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• <a href="#Crypto">Crypto Firms Announce New Product Launches in Custody, Stablecoins, Wallets</a> • <a href="#New">New Crypto Guidance Published by CFTC, European Banking Agency, UAE</a> • <a href="#Multiple">Multiple Financial Agencies Publish Reports Addressing Crypto Market</a> • <a href="#OFCA">OFAC Adds New Crypto Public Keys to SDN List</a> • <a href="#CFTC">CFTC Charges Digital Asset Fraud Scheme, NY AG Charges Wallet Provider</a>

Crypto Firms Announce New Product Launches in Custody, Stablecoins, Wallets

By <a href="https://www.bakerlaw.com/KeithRMurphy">Keith R. Murphy</a>

According to a recent press release, Prometheum Capital has received the first-ever approval from the Financial Industry Regulation Authority (FINRA) to operate as a special purpose broker-dealer for digital asset securities. The press release notes that the approval allows the company to serve as a qualified custodian of digital asset securities on behalf of institutional and retail clients and that it is the first time digital asset securities will be custodied in a FINRA member firm and broker-dealer registered with the U.S. Securities and Exchange Commission (SEC). According to the company’s co-CEO, “[d]igital asset investors in the U.S. are currently custodying cryptocurrencies that are securities through platforms that don’t offer the same [Securities Exchange Act] 15c3-3 customer protections required by the federal securities laws.” In contrast, he expects that custodying assets in an SEC-registered broker-dealer will provide regulatory protections to reestablish investor confidence, among other benefits.

Another recent press release announced that a cryptocurrency exchange/copy-trading platform is partnering with a digital asset custody provider to provide institutional clients with an off-exchange settlement solution. The crypto exchange will join the ClearLoop network, which reportedly will allow the institutional users of both companies to maintain assets within the custody provider’s infrastructure but simultaneously delegates those assets to trade on the crypto exchange. The integration reportedly will allow active trading across 450 coins and 580 trading pairs.

In a third press release, stablecoin issuer Circle announced the launch of the Euro Coin on the Avalanche network. The press release notes that the launch is the first in a series of expected multichain launches for the euro-backed stablecoin.

A final recent press release announced that Magic, a leading wallet-as-a-service (WaaS) provider, has raised $52 million in a funding round that included the venture capital arm of a major U.S. fintech firm. According to the press release, “Magic is enabling web3 mass adoption by serving as the de facto WaaS provider for companies that are searching for safe and easy ways to bring their customers over to web3.”

For more information, please refer to the following links:

<a href="https://www.businesswire.com/news/home/20230523005313/en/Prometheum-Ember-Capital-is-the-First-SEC-Qualified-Custodian-for-Digital-Assets-Securities">Prometheum Ember Capital is the First SEC Qualified Custodian for Digital Assets Securities</a>

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<a href="https://www.prnewswire.com/in/news-releases/bitget-partners-with-copper-to-offer-institutional-clients-off-exchange-settlement-301834556.html">Bitget partners with Copper to offer institutional clients off-exchange settlement</a>

<a href="https://www.prnewswire.com/news-releases/circle-takes-euro-coin-multi-chain-with-launch-on-avalanche-301834001.html">Circle Takes Euro Coin Multi-Chain with Launch on Avalanche</a>

<a href="https://www.prnewswire.com/news-releases/magic-announces-52m-strategic-funding-round-led-by-paypal-ventures-301838352.html">Magic announces $52M Strategic Funding Round led by PayPal Ventures</a>

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New Crypto Guidance Published by CFTC, European Banking Agency, UAE

By <a href="https://www.bakerlaw.com/RobertAMusiala">Robert A. Musiala Jr.</a>

The U.S. Commodity Futures Trading Commission (CFTC) Division of Clearing and Risk (DCR) recently issued a staff advisory addressing “the risks associated with the expansion of Derivatives Clearing Organization (DCO) clearing of digital assets.” According to a CFTC press release, the advisory “reminds registrants and applicants that when expanding lines of business, changing business models, or offering new and novel products, DCR will remain focused on the potentially heightened risks that may be associated with certain of those clearing activities. DCR expects DCOs and applicants to actively identify new, evolving, or unique risks and implement risk mitigation measures tailored to the risks that these products or clearing-structure changes may present.” Among other things, the advisory notes that “because of the heightened cyber and other operational risks that may be associated with digital assets, DCR will emphasize compliance with the systems safeguards requirements under the Commodity Exchange Act and Part 39 of the Commission’s regulations.”

In foreign regulatory news, the European Banking Agency (EBA) recently published a consultation seeking public comments on proposed amendments to the EBA money laundering and terrorist financing (ML/TF) <a href="https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Guidelines/2021/963637/Final%20Report%20on%20Guidelines%20on%20revised%20ML%20TF%20Risk%20Factors.pdf">risk factors guidelines</a> that would extend the scope of the guidelines to crypto-asset service providers (CASPs). Among other things, the amendments would introduce new sector-specific guidance for CASPs, including with respect to risk assessments and customer due diligence, and provide guidance to financial institutions on risks to consider when engaging in a business relationship with a CASP.

And in the United Arab Emirates (UAE), the Central Bank of the UAE recently published new Guidance for Licensed Financial Institutions on Risks Related to Virtual Assets and Virtual Asset Service Providers. The 44-page guidance document is intended to assist the understanding and effective performance of UAE-licensed financial institutions of their anti-money-laundering obligations related to virtual assets and virtual asset service providers, as those terms are defined by the Financial Action Task Force.

<a href="https://www.cftc.gov/PressRoom/PressReleases/8708-23">CFTC’s Division of Clearing and Risk Issues Staff Advisory on the Risks Associated with Expansion of Derivatives Clearing Organization Clearing of Digital Assets</a>

<a href="https://www.eba.europa.eu/eba-consults-amendments-guidelines-money-laundering-and-terrorist-financing-risk-factors-include">EBA consults on amendments to the Guidelines on money laundering and terrorist financing risk factors to include crypto-asset service providers</a>

<a href="https://www.centralbank.ae/media/avwlktgy/cbuae-guidance-for-lfis-on-risks-related-to-virtual-assets-and-virtual-assets-providers_final-clean-version1.pdf">Anti-money Laundering and Combating the Financing Of Terrorism: Guidance for Licensed Financial Institutions On Risks Related to Virtual Assets and Virtual Asset Service Providers</a>

Multiple Financial Agencies Publish Reports Addressing Crypto Market

By <a href="https://www.bakerlaw.com/RobertAMusiala">Robert A. Musiala Jr.</a><a href="https://www.bakerlaw.com/VeronicaReynolds"></a>

The International Organization of Securities Commissions (IOSCO) recently published its Policy Recommendations for Crypto and Digital Asset Markets Consultation Report. According to the report, the IOSCO aims to finalize its policy recommendations to address market integrity and investor protection issues in crypto-asset markets in early Q4 2023. In another recent release, the World Economic Forum (WEF) published a white paper titled Pathways to Crypto-Asset Regulation: A Global Approach. According to a press release, the WEF white paper “sets out to understand and highlight the needs and challenges in developing a global approach to crypto-asset regulation.”

In a third recent publication, the Bank for International Settlements recently published a paper addressing policy perspectives on Central Bank Digital Currencies (CBDCs). Among other things, the paper finds that (1) development of CBDC work requires careful consideration and engagement with a wide range of stakeholders, including the private sector and legislators; (2) a CBDC ecosystem should allow a wide range of private and public stakeholders to participate and, in doing so, deliver services that benefit end users; (3) the complex design questions and the potential risks arising from the implementation of any CBDC require careful consideration; and (4) the evolving payments landscape requires central banks to give some consideration to how CBDCs may be used for wholesale and cross-border use cases.

In a final recent publication, the New York branch of the U.S. Central Bank published the Phase II report of Project Cedar, an ongoing pilot with the goal of improving cross-border payments using distributed ledger technology. According to a press release, among other things, the report discusses findings related to interlinking simulated central bank currency ledgers; “atomic settlement” where “transactions were only settled if all legs in the cross-currency payment chains were executed successfully”; and “near real-time settlement” where a “simulated payment scenario achieved end-to-end settlement in under thirty seconds on average.”

<a href="https://www.iosco.org/library/pubdocs/pdf/IOSCOPD734.pdf">Policy Recommendations for Crypto and Digital Asset Markets Consultation Report</a>

<a href="https://www.weforum.org/whitepapers/pathways-to-crypto-asset-regulation-a-global-approach">Pathways to Crypto-Asset Regulation: A Global Approach</a>

<a href="https://www.bis.org/publ/othp65.htm">Central bank digital currencies: ongoing policy perspectives</a>

<a href="https://www.newyorkfed.org/aboutthefed/nyic/project-cedar">Project Cedar: Improving Cross-Border Payments With Distributed Ledger Technology</a>

<a href="https://www.newyorkfed.org/medialibrary/media/nyic/project-cedar-phase-two-ubin-report.pdf">Project Cedar Phase II x Ubin+: Improving wholesale cross-border multi-currency payments and settlements</a>

OFAC Adds New Crypto Public Keys to SDN List

By <a href="https://www.bakerlaw.com/ChristopherLamb">Christopher Lamb</a>

According to a recent press release by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), four entities and one individual that were involved in “obfuscated revenue generation and malicious cyber activities that support the Democratic People’s Republic of Korea Government” have been added to OFAC’s Specially Designated Nationals (SDN) list. In connection with the action, OFAC also added two Bitcoin addresses and two Ethereum addresses to the SDN list.

In another recent press release issued by OFAC, pursuant to Executive Order 14024, OFAC is enhancing its use of “Russia-related sanctions,” including “designat[ing] or identif[ying] as blocked property almost 200 individuals, entities, vessels, and aircraft.” According to the press release, in connection with the action, one Ethereum wallet address, which had “received over $5.2 million in tether stablecoin since the beginning of the war,” was added to the SDN list. According to OFAC, this individual “helped high-net-worth Russian citizens obtain passports from other countries.”

<a href="https://home.treasury.gov/news/press-releases/jy1494">With Over 300 Sanctions, U.S. Targets Russia’s Circumvention and Evasion, Military-Industrial Supply Chains, and Future Energy Revenues</a>

<a href="https://ofac.treasury.gov/recent-actions/20230519">Russia-related Designations; Issuance of Amended Russia-related Directive 4, Russia-related General Licenses; Publication of Russia-related Determinations; and New and Amended Frequently Asked Questions</a>

<a href="https://www.coindesk.com/policy/2023/05/19/us-sanctions-watchdog-alleges-russia-linked-crypto-wallet-processed-5m/">U.S. Sanctions Watchdog Alleges Russia-Linked Crypto Wallet Processed $5M</a>

<a href="https://home.treasury.gov/news/press-releases/jy1498">Treasury Targets DPRK Malicious Cyber and Illicit IT Worker Activities</a>

<a href="https://ofac.treasury.gov/recent-actions/20230523">North Korea Designations; Issuance of Venezuela-related General License</a>

CFTC Charges Digital Asset Fraud Scheme, NY AG Charges Wallet Provider

By <a href="https://www.bakerlaw.com/MichelleNTanney">Michelle N. Tanney</a>

According to a May 24, 2023, press release by the Commodity Futures Trading Commission (CFTC), the CFTC filed a civil enforcement action in the U.S. District Court for the Central District of California against five defendants doing business under the name Icomtech. The CFTC’s complaint alleges that from August 2018 to December 2019, defendants and other Icomtech agents misappropriated investor funds through the fraudulent solicitation of hundreds of thousands of dollars under the guise that Icomtech would trade bitcoin and other digital assets with daily returns between 0.9% and 2.8% on customers’ money. The CFTC alleges the defendants used the investors’ money to pay for personal expenditures and to pay themselves commissions and bonuses. The press release notes that there is an ongoing parallel action by the U.S. Department of Justice in connection with the Icomtech scheme.

On May 23, 2023, in a fireside chat at the New York City Bar White Collar Crime Institute, CFTC Commissioner Christy Goldsmith Romero said that while “[t]here’s just a lot of fraud” in the cryptocurrency space, “there’s just no way we can police all the fraud.” Romero also noted that cryptocurrency cases account for approximately 20% of the CFTC’s portfolio, including cases against Binance and FTX. Addressing the idea that there is a jurisdictional “turf war” between the CFTC and the (SEC) with respect to regulating crypto, Romero said that while there is no turf war, many cryptocurrency and digital asset products are so new that it boils down to the CFTC and SEC just “trying to figure it out.”&nbsp;

In a final notable item, a recent press release by New York Attorney General Letitia James announced that the Office of the Attorney General has secured a $4.3 million settlement from a Brooklyn-based cryptocurrency company, Coin Cafe, for defrauding investors. According to the press release, Coin Cafe charged its customers “exorbitant and undisclosed fees to use its wallet storage, despite marketing its wallet storage as ‘free’ on its website.” Based on the settlement, “Coin Cafe will pay restitution to all investors who were misled, including more than $508,000 to more than 340 New York investors who were charged fees without their knowledge.”

<a href="https://www.cftc.gov/PressRoom/PressReleases/8706-23">CFTC Charges Five Defendants with Fraudulent Digital Assets Trading Scheme</a>

<a href="https://money.usnews.com/investing/news/articles/2023-05-23/no-way-to-police-all-cryptocurrency-fraud-cftc-commissioner-says">No Way to Police All Cryptocurrency Fraud, CFTC Commissioner Says</a>

<a href="https://ag.ny.gov/press-release/2023/attorney-general-james-secures-43-million-cryptocurrency-company-defrauding">Attorney General James Secures $4.3 Million from Cryptocurrency Company for Defrauding Investors</a>

Fintech Firms Launch New Products; Crypto Guidance Published by CFTC, EBA, UAE; OFAC Adds Public Keys to SDN List; CFTC, NY AG Bring Crypto Actions