they plan to operate. In the U.S., the Office of Foreign Asset Control (\u201c<u>OFAC<\/u>\u201d) enforces compliance with U.S. sanctions programs. Conducting transactions with sanctioned persons or in a sanctioned jurisdiction is an offense and OFAC may impose penalties on a \u201cstrict liability standard.\u201d\u00a0 This means that OFAC can hold violators civilly liable regardless of whether they knew they participated in a transaction with a sanctioned person or entity. Many companies have policies and internal controls (e.g., customer screening and IP address blocking) meant to prevent prohibited transactions.<\/li>\n<li><strong><u>Would a person reasonably rely on the Company\u2019s efforts to profit from their purchase?<\/u><\/strong> If a blockchain company issues or plans to issue tokens or other digital assets, it is imperative that the company complies with securities laws. The lodestar for determining whether a token is an \u201cinvestment contract\u201d (one type of security) is the <em>Howey Test<\/em>. In short, pursuant to the <em>Howey Test<\/em>, a token is a security if a purchaser could reasonably depend on the efforts of a third party (i.e., the company) to generate a profit. While the interpretation of the <em>Howey Test <\/em>is more nuanced than that, understanding how consumers are going to think about your token is important in assessing the level of risk that launching the token might impose. The actual application of the <em>Howey Test<\/em> is fact intensive, and therefore requires comprehensive review and application of the token and the Company\u2019s distribution plans.<\/li>\n<li><strong><u>Will employees have access to sensitive information that could impact prices?<\/u><\/strong> If a company\u2019s employees will have access to material, non-public information regarding prices of the company\u2019s publicly traded digital asset or any other asset trading on a platform controlled by the company, the company should implement policies to prevent employees or other insiders from profiting off of that information (by implementing, for example, insider trading policies). These policies should dictate how and when an employee, consultant, or director is allowed to buy and sell the company\u2019s digital assets or any other asset trading on the company\u2019s platform.<\/li>\n<li><strong><u>Will the Company transmit someone\u2019s money?<\/u><\/strong> Blockchain companies acting as an \u201cadministrator\u201d or \u201cexchanger\u201d of \u201cconvertible virtual currency\u201d (\u201c<u>CVC<\/u>\u201d) may be deemed a money transmitter under federal law. In short, if a company has the authority or power to issue, remove, or exchange a cryptocurrency or virtual currency, the company may be required to register as a \u201cmoney services business\u201d under the federal Bank Secrecy Act, which requires companies to assist the U.S. government in detecting and preventing money laundering. In addition, 49 states also have \u201cmoney transmission laws.\u201d Each state has different laws with respect to CVC, so a state-by-state analysis will be required to determine where the company should file for money transmission licenses.<\/li>\n<li><strong><u>Will the Company collect customer information?<\/u><\/strong> Consumer data protection has received a sizable amount of attention from both legislatures and regulators over the past several years, including the implementation of GDPR in the EU and the CCPA in California (just to name a couple prominent laws).\u00a0 Any company that is collecting, storing, or transmitting consumer information should review its online privacy policy and terms of use, as well as its internal policies around how that information is stored and where that information is transmitted.\u00a0 Even if still under the control of the company, data transferred from one jurisdiction to another may violate applicable data privacy laws.<\/li>\n<\/ol>\n<p>The 6 questions above will help frame some of the more common regulatory issues that companies in the blockchain space need to pay attention to, but that list is certainly not exhaustive.\u00a0 With an increased focus on blockchain companies by regulatory agencies, it\u2019s important that founders operate within and understand existing regulations, and also make a plan for how they will adapt as those regulations change.<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>As any founder knows, operating in the blockchain space requires navigating a myriad of regulatory regimes. While every product and token are different, below are 6 key questions that any founder should ask themselves as they launch their product or token: Are you advertising to the public? If a company advertises to the public, anti-fraud [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":977,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[131,132],"tags":[280,99,200,285],"coauthors":[238,148,253,284],"class_list":["post-504","post","type-post","status-publish","format-standard","hentry","category-other-regulatory-issues","category-transactional-issues","tag-cfpb","tag-cftc","tag-ofac","tag-token-launch"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>6 Questions Blockchain Founders Should Ask When Launching a Product or Token - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/6-questions-blockchain-founders-should-ask-when-launching-a-product-or-token\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"6 Questions Blockchain Founders Should Ask When Launching a Product or Token - On the Chain\" \/>\n<meta property=\"og:description\" content=\"As any founder knows, operating in the blockchain space requires navigating a myriad of regulatory regimes. 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The SEC initially issued the proposal in January 2022. This revised proposal responds to comments the agency received requesting clarity on the application of existing rules and the proposal related to crypto asset security trading platforms that meet the proposed definition of an exchange or trading systems that use distributed ledger or blockchain technology, including DeFi systems.<\/p>\n<p><strong>WHAT DOES IT MEAN?<\/strong><\/p>\n<p>If the proposals take effect, they may require many crypto asset security trading platforms to register as national securities exchanges or as broker-dealers that must comply with Regulation ATS, which governs alternative trading systems. As currently drafted in the proposal, this would include decentralized exchanges operating on order book or automated-market-maker models.<\/p>\n<p><strong>WHAT DOES THE PROPOSAL SAY?<\/strong><\/p>\n<p>Current regulations say that a trading system must bring together \u201corders\u201d to qualify as an exchange. The proposal would categorize a trading system as an exchange if it brings together \u201ctrading interest.\u201d<\/p>\n<p>Also, the rule now says an exchange must have &#8220;established, non-discretionary methods \u2026 under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.\u201d The SEC\u2019s proposal would require only that an exchange include &#8220;communication protocols&#8221; for the interaction of trading interest.<\/p>\n<p><strong>WHAT\u2019S THE CONTEXT?<\/strong><\/p>\n<p>When the SEC shared additional information on how expanding the definition of \u201cexchange\u201d could affect trading systems, it was just the latest of several signs of the SEC\u2019s stance on regulating crypto assets.<\/p>\n<ul>\n<li>SEC Chair Gary Gensler said in a <a href=\"https:\/\/www.sec.gov\/news\/statement\/gensler-statement-ats-041423?utm_medium=email&amp;utm_source=govdelivery\">statement<\/a> that \u201cmany crypto trading platforms already come under the current definition of an exchange and thus have an existing duty to comply with the securities laws.\u201d<\/li>\n<li>In a <a href=\"https:\/\/www.sec.gov\/news\/testimony\/gensler-testimony-house-financial-services-041823\">statement<\/a> at a House Financial Services Committee hearing on SEC oversight, Chair Gensler also reiterated his view that, \u201cgiven that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the SEC.\u201d<\/li>\n<li>The hearing also touched on the SEC\u2019s proposed $2.15 billion budget for fiscal year 2023, which represents an increase of almost $240 million to what it sought in fiscal year 2022. Notably, fintech accounted for half of the six key areas identified in its budget justification, including goals to:\n<ul>\n<li>prevent fraud concerning crypto assets.<\/li>\n<li>ensure crypto assets register and comply with securities laws where appropriate.<\/li>\n<li>craft the right regulatory and enforcement approach to fintech startups.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>The SEC\u2019s focus on enforcement of crypto matters does not appear to be slowing. Its Crypto Asset and Cyber Unit was initially envisioned as a 20-person operation but has doubled in size. Moreover, just a few weeks ago, the SEC also shared <a href=\"https:\/\/www.usajobs.gov\/job\/717062700\">job postings<\/a> for additional positions in the unit.<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>A flurry of recent activity has reinforced the SEC\u2019s commitment to regulate crypto assets, including trading systems that trade crypto asset securities. WHAT HAPPENED? The SEC shared additional information in April 2023 on whether and how its proposal to expand the definition of \u201cexchange\u201d would affect trading systems for crypto asset securities. The SEC initially [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":1001,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[131],"tags":[86,78,89],"coauthors":[277,262,238,252,282],"class_list":["post-500","post","type-post","status-publish","format-standard","hentry","category-other-regulatory-issues","tag-cryptocurrency","tag-regulation","tag-sec"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Crypto Regulation Marches On With Potential Consequences for Trading Systems - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/crypto-regulation-marches-on-with-potential-consequences-for-trading-systems\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Crypto Regulation Marches On With Potential Consequences for Trading Systems - On the Chain\" \/>\n<meta property=\"og:description\" content=\"A flurry of recent activity has reinforced the SEC\u2019s commitment to regulate crypto assets, including trading systems that trade crypto asset securities. WHAT HAPPENED? The SEC shared additional information in April 2023 on whether and how its proposal to expand the definition of \u201cexchange\u201d would affect trading systems for crypto asset securities. 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However, there are a few differences any company or investor should know about:<\/p>\n<ul>\n<li><strong><u>Board Seats<\/u><\/strong><strong>:<\/strong> Lead investors in venture backed companies often require a right to designate a member of the company\u2019s board of directors. Having a seat on the board lets investors exercise corporate governance oversight and influence the overall company\u2019s strategic direction. However, given the complex and evolving regulatory and enforcement environment in blockchain, as well as difficulties of blockchain companies in obtaining cost-effective directors and officers liability insurance, investors often decline to obtain or fill a seat on the board. Investors may prefer board observer rights or stockholder-level approval rights.<\/li>\n<li><strong><u>Token Rights<\/u><\/strong><strong>:<\/strong> Blockchain-based companies can provide returns to investors via capital appreciation of the preferred stock investors purchase and\/or via tokens or other digital assets tied to the target company\u2019s products. As a result, investors often require secure rights to tokens in the future via token warrants, token side letters, or simple contractual covenants. The features of token rights investors negotiate for is often specific to a company\u2019s business and stage of growth.<\/li>\n<li><strong><u>Blockchain-Specific Diligence<\/u><\/strong><strong>:<\/strong> Investors often conduct more thorough legal due diligence in blockchain companies than they would for traditional high-growth technology startups. For example, investors in blockchain companies usually ask detailed questions about the company\u2019s efforts and plans for regulatory compliance \u2013 including in areas of securities regulation, anti-money laundering and money transmitter regulation, and tax. In addition, because many blockchain companies use open-source code, investors typically want comprehensive representations and diligence regarding the company\u2019s compliance with the open-source licenses that underlie the company\u2019s products.<\/li>\n<li><strong><u>Negative Covenants<\/u><\/strong><strong>:<\/strong> It is not uncommon in traditional venture capital financings to have negative covenants governing matters on which the investors\u2019 consents are required. \u00a0Blockchain-based companies, however, bring increased focus on these covenants given the typical trajectory of many companies in the space.\u00a0 For example, there may be additional covenants around how the company\u2019s subsidiaries and affiliate entities are governed and what they are permitted to do.\u00a0 Additionally, licensing intellectual property outside the ordinary course of business will likely get additional attention.\u00a0 Lastly, notwithstanding the existence of fiduciary duties typically imposed by state law, it is not uncommon to see negative covenants relating to transactions between the company and its executive officers.\u00a0 While none of these provisions are used solely in blockchain companies, due to the nature of these kinds of companies, investors will have an increased focus on these kinds of provisions.<\/li>\n<li><strong><u>Transaction Timing and Costs<\/u>:<\/strong> \u00a0In part because of the increased diligence and custom negotiation with respect to governance rights, token rights, and negative covenants, investments in blockchain companies often take longer and cost more than investments in traditional startups. Companies should be prepared for the increase in time and cost as they venture into their fundraising cycles.<\/li>\n<\/ul>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Venture investments in blockchain companies are often similar to investments in traditional, high-growth technology startups. However, there are a few differences any company or investor should know about: Board Seats: Lead investors in venture backed companies often require a right to designate a member of the company\u2019s board of directors. Having a seat on the [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":977,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[130],"tags":[83],"coauthors":[238,252,148,284],"class_list":["post-496","post","type-post","status-publish","format-standard","hentry","category-ma-corporate","tag-blockchain"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>5 Ways Venture Investment in Blockchain Differs from Investment in Traditional High-Growth Startups - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/5-ways-venture-investment-in-blockchain-differs-from-investment-in-traditional-high-growth-startups\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"5 Ways Venture Investment in Blockchain Differs from Investment in Traditional High-Growth Startups - On the Chain\" \/>\n<meta property=\"og:description\" content=\"Venture investments in blockchain companies are often similar to investments in traditional, high-growth technology startups. However, there are a few differences any company or investor should know about: Board Seats: Lead investors in venture backed companies often require a right to designate a member of the company\u2019s board of directors. Having a seat on the [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/blogs.orrick.com\/blockchain\/5-ways-venture-investment-in-blockchain-differs-from-investment-in-traditional-high-growth-startups\/\" \/>\n<meta property=\"og:site_name\" content=\"On the Chain\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Orrick\" \/>\n<meta property=\"article:published_time\" content=\"2023-03-07T16:34:24+00:00\" \/>\n<meta name=\"author\" content=\"Joseph Perkins, Mark Janoff, Andrew Wallach, Robert Moore\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Orrick\" \/>\n<meta name=\"twitter:site\" content=\"@Orrick\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Joseph Perkins, Mark Janoff, Andrew Wallach, Robert Moore\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-ways-venture-investment-in-blockchain-differs-from-investment-in-traditional-high-growth-startups\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-ways-venture-investment-in-blockchain-differs-from-investment-in-traditional-high-growth-startups\\\/\"},\"author\":{\"name\":\"Joseph Perkins\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#\\\/schema\\\/person\\\/c899edbf91dcc293e38d6a612c622630\"},\"headline\":\"5 Ways Venture Investment in Blockchain Differs from Investment in Traditional High-Growth Startups\",\"datePublished\":\"2023-03-07T16:34:24+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-ways-venture-investment-in-blockchain-differs-from-investment-in-traditional-high-growth-startups\\\/\"},\"wordCount\":495,\"publisher\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#organization\"},\"keywords\":[\"blockchain\"],\"articleSection\":[\"M&amp;A\\\/Corporate\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-ways-venture-investment-in-blockchain-differs-from-investment-in-traditional-high-growth-startups\\\/\",\"url\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-ways-venture-investment-in-blockchain-differs-from-investment-in-traditional-high-growth-startups\\\/\",\"name\":\"5 Ways Venture Investment in Blockchain Differs from Investment in Traditional High-Growth Startups - 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Typically, these rights are provided through an instrument called a \u201ctoken warrant.\u201d While token warrants are most frequently issued in priced rounds, they have become increasingly prevalent in connection with SAFE or other convertible rounds. Here are five things that any blockchain company or investor should know when evaluating token warrants:<\/p>\n<ol>\n<li><strong>Token Warrants Can Confer Broad or Narrow Rights. <\/strong>Companies and investors should pay close attention to the types of tokens that warrants entitle their holders to acquire. Token warrants may provide holders with rights to receive one specific type of token only, such as the first governance token issued by a company. However, token warrants typically provide holders with rights to receive <em>any<\/em> future tokens created or issued by a company or its affiliates \u2013 as well as any future tokens issued by an acquiror of the company\u2019s intellectual property or any entity established by or on behalf of the company to issue tokens or operate a blockchain-based protocol or other technology associated with the tokens. Token warrants may also provide holders with rights to receive tokens created or issued by the company\u2019s founders.<\/li>\n<li><strong>Exclusions May Apply.<\/strong> Token warrants often outline specific types of tokens that are not acquirable under the terms of the warrant. Often known as Excluded Tokens, they generally include tokens that are generated pursuant to mining, staking, or reward systems. Depending on the applicable company\u2019s business, Excluded Tokens may also include non-fungible tokens, stablecoins, or certain tokens issued in the ordinary course of business. Typically, the company and its investors will negotiate what is considered an Excluded Token based on the company\u2019s business model.<\/li>\n<li><strong>The Number of Tokens Issuable to Holders Can Be Calculated Several Ways.<\/strong> Token warrants specify the share of tokens holders can acquire under the warrant. This typically depends on three key variables:\n<ul>\n<li style=\"padding-top: 20px\"><strong>The set of tokens from which the holder\u2019s share is calculated: <\/strong>The holder\u2019s share may be calculated from the number of tokens minted, from the number of tokens minted and issued to the company\u2019s \u201cinsiders,\u201d which includes the company\u2019s stockholders and holders of its convertible or exercisable securities, or otherwise. In the \u201cinsider\u201d structure, the holder would not be entitled to any share of tokens that are reserved for community members or other non-\u201cinsiders.\u201d In addition, token warrants may provide holders with rights to tokens issued in inflationary events or in connection with other increases in the token supply.<\/li>\n<li><strong>How to calculate the holder\u2019s share: <\/strong>The holder\u2019s share may be a hard-coded percentage, but it is more typically based on the holder\u2019s fully diluted ownership of the company. In the latter structure, the holder\u2019s share will typically equal its fully diluted ownership as a percentage of the total cap table. But investors may negotiate a \u201csuper\u201d pro rata share, which is a multiple (e.g. 1.25x, 1.5x) of the investor\u2019s fully diluted ownership.<\/li>\n<li><strong>When to calculate it: <\/strong>The time at which a holder\u2019s share is calculated can make a difference in how many tokens the holder has a right to acquire. For example, the holder\u2019s share may be calculated as of the date of warrant issuance, the date of the applicable token launch, or the date the warrant is exercised.<\/li>\n<\/ul>\n<\/li>\n<li><strong>\u201cLockup\u201d Provisions Govern the Transferability of Tokens.<\/strong> Token warrants typically specify the \u201clockup\u201d restrictions that will prevent holders from transferring tokens acquired under the warrant for certain periods. Lockup schedules in token warrants may include provisions that prohibit any transfers of tokens for one year after the tokens are acquired, release some tokens from lockup at the one-year mark, and then release the balance over successive monthly increments. For example, a lockup schedule may prohibit 100% of the tokens from being transferred until the one-year anniversary of the exercise date, and then permit the transfer of 50% of the tokens on the one-year anniversary and 1\/24<sup>th<\/sup>, 1\/36<sup>th<\/sup> or 1\/48<sup>th<\/sup> of remaining tokens over the next two to four years. A common provision requires an early release of the lockup provision if certain \u201cinsiders\u201d (particularly founders or board members) have a less stringent lockup period. Token warrants may also provide the token issuer with rights to impose additional transfer restrictions on tokens in light of regulatory requirements or in connection with centralized exchange listing requirements.<\/li>\n<li><strong>Beware of Token Warrants that Compensate Service Providers.<\/strong> Token warrants are not ideal instruments for compensating a company\u2019s service providers (e.g. employees, contractors, advisors). The Internal Revenue Code subjects deferred compensation \u2013 including token warrants \u2013 to a variety of complex and generally unfavorable tax, vesting and exercise rules. Therefore, companies should generally limit issuing token warrants to investors.<\/li>\n<\/ol>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Venture capital investors in blockchain companies often require formal rights to receive tokens or other digital assets created by those companies. Typically, these rights are provided through an instrument called a \u201ctoken warrant.\u201d While token warrants are most frequently issued in priced rounds, they have become increasingly prevalent in connection with SAFE or other convertible [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":977,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[132],"tags":[86,97,283],"coauthors":[238,252,148,284],"class_list":["post-487","post","type-post","status-publish","format-standard","hentry","category-transactional-issues","tag-cryptocurrency","tag-digital-tokens","tag-token-warrents"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>5 Things to Know About Token Warrants - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/5-things-to-know-about-token-warrants\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"5 Things to Know About Token Warrants - On the Chain\" \/>\n<meta property=\"og:description\" content=\"Venture capital investors in blockchain companies often require formal rights to receive tokens or other digital assets created by those companies. Typically, these rights are provided through an instrument called a \u201ctoken warrant.\u201d While token warrants are most frequently issued in priced rounds, they have become increasingly prevalent in connection with SAFE or other convertible [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/blogs.orrick.com\/blockchain\/5-things-to-know-about-token-warrants\/\" \/>\n<meta property=\"og:site_name\" content=\"On the Chain\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Orrick\" \/>\n<meta property=\"article:published_time\" content=\"2023-02-21T21:37:19+00:00\" \/>\n<meta name=\"author\" content=\"Joseph Perkins, Mark Janoff, Andrew Wallach, Robert Moore\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Orrick\" \/>\n<meta name=\"twitter:site\" content=\"@Orrick\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Joseph Perkins, Mark Janoff, Andrew Wallach, Robert Moore\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-things-to-know-about-token-warrants\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-things-to-know-about-token-warrants\\\/\"},\"author\":{\"name\":\"Joseph Perkins\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#\\\/schema\\\/person\\\/c899edbf91dcc293e38d6a612c622630\"},\"headline\":\"5 Things to Know About Token Warrants\",\"datePublished\":\"2023-02-21T21:37:19+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-things-to-know-about-token-warrants\\\/\"},\"wordCount\":804,\"publisher\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#organization\"},\"keywords\":[\"cryptocurrency\",\"digital tokens\",\"token warrents\"],\"articleSection\":[\"Transactional Issues (technology, IP, privacy applications)\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-things-to-know-about-token-warrants\\\/\",\"url\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/5-things-to-know-about-token-warrants\\\/\",\"name\":\"5 Things to Know About Token Warrants - 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An Ownership Model for Digital Networks"},"content":{"rendered":"<p><strong>Japanese:<\/strong> <a href=\"https:\/\/www.orrick.com\/ja-JP\/Insights\/2023\/01\/Cooperatives-An-Ownership-Model-for-Digital-Networks-Translated\" target=\"_blank\" rel=\"noopener\">\u5354\u540c\u7d44\u5408\u2015\u2015\u30c7\u30b8\u30bf\u30eb\u30fb\u30cd\u30c3\u30c8\u30ef\u30fc\u30af\u306e\u30aa\u30fc\u30ca\u30fc\u30b7\u30c3\u30d7\u306e\u30e2\u30c7\u30eb<\/a><br \/>\n<strong>Chinese:<\/strong> <a href=\"https:\/\/www.orrick.com\/zh-CN\/Insights\/2023\/01\/Cooperatives-An-Ownership-Model-for-Digital-Networks-Translated\" target=\"_blank\" rel=\"noopener\">\u5408\u4f5c\u793e\uff1a\u6570\u5b57\u7ecf\u6d4e\u7684\u65b0\u6240\u6709\u6743\u6a21\u5f0f<\/a><\/p>\n<p class=\"O-BodyText\">Turbulence in crypto and blockchain has shed light on a question that has received increasing attention: how web3 companies share ownership in digital networks, including through tokens.<\/p>\n<p class=\"O-BodyText\">As the industry wrestles with this question, builders and investors should consider adding cooperatives to their ownership structures. A handful of web3 projects have done so, but the model is not widely understood in the web3 context.<\/p>\n<p class=\"O-BodyText\">Credit unions, rural utilities, insurance companies, and agriculture producers often organize as cooperatives. In web3, projects that add cooperatives to their ownership structures could boost participation and reduce regulatory risk while giving users more control of the digital networks they use and a share of the value they create.<\/p>\n<p class=\"O-BodyText\">The SEC has consistently declined to classify cooperative memberships as securities, enabling cooperatives to distribute ownership to users quickly and easily, while also offering important protections to their members.<\/p>\n<p class=\"O-BodyText\">A new white paper from Orrick, KPMG and Upside Cooperative explores whether a legal structure common to credit unions and rural utilities could help revitalize blockchain and realize the web3 vision of a new digital world.<\/p>\n<p><a href=\"https:\/\/media.orrick.com\/Media%20Library\/public\/files\/insights\/2023\/cooperatives-path-to-compliance-for-web3.pdf\">DOWNLOAD THE FULL REPORT<\/a><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Japanese: \u5354\u540c\u7d44\u5408\u2015\u2015\u30c7\u30b8\u30bf\u30eb\u30fb\u30cd\u30c3\u30c8\u30ef\u30fc\u30af\u306e\u30aa\u30fc\u30ca\u30fc\u30b7\u30c3\u30d7\u306e\u30e2\u30c7\u30eb Chinese: \u5408\u4f5c\u793e\uff1a\u6570\u5b57\u7ecf\u6d4e\u7684\u65b0\u6240\u6709\u6743\u6a21\u5f0f Turbulence in crypto and blockchain has shed light on a question that has received increasing attention: how web3 companies share ownership in digital networks, including through tokens. As the industry wrestles with this question, builders and investors should consider adding cooperatives to their ownership structures. A handful of web3 projects have [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":1003,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[83,159,281],"coauthors":[282,252,238],"class_list":["post-481","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-blockchain","tag-digital-assets","tag-web3"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Cooperatives: An Ownership Model for Digital Networks - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/cooperatives-an-ownership-model-for-digital-networks\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Cooperatives: An Ownership Model for Digital Networks - On the Chain\" \/>\n<meta property=\"og:description\" content=\"Japanese: \u5354\u540c\u7d44\u5408\u2015\u2015\u30c7\u30b8\u30bf\u30eb\u30fb\u30cd\u30c3\u30c8\u30ef\u30fc\u30af\u306e\u30aa\u30fc\u30ca\u30fc\u30b7\u30c3\u30d7\u306e\u30e2\u30c7\u30eb Chinese: \u5408\u4f5c\u793e\uff1a\u6570\u5b57\u7ecf\u6d4e\u7684\u65b0\u6240\u6709\u6743\u6a21\u5f0f Turbulence in crypto and blockchain has shed light on a question that has received increasing attention: how web3 companies share ownership in digital networks, including through tokens. As the industry wrestles with this question, builders and investors should consider adding cooperatives to their ownership structures. A handful of web3 projects have [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/blogs.orrick.com\/blockchain\/cooperatives-an-ownership-model-for-digital-networks\/\" \/>\n<meta property=\"og:site_name\" content=\"On the Chain\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Orrick\" \/>\n<meta property=\"article:published_time\" content=\"2023-01-17T18:06:06+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-06-15T16:49:36+00:00\" \/>\n<meta name=\"author\" content=\"James Wigginton, Mark Janoff, Joseph Perkins\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Orrick\" \/>\n<meta name=\"twitter:site\" content=\"@Orrick\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"James Wigginton, Mark Janoff, Joseph Perkins\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/cooperatives-an-ownership-model-for-digital-networks\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/cooperatives-an-ownership-model-for-digital-networks\\\/\"},\"author\":{\"name\":\"James Wigginton\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#\\\/schema\\\/person\\\/3213d3bbde1d5cb77fc086852ec6d3a1\"},\"headline\":\"Cooperatives: An Ownership Model for Digital Networks\",\"datePublished\":\"2023-01-17T18:06:06+00:00\",\"dateModified\":\"2023-06-15T16:49:36+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/cooperatives-an-ownership-model-for-digital-networks\\\/\"},\"wordCount\":191,\"publisher\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#organization\"},\"keywords\":[\"blockchain\",\"digital assets\",\"web3\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/cooperatives-an-ownership-model-for-digital-networks\\\/\",\"url\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/cooperatives-an-ownership-model-for-digital-networks\\\/\",\"name\":\"Cooperatives: An Ownership Model for Digital Networks - 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The CFPB acknowledged an investigation for the first time that same month, when it published a <a href=\"https:\/\/files.consumerfinance.gov\/f\/documents\/cfpb_nexo-financial-llc_decision-and-order-on-petition_2022-11.pdf\">decision<\/a> in the case.<\/p>\n<p>Crypto companies with direct-to-consumer products should take note &#8212; and consider steps to mitigate risk.<\/p>\n<p><strong>What Happened?<\/strong><\/p>\n<p>The CFPB sent a Civil Investigative Demand (CID) for testimony in December 2021 to Nexo, a cryptocurrency platform that offers an earned-interest product and lets customers make deposits.<\/p>\n<p>The CID focused on whether Nexo made \u201cfalse or misleading representations to consumers\u201d about its safeguards used to protect crypto assets. The CFPB also stated that the investigation included potential violations of the Electronic Funds Transfer Act, confirming its view that the law applies to crypto assets.<\/p>\n<p>Nexo filed a <a href=\"https:\/\/files.consumerfinance.gov\/f\/documents\/cfpb_nexo-financial-llc_petition_2022-11.pdf\">petition<\/a> to set aside or modify the CID. It argued that the SEC views interest-bearing crypto accounts as securities that are subject to SEC regulation and exempt from CFPB jurisdiction.<\/p>\n<p>CFPB Director Rohit Chopra <a href=\"https:\/\/files.consumerfinance.gov\/f\/documents\/cfpb_nexo-financial-llc_decision-and-order-on-petition_2022-11.pdf\">denied the petition<\/a>. He noted that Nexo had been unwilling to fully concede that its product was a security subject to SEC regulation and that \u201cit [was] too early to tell whether Nexo \u2026\u00a0was required to be registered with the SEC,\u201d and exempt from the CFPB\u2019s jurisdiction.<\/p>\n<p>Since then, Nexo <a href=\"https:\/\/nexo.io\/blog\/nexo-announces-gradual-departure-from-the-united-states\">announced<\/a> it had made \u201cthe regrettable but necessary decision\u201d to phase out its products and services in the U.S. after \u201cinconsistent and changing positions among state and federal regulators.\u201d<\/p>\n<p><strong>What does this mean?<\/strong><\/p>\n<p>Though this is the first publicly identified CFPB crypto investigation, there are likely more on its docket.<\/p>\n<p>This matter also reveals that CFPB crypto investigations have been ongoing since at least the fourth quarter of 2021. Less than two weeks before issuing the Nexo decision, the CFPB issued a <a href=\"https:\/\/files.consumerfinance.gov\/f\/documents\/cfpb_complaint-bulletin_crypto-assets_2022-11.pdf\">Crypto-asset Complaint Bulletin<\/a>. The CFPB typically uses these bulletins to notify a market of its plans to address certain types of consumer harm. Three top crypto complaint themes likely to trigger CFPB interest include:<\/p>\n<ol>\n<li><strong>Fraud:<\/strong> 40% of consumer complaints in the bulletin were a result of having been victimized by fraudulent activity or scams in the crypto ecosystem.<\/li>\n<li><strong>Access to Funds:<\/strong> Many consumers reported struggling to access their funds due to issues with crypto platforms and the freezing of funds before filing for bankruptcy protection.<\/li>\n<li><strong>Poor Customer Service:<\/strong> A major issue cited in the complaint bulletin was the inherent lack of customer service provided to consumers in the crypto market. Consumers described company customer service as non-responsive or non-existent. The CFPB launched an initiative to improve customer service this year with Director Chopra\u2019s stated goal \u201cto ensure the legally enshrined right to obtain basic customer service.\u201d<\/li>\n<\/ol>\n<p><strong><u>Looking Forward<\/u><\/strong><\/p>\n<p>We expect increased enforcement action aimed at addressing the themes in the Crypto-asset Complaint Bulletin. Crypto companies that have not affirmatively subjected themselves to SEC or CFTC authority may be more vulnerable to CFPB scrutiny. In an environment of increased regulatory risk, we recommend that crypto companies review their products and services from a consumer\/end user perspective and pay attention to customer complaints.<\/p>\n<p><em>Contact <a href=\"https:\/\/www.orrick.com\/en\/People\/3\/0\/0\/Melissa-Guidorizzi\">Melissa Baal Guidorizzi<\/a> and <a href=\"https:\/\/www.orrick.com\/en\/People\/B\/C\/A\/Daniel-Forester\">Daniel Forester<\/a> if you have any questions regarding recent regulatory trends and best practices for building compliance programs if your company is subject to the CFPB\u2019s enforcement and examination powers.<\/em><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Ending doubts regarding its interest in the space, the Consumer Financial Protection Bureau (CFPB) has for the first time publicly acknowledged its investigation of a crypto company &#8212; and it\u2019s likely a sign of things to come. The agency hinted at increased enforcement in a summary of consumer crypto complaints in November 2022. The CFPB [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":997,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[134],"tags":[280,106],"coauthors":[273,262,279],"class_list":["post-475","post","type-post","status-publish","format-standard","hentry","category-1securities-derivatives-financial-institutions","tag-cfpb","tag-cryptocurrencies"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>CFPB Makes an Entrance: Crypto Products Targeted - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/cfpb-makes-an-entrance-crypto-products-targeted\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"CFPB Makes an Entrance: Crypto Products Targeted - On the Chain\" \/>\n<meta property=\"og:description\" content=\"Ending doubts regarding its interest in the space, the Consumer Financial Protection Bureau (CFPB) has for the first time publicly acknowledged its investigation of a crypto company &#8212; and it\u2019s likely a sign of things to come. 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Provides Expectations About Public Company Disclosures Regarding Crypto Ecosystem Impact"},"content":{"rendered":"<p><strong><u>What Happened<\/u><\/strong><\/p>\n<p>The Division of Corporation Finance of the Securities and Exchange Commission (\u201cSEC\u201d) issued a <a href=\"https:\/\/www.sec.gov\/corpfin\/sample-letter-companies-regarding-crypto-asset-markets\">sample letter<\/a> on December 8, 2022, highlighting considerations that public companies that are in, or connected to, the crypto industry should keep in mind as they prepare their public disclosures, spanning the description of business, management\u2019s discussion and analysis (\u201cMD&amp;A\u201d) and risk factor disclosures.<\/p>\n<p><strong><u>What Public Companies Need to Consider<\/u><\/strong><\/p>\n<p>While the letter highlights additional points for consideration in the business and MD&amp;A sections, the majority of the comments focus on risk factor disclosure, flagging nine key risks, including:<\/p>\n<ul>\n<li>any material gaps identified with respect to risk management processes and policies,<\/li>\n<li>the \u201cpossibility of regulatory developments related to crypto assets and crypto asset markets,\u201d and<\/li>\n<li>material risk of reputational harm from recent disruptions.<\/li>\n<\/ul>\n<p>Additionally, the sample letter also calls for increased disclosure regarding whether any of the crypto assets held or issued by the company serve as collateral for certain activities, as well as any downstream effects experienced by the company as a result of certain bankruptcies in the crypto industry. The sample letter gives insights into general themes of disclosures that the SEC is focused on, including the following: (i) the risk exposure a company has to other actors in the blockchain and cryptocurrency ecosystem (interdependencies within the industry), and (ii) changes to the value of assets held by the company resulting from fluctuations in the larger blockchain market.<\/p>\n<p>In light of the heightened scrutiny faced by companies with exposure to the crypto industry, careful consideration should be given to any public disclosures regarding their operations in order to address the SEC\u2019s concerns of providing adequate information to make a company\u2019s public disclosures not misleading.<\/p>\n<p class=\"O-BodyText\">Contact <a href=\"https:\/\/www.orrick.com\/en\/People\/7\/D\/9\/Alice-Hsu\">Alice Hsu<\/a>, <a href=\"https:\/\/www.orrick.com\/en\/People\/B\/C\/A\/Daniel-Forester\">Daniel Forester<\/a>, <a href=\"https:\/\/www.orrick.com\/en\/People\/C\/C\/4\/Joseph-Perkins\">Joseph Perkins<\/a> or <a href=\"https:\/\/www.orrick.com\/en\/People\/2\/D\/A\/Soo-Hwang\">Soo Hwang<\/a> for guidance on whether your company could be impacted or if you have any questions about navigating this evolving regulatory landscape.<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>What Happened The Division of Corporation Finance of the Securities and Exchange Commission (\u201cSEC\u201d) issued a sample letter on December 8, 2022, highlighting considerations that public companies that are in, or connected to, the crypto industry should keep in mind as they prepare their public disclosures, spanning the description of business, management\u2019s discussion and analysis [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":1000,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[134],"tags":[86,89],"coauthors":[278,262,238,277],"class_list":["post-470","post","type-post","status-publish","format-standard","hentry","category-1securities-derivatives-financial-institutions","tag-cryptocurrency","tag-sec"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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MiCA will provide new regulatory frameworks, including licensing and disclosure obligations, for participants in the cryptocurrency ecosystem, including token issuers, financial intermediaries (exchanges, brokers, etc.) and custodians.<\/p>\n<p class=\"O-BodyTextJ\"><b><span lang=\"EN-GB\">What Happened<\/span><\/b><\/p>\n<p class=\"O-BodyTextJ\"><span lang=\"EN-GB\">The Economic and Monetary Affairs Committee of the European Parliament gave its approval to MiCA on October 10, 2022, the latest step in a process that has lasted more than two years.<\/span><\/p>\n<p class=\"O-BodyTextJ\"><b><span lang=\"EN-GB\">What\u2019s Next<\/span><\/b><\/p>\n<p class=\"O-BodyTextJ\"><span lang=\"EN-GB\">This paves the way for the larger European Parliament plenary to approve the regulations, a step that often is merely procedural. Once the plenary approves MiCA, it will become effective and mark the beginning of 18 months in which firms must become compliant, with the regulations coming into full effect in the second or third quarter of 2024. <\/span><\/p>\n<p class=\"O-BodyTextJ\"><span lang=\"EN-GB\">While the text of MiCA helps provide regulatory certainty for crypto-asset businesses and consumers in the EU, additional practical guidelines for implementation will also be drafted to further elaborate MiCA.<\/span><\/p>\n<p><strong>MiCA\u2019s Goals<\/strong><\/p>\n<p>MiCA\u2019s main objective is to provide a level of regulatory and economic harmonization to crypto-asset businesses and consumers across Europe. Guiding principles of MiCA include:<\/p>\n<ul>\n<li>Providing legal certainty through clear definitions of crypto assets and activities in relation to those crypto assets that are in scope;<\/li>\n<li>Providing for consumer protection and market integrity alongside financial stability of crypto-asset businesses; and<\/li>\n<li>Encouraging innovation and fair competition in the European crypto-assets markets and avoiding regulatory arbitrage between member states.<\/li>\n<\/ul>\n<p>Businesses engaged in activities that are within the scope of MiCA will, at a minimum, be required to register with the competent regulatory authorities and produce a detailed white paper for their business, in a form and content specified by MiCA.<\/p>\n<p class=\"O-BodyTextJ\"><span lang=\"EN-GB\">MiCA will not apply in the United Kingdom or Switzerland as they are not member states of the European Union. While similar principles of regulation may apply in these two jurisdictions, separate analysis is needed to understand what crypto-asset businesses must do to achieve compliance with local regulation.<\/span><\/p>\n<p class=\"O-BodyTextJ\"><b><span lang=\"EN-GB\">What MiCA Missed<\/span><\/b><\/p>\n<p class=\"O-BodyTextJ\"><span lang=\"EN-GB\">The final text of MiCA omits treatment of Non-Fungible Tokens, Decentralised Finance, Decentralized Autonomous Organizations and Proof of Work consensus mechanisms. European regulators are expected, however, to treat fractionalized NFTs as utility tokens governed by MiCA.<b><\/b><\/span><\/p>\n<p class=\"O-BodyTextJ\"><b><span lang=\"EN-GB\">How Will MiCA Impact the U.S. Market?<\/span><\/b><\/p>\n<p class=\"O-BodyTextJ\"><span lang=\"EN-GB\">MiCA reflects the EU\u2019s acknowledgement that digital assets are a persistent part of a modern financial system. Whether the EU\u2019s steps to define and regulate digital assets will influence U.S. regulators remains to be seen.<\/span><\/p>\n<p class=\"O-BodyTextJ\"><span lang=\"EN-GB\">The Biden Administration\u2019s March 2022 <a href=\"https:\/\/www.whitehouse.gov\/briefing-room\/presidential-actions\/2022\/03\/09\/executive-order-on-ensuring-responsible-development-of-digital-assets\/\">Executive Order on Ensuring Responsible Development of Digital Assets<\/a>\u00a0remains t<\/span>he most comprehensive U.S. policy statement on the topic. While there are numerous proposed legislative efforts in the U.S. Congress, the U.S. has yet to produce comprehensive legislation or regulatory guidance. Instead, regulators have relied on enforcement actions and individual agency guidance to inform market participants. We expect the U.S. regulatory regime to continue, at least in the short term, to take coordinated but separate action aligned with the Executive Order\u2019s primary objectives of protecting consumers and investors.<\/p>\n<p class=\"O-BodyTextJ\"><i><span lang=\"EN-GB\">The Orrick fintech team takes an international approach to digital asset markets. We will continue to monitor regulatory developments in both the U.S. and Europe to support our clients and innovation in crypto.<\/span><\/i><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>The EU\u2019s Markets in Crypto-Assets (MiCA) regulations are now all but final and may take effect this year. MiCA will provide new regulatory frameworks, including licensing and disclosure obligations, for participants in the cryptocurrency ecosystem, including token issuers, financial intermediaries (exchanges, brokers, etc.) and custodians. What Happened The Economic and Monetary Affairs Committee of the [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":999,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[133,1],"tags":[86,159,94],"coauthors":[275,273,262,276],"class_list":["post-464","post","type-post","status-publish","format-standard","hentry","category-eu-other-overseas-regulatory","category-uncategorized","tag-cryptocurrency","tag-digital-assets","tag-eu-law"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>European Crypto Regulation on the Verge of Enactment - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/european-crypto-regulation-on-the-verge-of-enactment\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"European Crypto Regulation on the Verge of Enactment - On the Chain\" \/>\n<meta property=\"og:description\" content=\"The EU\u2019s Markets in Crypto-Assets (MiCA) regulations are now all but final and may take effect this year. MiCA will provide new regulatory frameworks, including licensing and disclosure obligations, for participants in the cryptocurrency ecosystem, including token issuers, financial intermediaries (exchanges, brokers, etc.) and custodians. What Happened The Economic and Monetary Affairs Committee of the [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/blogs.orrick.com\/blockchain\/european-crypto-regulation-on-the-verge-of-enactment\/\" \/>\n<meta property=\"og:site_name\" content=\"On the Chain\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Orrick\" \/>\n<meta property=\"article:published_time\" content=\"2022-10-25T00:38:43+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-10-26T20:36:52+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/blogs.orrick.com\/blockchain\/files\/2018\/11\/SN21455-On-The-Chain-740x360-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"740\" \/>\n\t<meta property=\"og:image:height\" content=\"360\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Daniel Jones, Melissa Baal Guidorizzi, Daniel Forester, Guy Stevenson\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/blogs.orrick.com\/blockchain\/files\/2018\/11\/SN21455-On-The-Chain-740x360-1.jpg\" \/>\n<meta name=\"twitter:creator\" content=\"@Orrick\" \/>\n<meta name=\"twitter:site\" content=\"@Orrick\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Daniel Jones, Melissa Baal Guidorizzi, Daniel Forester, Guy Stevenson\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/european-crypto-regulation-on-the-verge-of-enactment\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/european-crypto-regulation-on-the-verge-of-enactment\\\/\"},\"author\":{\"name\":\"Daniel Jones\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#\\\/schema\\\/person\\\/31b834af27fc64b666e3a49d901aeaf5\"},\"headline\":\"European Crypto Regulation on the Verge of Enactment\",\"datePublished\":\"2022-10-25T00:38:43+00:00\",\"dateModified\":\"2022-10-26T20:36:52+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/european-crypto-regulation-on-the-verge-of-enactment\\\/\"},\"wordCount\":562,\"publisher\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#organization\"},\"keywords\":[\"cryptocurrency\",\"digital assets\",\"EU law\"],\"articleSection\":[\"EU and Other Overseas Regulatory\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/european-crypto-regulation-on-the-verge-of-enactment\\\/\",\"url\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/european-crypto-regulation-on-the-verge-of-enactment\\\/\",\"name\":\"European Crypto Regulation on the Verge of Enactment - 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This notification requirement may add some friction to the bank adoption of crypto-asset activities. This announcement follows the OCC\u2019s previous <a href=\"https:\/\/www.occ.gov\/topics\/charters-and-licensing\/interpretations-and-actions\/2021\/int1179.pdf\">direction<\/a> to its supervised entities to \u201cnotify its supervisory office, in writing of its intention to engage in a range of crypto related activities.\u201d With similar direction aimed at Federal Reserve banks that more regularly interact with crypto projects, legal and regulatory compliance diligence will be even more important.<\/p>\n<p><strong>What Happened<\/strong><\/p>\n<ul>\n<li>On August 16, 2022, FRB issued a <a href=\"https:\/\/www.federalreserve.gov\/supervisionreg\/srletters\/SR2206.htm\">letter<\/a> to all of its supervised banking organizations requiring those institutions to notify their lead FRB supervisory point of contact if such banking organization is engaged in or intend to engage in \u201ccrypto-asset-related activities\u201d in order to \u201censure such activity is legally permissible and determine whether any filings are required under applicable federal or state laws.\u201d<\/li>\n<li>\u201cCrypto-asset-related activities\u201d include crypto-asset safekeeping and traditional custody services; ancillary custody services; facilitation of customer purchases and sales of crypto-assets; loans collateralized by crypto-assets; and issuance and distribution of stablecoins.<\/li>\n<li>The letter also specifically referenced stablecoins as potentially posing risks to financial stability if adopted at large scale.<\/li>\n<\/ul>\n<p><strong>How Will This Affect Banking Organizations?<\/strong><\/p>\n<p>Supervised banking organizations must:<\/p>\n<ul>\n<li><strong>Ensure the Activities Are Legally Permissible<\/strong>\n<ul>\n<li>Supervised banking organizations must assess the legality of the proposed crypto-asset-related activities under state and federal laws and determine whether any filings are required under federal banking laws, including The Bank Holding Company Act, Home Owners\u2019 Loan Act, Federal Reserve Act, and Federal Deposit Insurance Act.<\/li>\n<li>If permissibility is not clear, supervised banking organizations are directed to consult their point of contact at the FRB prior to the commencement of such activities.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Notify the Federal Reserve<\/strong>\n<ul>\n<li>If a supervised banking organization is already engaged in crypto-asset-related activity, it should disclose all activities to its lead supervisory point of contact promptly.<\/li>\n<li>Supervised banking organizations must notify their lead supervisory point of contact prior to engaging in crypto-asset-related activity.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Enact and Maintain Proper Controls<\/strong>\n<ul>\n<li>FRB\u2019s letter emphasizes the importance of supervised banking organizations enacting and maintaining adequate risk management and controls related to crypto-asset-related activities, including:\n<ul>\n<li>Having adequate systems in place to identify, measure, monitor, and control the risks associated with crypto-related activities on an ongoing basis; and<\/li>\n<li>Ensuring that these systems cover \u201coperational risks (for example, the risks of new, evolving technologies; the risk of hacking, fraud and theft; and the risk of third-party relationships), financial risk, legal risk, compliance risk (including, but not limited to, compliance with the Bank Secrecy Act, anti-money laundering requirements, and sanctions requirements), and any other risk necessary to ensure the activities are conducted in a manner that is consistent with safe and sound banking and in compliance with applicable law, including applicable consumer protection statutes and regulations.\u201d<\/li>\n<\/ul>\n<\/li>\n<li><strong>Consider Notifying State Regulators <\/strong>\n<ul>\n<li>FRB encourages state member banks to also notify their state regulators prior to engaging in crypto-asset-related activity.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>Why Does This Matter?<\/strong><\/p>\n<ul>\n<li>If you are a supervised banking organization that is currently involved in active crypto-asset activities, re-confirm that your activities are compliant and take another look at your service providers to ensure their compliance;<\/li>\n<li>If you are a potential partner of a supervised banking organization, expect an even more robust diligence process, time to execution may be extended, and you may face increased ongoing reporting and information disclosure requirements; and<\/li>\n<li>For all participants in the crypto-asset space, this is another example of the growing all-hands on deck approach to the regulation of crypto spurred by the <a href=\"https:\/\/www.whitehouse.gov\/briefing-room\/presidential-actions\/2022\/03\/09\/executive-order-on-ensuring-responsible-development-of-digital-assets\/\">Executive Order<\/a> from earlier this year. The Executive Order\u2019s first objective was to \u201cprotect consumer, investors, and businesses,\u201d and we expect to see further action from the FRB and other regulators.<\/li>\n<\/ul>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Federal Reserve Requires Banks to Provide Notice Regarding Crypto-Asset-Related Activities The Federal Reserve Board (\u201cFRB\u201d) announced a significant shift requiring FRB-supervised banking organizations to disclose any current crypto-asset-related activity and to notify FRB in advance of entering into any such business activities in the future. This notification requirement may add some friction to the bank [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":996,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[131],"tags":[83,271],"coauthors":[274,262,273,238,272],"class_list":["post-452","post","type-post","status-publish","format-standard","hentry","category-other-regulatory-issues","tag-blockchain","tag-federal-reserve"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Federal Reserve Requires Banks to Provide Notice Regarding Crypto-Asset-Related Activities - On the Chain<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.orrick.com\/blockchain\/federal-reserve-requires-banks-to-provide-notice-regarding-crypto-asset-related-activities\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Federal Reserve Requires Banks to Provide Notice Regarding Crypto-Asset-Related Activities - On the Chain\" \/>\n<meta property=\"og:description\" content=\"Federal Reserve Requires Banks to Provide Notice Regarding Crypto-Asset-Related Activities The Federal Reserve Board (\u201cFRB\u201d) announced a significant shift requiring FRB-supervised banking organizations to disclose any current crypto-asset-related activity and to notify FRB in advance of entering into any such business activities in the future. This notification requirement may add some friction to the bank [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/blogs.orrick.com\/blockchain\/federal-reserve-requires-banks-to-provide-notice-regarding-crypto-asset-related-activities\/\" \/>\n<meta property=\"og:site_name\" content=\"On the Chain\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Orrick\" \/>\n<meta property=\"article:published_time\" content=\"2022-08-19T21:54:29+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-08-19T21:54:30+00:00\" \/>\n<meta name=\"author\" content=\"Darrell Cafasso, Daniel Forester, Melissa Baal Guidorizzi, Joseph Perkins, Brittany Roehrs\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Orrick\" \/>\n<meta name=\"twitter:site\" content=\"@Orrick\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Darrell Cafasso, Daniel Forester, Melissa Baal Guidorizzi, Joseph Perkins, Brittany Roehrs\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/federal-reserve-requires-banks-to-provide-notice-regarding-crypto-asset-related-activities\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/federal-reserve-requires-banks-to-provide-notice-regarding-crypto-asset-related-activities\\\/\"},\"author\":{\"name\":\"Darrell Cafasso\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#\\\/schema\\\/person\\\/baae089c7ab7a6e4fb63d88c273e4514\"},\"headline\":\"Federal Reserve Requires Banks to Provide Notice Regarding Crypto-Asset-Related Activities\",\"datePublished\":\"2022-08-19T21:54:29+00:00\",\"dateModified\":\"2022-08-19T21:54:30+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/federal-reserve-requires-banks-to-provide-notice-regarding-crypto-asset-related-activities\\\/\"},\"wordCount\":657,\"publisher\":{\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/#organization\"},\"keywords\":[\"blockchain\",\"Federal Reserve\"],\"articleSection\":[\"Other Regulatory Issues (tax, anti-money laundering, OFAC, and antitrust)\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/federal-reserve-requires-banks-to-provide-notice-regarding-crypto-asset-related-activities\\\/\",\"url\":\"https:\\\/\\\/blogs.orrick.com\\\/blockchain\\\/federal-reserve-requires-banks-to-provide-notice-regarding-crypto-asset-related-activities\\\/\",\"name\":\"Federal Reserve Requires Banks to Provide Notice Regarding Crypto-Asset-Related Activities - 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