Prominent U.S. virtual currency exchanges are bringing in legal heavyweights from the worlds of traditional finance and blockchain to help develop a self-regulatory organization.
Alma Angotti, a former senior official at the SEC and Treasury’s Financial Crimes Enforcement Network, as well as Dana Syracuse, a former New York Department of Financial Services general counsel, are among those who will help develop enforcement policies and best practices for the Virtual Commodity Association.
The July 11 announcement is the latest effort by the group led by Gemini, bitFlyer USA, Bittrex and BitStamp that’s waging a months-long campaign to win over Washington. The growing crypto industry has made allies in the halls of Capitol Hill and in regulatory agencies but must still convince prominent skeptics who would be key to achieving a formal self-regulatory organization.
The VCA’s move comes as virtual currency-related businesses are under intense scrutiny from powerful policymakers, including most notably, House Financial Services Chairwoman Rep. Maxine Waters (D-Calif.), driven by Facebook’s foray into a cryptocurrency-backed global payments system. Waters said July 10 that any company involved with cryptocurrency deserves close scrutiny.
The Virtual Commodity Association is hoping to not only assuage regulators and lawmakers like Waters, but also help attract more interest and investment in blockchain and virtual currency projects from the traditional financial sector.
“A major thing regulators and legislators look for is a market that’s both cutting edge and innovative but also sophisticated and maturing,” said Maria Filipakis, former executive deputy superintendent at the New York Department of Financial Services and current VCA interim executive director, told Bloomberg Law.
“By taking the steps to address the key issues that regulators are looking at,” the VCA is showing policymakers it understands their concerns, Filipakis said.
The group is launching six committees to lay out best practices for market integrity, Bank Secrecy Act/anti-money laundering compliance, consumer protection, enforcement, insurance, taxation, and custody and security.
The goal is to produce a series of policies for enforcement mechanisms against bad actors, facilitate cross-exchange information sharing for the purpose of market surveillance, and a focus on compliance with new BSA/AML requirements specifically for crypto companies put in place in June by the Financial Action Task Force, a global standards group.
The committees’ output is meant to “eventually inform sensible and thoughtful regulation for the crypto industry once the SRO designation is obtained,” Yusuf Hussain, president of the VCA’s board of directors as well as head of Risk at Gemini, told Bloomberg Law. Hussain and Filipakis spoke only in their capacity of affiliation with the VCA.
The group is laying the groundwork for what it hopes will become a formal self-regulatory organization in the style of FINRA, the Financial Industry Regulatory Authority. The VCA was established in September 2018.
Regulators, including the Securities and Exchange Commission, the Commodity Futures Trading Commission, states, and lawmakers, have at times struggled with overlapping jurisdiction over blockchain and virtual currency companies, whose various business models can bear the hallmarks of securities, commodities, derivatives products, or basic money services.
Industry members have previously said a self-regulatory body with the authority to enforce standards and take action against bad actors could aid in helping them grow while also quelling some of the distrust that still pervades cryptocurrency markets.
It may take a number of years to achieve that goal, but regulators have encouraged the effort, Hussein said.
“The key here is continuing to show progress to the regulators,” said Hussein. The CFTC has indicated that progress on regulatory standards for the crypto industry “is what would drive comfort to the regulators to make the designation and support all the way up to Congress,” he said.