Fintech Reducing Consumer Costs: According to a recent 2023 United Nations report, fintech technology has drastically reduced the cost of financial services for everyday consumers. Specifically, innovative technological advancements, like direct deposits, have expanded access to online banking and reduced expenses for more customers on traditional banking services, such as cashing checks.

SEC vs. Kraken: The SEC filed charges this week against Kraken, the second-largest cryptocurrency exchange in the U.S., claiming that the platform illegally operated as an unregistered securities entity. Speifically, the Commission alleges that Kraken commingled its own financial resources and digital assets with customer funds. Kraken disputes the charges, stating that “This is incorrect as a matter of law, false as a matter of fact and disastrous as a matter of policy.”

Retail Trading Remains Active: According to a recent report by Nasdaq, daily retail trading levels are currently clocking in at about $35 billion. This figure is in line with trading numbers from the previous 10 months of 2023 and remains ahead of pre-Covid levels.

Mastercard Battles Crypto Fraud: In an effort to bolster fraud prevention in its cryptocurrency transactions, Mastercard has partnered with regulatory technology platform Feedzai. The collaboration involves integrating Feedzai directly with Mastercard’s CipherTrace Armada platform, enabling real-time alerts regarding suspicious crypto transactions. Industry experts believe that the move will specifically help the credit card service detect potential money laundering and mule accounts through the use of AI technology.

Tether Helping Combat Human Trafficking: Tether this week announced that the firm has frozen $225 million worth of its cryptocurrency assets that has been potentially linked to a known human trafficking group. The move comes in response to a request from the U.S. Secret Service, which collaborated with Tether and crypto exchange OKX on a “months-long investigative effort.” This development underscores the industry’s efforts to partner with law enforcement agencies to crack down on any illicit activities occurring on crypto blockchain networks.

Short Sellers x SEC Team-up: Numerous industry experts have expressed their surprise that a few notable Wall Street short sellers are teaming up with the SEC to expose misconduct. Several prominent short sellers, including Nate Anderson, Kyle Bass, and Carson Block, are sharing their research highlighting questionable accounting practices with the agency’s whistleblower office. While this unexpected collaboration offers the SEC potential head starts on investigations, several sector observers have called the ethics surrounding this unexpected alliance into question.

Proprietary Trading Data: According to Acuiti Proprietary Trading Management’s latest Insight Report, investment firm budgets are widely expected to increase in 2024. Specifically, 63% of trading houses believe that spending throughout their portfolios will be higher than their average annual figures. The report points to the usage of algorithmic trading tools and connectivity to new markets as the reasons behind this expected increase.

DOJ’s Uphill Battle vs. Financial Fraud: While the recent conviction of FTX founder and former CEO Sam Bankman-Fried served as a bright spot for the Justice Department’s campaign against financial crimes, various watchdog groups have noted that numerous distressing figures point to a lack of prosecutorial success in this key area. These organizations note that the stark decrease in the government’s conviction rate within these kinds of cases coincides with fiscal losses attributable to online fraud surging to $10.3 billion in 2022 (a 50% increase from 2021).

IRS Crypto Tax Proposal: The IRS is facing significant pushback from the crypto sector as it considers a tax proposal for digital assets. The open comment period for this potential rule has garnered a staggering 124,000 replies, which industry experts note reflects the vast concern about the potential threat this increased regulation would pose to investor privacy and decentralized crypto projects. Specifically, crypto advocates argue that the proposal, particularly its definition of a “broker,” is overly broad and could ensnarl various unrelated participants throughout the blockchain ecosystem.

SEC’s 2023 Enforcement Report: In fiscal year 2023, the SEC reported that the agency initiated a record-breaking 784 enforcement actions. Noteworthy cases included fines for unauthorized communications channel usage, enforcement actions under the Marketing Rule targeting investment advisors, and a crackdown on crypto-related activities. This report reflects SEC Chairman Gary Gensler’s views on crypto offerings attempting to register with the commission, online stock promotion, and ESG investing.

New York’s Strict Crypto Rules: New York state is tightening its grip on crypto regulation with new rules requiring cryptocurrency exchanges and entities to halt the certification of new coins and tokens until they submit updated policies to the New York Department of Financial Services. These updated guidelines define the department’s new criteria for evaluating tokens, governance approval processes, record-keeping standards, and conflict of interest safeguards. 

SEC Finalizes Rules to Improve Agency Clearing Governance: The SEC adopted rules to improve clearing agency governance and mitigate conflicts of interest. The rules, which are effective a year from now, received bipartisan support in setting forth governance standards for registered clearing agencies.

Gensler vs. AI: During a speech at the Securities Industry and Financial Markets Association’s annual meeting, SEC Chair Gary Gensler defended the agency’s recent regulatory proposals aimed at stemming the proliferation of AI in financial services. The industry has criticized his Predictive Data Analytics proposal as overly broad, extending beyond AI systems to excel spreadsheets, and chilling to innovation.

Looming Government Shutdown: At a Subcommittee on Financial Institutions and Monetary Policy hearing, Congresswoman Maxine Waters (D-CA) spoke about the consequences a shutdown would have on the financial markets, “Given the global nature of our financial system, it is important that our regulators engage through international organizations, like the Basel Committee, to ensure that the U.S. is providing leadership on strong safeguards to avoid a global race to the bottom,” said Waters.

Treasury’s Crypto Focus: Deputy Treasury Secretary Wally Adeyemo this week stated the need for Congress to grant the Department of the Treasury new powers to reduce the spread of illegal cryptocurrency use. As part of his call to action, Adeyemo emphasized the need for cooperation between the Treasury Department, Congress, and the cryptocurrency industry to address digital asset flows believed to be connected to Hamas and other bad actors throughout the international community.

FTX Bankruptcy Fallout: In the aftermath of its recent bankruptcy case and the sentencing of founder and former CEO Sam Bankman-Fried, Crypto exchange FTX has asked the U.S. bankruptcy court of Delaware to allow the company to sell its trust assets, which reportedly include Grayscale and Bitwise funds worth around $744 million. Sector experts believe the move is aimed at preparing for forthcoming creditor distributions and facilitating an efficient sale of their assets.

Optimism in Crypto Market: Bloomberg ETF analysts James Seyffart and Eric Balchunas suggest that there is an eight-day window, from November 9 to November 17, during which the SEC could potentially approve all 12 pending spot Bitcoin ETF applications, including Grayscale’s conversion of its GBTC trust product. The anticipation of a Bitcoin ETF approval has fueled optimism in the crypto market, contributing to Bitcoin’s 30% price gain in the last three months.

Risky Treasury Market Rules: BNY Mellon has strongly suggested that the SEC implements its proposed central clearing rule for the Treasury market over an extended period of time, as it could cause major issues and disrupt the market function. The proposed rule would require trades to go through a clearing house, potentially raising trading costs and scaring off investors. 

US Equities Markets are the Most Deep and Liquid in World: At a Congressional hearing this week, Chair Ann Wagner (R-MO), House Financial Services Committee, Capital Markets Subcommittee, noted that the US boasts the world’s most deep and liquid capital market. She cautioned that the SEC should “exercise the utmost diligence” in rulemaking to “narrowly address known market deficiencies without inadvertently causing harm or disruption.”

Optimism in Investing: Retail investor participation remained high, with data pointing toward optimism in investingto achieve financial goals, and 61% of Americans owning stock, either directly or indirectly through an IRA, pension, or 529 plan, the highest since 2008.

China and India Lead in IPO Market: Data indicated that China and India outpaced the US at number of IPOs for 2023 so far. The countries with the highest number of IPOs as of Q3 2024 were China  and India, at 204 and 150 IPOs, respectively. The US trailed behind at 120 IPOs as of the start of Q3, with 76 IPOs on NASDAQ.

High Interest Rates Drag VC Market: Higher interest rates are reportedly placing pressure in the VC ecosystem, with increased pressure on startups to generate revenue sooner.

Artificial Intelligence (AI) Executive Order: Focus on artificial intelligence continued, with President Joe Bidenissuing an executive order directing various federal agencies to act upon key priorities and set firm deadlines surrounding AI regulation issues. Some industry advocates called for further specificity, with industry advocates such as Sam Altman, co-founder of ChatGPT, earlier calling for creating a “licensing regime” for the most powerful AI models.

SBF Awaits Verdict: Juror deliberation has begun in the case against FTX founder and former CEO Sam Bankman-Fried. Bankman-Fried faces seven counts of fraud and conspiracy associated with the collapse of the crypto exchange.

New Treasuries Rules: The SEC is expected to finalize a rule in the coming weeks that would reshape the treasuries market by requiring repurchase agreements to be cleared by a central authority. Several key market participants have already raised concerns that this new policy could lead to increased costs for retail traders.

CFTC Whistleblower Pay Out: The CFTC announced this week that the agency received 1,530 tips and paid out over $16 million to various whistleblowers this year. The department’s statement highlighted the number of tips that were related to stakeholders within the crypto industry and noted that two of these tips led to successful enforcement cases.

SolarWinds vs. SEC: The SEC filed a first of its kind lawsuit against SolarWinds and its Chief Information Security Officer, Timothy Brown, claiming that in the midst of a cyberattack on the U.S. government, the software company defrauded investors by concealing various cybersecurity weaknesses. SolarWinds has publicly claimed that this unprecedented action from the agency is “unfounded” and could jeopardize national security.

Johnson Ascends: Three weeks after Rep. Kevin McCarthy’s (R-CA) ouster, Rep. Mike Johnson (R-LA) has been elected Speaker of the House. Johnson has stated that his legislative priorities include allocating aid for Israel, bolstering border security, and reducing the national debt.

SBF Testifies: In a stunning move, former FTX CEO Sam Bankman-Fried testified in his own defense that his reliance on former members of FTX’s legal team led to the cryptocurrency exchange’s implosion. Bankman-Fried previously pleaded not guilty to seven counts of fraud and conspiracy related to FTX’s collapse and could spend the rest of his life in prison if convicted.

Grayscale Victory: In a significant moment for the digital asset community, the D.C. Circuit Court of Appeals ordered the SEC this week to reverse its rejection of Grayscale’s spot bitcoin ETF application, upholding the court’s prior ruling that the SEC’s decision of the firm’s application was “arbitrary and capricious.” While the SEC could still approve or reject the application for different reasons, numerous sector experts believe that the ruling underscores the growing momentum and demand for spot bitcoin ETFs.

CAT Funding Scrutiny: Questions regarding the size of the CAT funding model grew louder this week following the American Securities Association’s lawsuit against the organization. Among the top concerns of the organization and their supporters is that the CAT’s total expenses ballooned to north of $240 million in 2023, which many industry observers have noted is approaching federal agency-sized scope and is greater than that of 50 federal departments.

 2023 SEC Enforcement Figures: Industry observers noted this week that in fiscal year 2023, the SEC filed over 780 enforcement actions resulting in $5 billion in penalties. While these figures represent a decrease from the previous year’s all-time record of $6.4 billion in fines and disgorgement, this key data point still underscores the agency’s unique strategy to regulating the financial service markets.

IRS Takes on Crypto: The IRS has extended the public comment period for proposed crypto tax reporting rules, which the agency claims will bolster transparency and reduce tax evasion by sector participants, until November 13. While the IRS plans for these rules to take effect in 2026, the department has already faced immense criticism from several key stakeholders throughout the crypto community, including DeFi Education Fund CEO Miller Whitehouse-Levine who called the rules “confusing, self-refuting, and misguided.”

Coinbase vs. SEC: Coinbase is pushing back against the SEC’s attempt to extend its definition of an investment contract and enforce regulatory control over cryptocurrencies, arguing that the agency is exceeding its authority. Coinbase specifically claims that their tokens do not match the SEC’s current definition of digital assets and that the current language is overly broad and could classify various other assets as securities. A decision on this case is expected in early 2024.

CAT Funding Scrutiny – Litigation Against SEC from ASA: Citadel and the American Securities Association filed a lawsuit in the 11th Circuit this week challenging the SEC’s regulatory ability to fund the Consolidated Audit Trail. The suit is anticipated to contest adherence to the Administrative Procedures Act. Already, the 2023 budget for the CAT is larger than half of federal agencies, and approaching agency-like size and scope, but without the Congressional oversight of an agency.

Peirce’s “Fears for Tiers” Dissent: During this week’s SEC Open Meeting, the agency commissioners voted 3-2 along party lines to release for public comment a proposal entitled the “Prohibition on Volume-Based Exchange Transaction Pricing for NMS Stocks.” In her published dissenting opinion, SEC Commissioner Heather Peircenoted the benefit of cost savings of bulk orders, and highlighted the “value of sequencing proposals.” For public comment, several alternative proposals included at the end of the proposal would expand the ban beyond agency orders to proprietary orders, or alternatively impose a heightened transparency/disclosure regime without a ban on volume-based exchange transaction pricing.

2024 SEC Priorities: The SEC’s Division of Examinations unveiled its departmental priorities for 2024, highlighting their upcoming efforts to more thoroughly scrutinize crypto practices, products, and services. While supporters claim the division’s work is critical to reducing the risk digital assets pose to investors and U.S. capital markets, numerous industry experts have noted the announcement further signals the lengths to which SEC Chairman Gary Gensler is willing to go to reign in the industry.  

Hamas-Cryptocurrency Concerns: The U.S. Treasury Department’s Office of Foreign Assets Control imposed sanctions this week on Hamas linked crypto operators. This comes after a group of bipartisan lawmakers, led by U.S. Senators Elizabeth Warren (D-MA), Roger Marshall (R-KS), and U.S. Representative Sean Casten (D-IL), called on the Biden administration to take steps to cut off cryptocurrency usage by Hamas.

Crypto Firms Fraud Scheme: New York Attorney General Lettia James’ (D-NY) office is suing Gemini Trust, Genesis Capital, and Digital Currency Group for allegedly lying to investors and intentionally hiding their losses. The lawsuit specifically claims that Genesis and Digital Currency Group attempted to conceal over $1 billion in Genesis’ losses from Gemini Earn investors and the public.

Israel Crypto Aid Fund: Israeli crypto and web3 communities have come together to establish “Crypto Aid Israel,” a charitable initiative aimed at raising funds for those affected by Hamas’ attack last Saturday. Crypto storage firm Fireblocks will manage the donated crypto assets, and the fund will provide humanitarian aid, including food, shelter, and medical supplies, to affected communities.

MMI Attends STA Conference: MMI was proud to take part in the Security Traders Association’s annual meeting this past week in Washington, D.C. Primary discussion topics included navigating the SEC’s wide-ranging regulatory agenda, AI integration, evolving market structure, and potential digital asset legislation.

Online Trading Boom: According to recently released figures from a report conducted by Fortune Business Insights, online market trading platforms’ market size is expected to increase from its current level of $9.94 billion to $15.34 billion by 2030. This expected $5.4 billion jump in market share will be driven by an increasing number of investors using online trading resources and the demand for AI integration throughout the banking sector.

SEC vs. Musk: The SEC has once again initiated legal action against Elon Musk, this time aiming to secure his testimony as part of an investigation into his $44 billion acquisition of X (formerly known as Twitter). Numerous industry experts have noted that the SEC’s case hinges upon enforcing a subpoena that will help the agency determine if Musk violated securities laws as part of his 2022 purchase of the social media platform. Musk initially agreed to testify but later raised objections, claiming harassment.

WH Takes on Junk Fees: President Biden, Federal Trade Commission Chair Lina Khan, and Consumer Financial Protection Bureau Director Rohit Chopra announced this week a slew of new policies aimed at eliminating ‘tens of billions of dollars-worth’ of junk fees. As part of the intra-agency initiative, regulators will now be able to force businesses to present full pricing amounts upfront and secure refunds for consumers if the new regulations are violated.

Coinbase-SEC Latest: The ongoing legal battle between Coinbase and the SEC took a new turn as the North American Securities Administrators Association filed an amicus brief supporting the SEC’s ongoing regulatory initiatives regarding unregistered securities. Specifically, the brief supported the SEC’s position that existing investor-protection rules can be applied to digital assets and that Coinbase’s invocation of the “major questions doctrine” is misguided due to the agency’s complaint being specific and not invoking broad regulatory powers.

New Shareholder Activist Rule: The SEC approved changes to rules that accelerated the timeline in which shareholder activists and investors must disclose large positions in public companies’ stock. Specifically, the new rules state that investors accumulating more than 5% ownership in a company must disclose their position within five business days. While supporters of this change claim it will help enhance transparency, numerous sector observers argue that they will hinder shareholder activists’ ability to launch value-boosting campaigns.

McCarthy Out, McHenry (temporarily) In: In a stunning and historic move, 8 Republicans and the entire Democratic House caucus voted in favor of Rep. Matt Gaetz’s (R-FL) motion to remove Rep. Kevin McCarthy (R-CA) from the speakership. As the Republican caucus seeks to install a new speaker when the House is back in session next week, Rep. Patrick McHenry (R-NC), Chairman of the House Financial Services Committee and a fintech innovation advocate, will serve as Speaker pro tempore.  

AI and Financial Services Regulation: Discussion continued over whether there is a need for regulation of artificial intelligence in financial services. For example, in credit underwriting services, policy discussions have centered around transparency requirements for firms to give  consumers or the government information regarding decision-making and use of AI tools.

Liquidity Provision – Market Growth: A study reported that the market size for High-Frequency Trading (HFT) firms, which provide liquidity to the markets, is anticipated to have a continual annual growth rate of 11.8% by 2028.

ESG Ratings: Public debate continued regarding ESG ratings, with regulators and lawmakers are focused on the accuracy, transparency and potential for conflicts of interest with sustainability scores.

SEC’s Ripple Appeal Denied: U.S. Southern District of New York Judge Analisa Torres this week rejected the SEC’s appeal of her decision against the agency’s efforts to sanction Ripple Labs. In her ruling issued this past July, Judge Torres found that the SEC misinterpreted current securities laws while seeking to punish Ripple for selling their XRP digital currency on public markets. Numerous industry experts have noted that the decision could seriously hamper the SEC’s long-term ability to police the crypto industry.

Citi’s Algo Trading Focus: Citi Group announced the appointment of Jamie Mortimore as director of the bank’s newly formed global rates algo trading team. Mortimore, who has served as the head of J.P. Morgan’s global rates algo trading team for the past six years, stepping into this role represents the bank’s sharpened focus on meeting increasing demand amongst their client base for instant online trading access.

DOJ’s CCP-linked Crypto Crackdown: The Department of Justice (DOJ) this week announced charges against eight companies linked to the Chinese Communist Party for using various crypto platforms to help facilitate fentanyl-related transactions. Specifically, the DOJ alleges that the individuals and entities named in the case used digital currency platforms as major planks of their cash flow structures. In conjunction with these charges, the Treasury Department also announced sanctions against the parties and crypto exchanges named in this indictment.

 SEC Slams Coinbase’s Dismissal Arguments: In a court filing made earlier this week, the SEC requested a federal judge to reject Coinbase’s motion to dismiss the agency’s lawsuit against the digital asset platform. The request specifically outlined that Coinbase’s choice to cite the decision in the Ripple Labs case is not relevant to this particular suit.

Government Shutdown Update: The U.S. government has until tomorrow at midnight to prevent a partial shutdown. The funding dispute revolves around a small portion of the U.S. budget, with House Republicans demanding further spending cuts and immigration-related legislation. If not resolved by the deadline, this will cause thousands of federal workers to be furloughed and multiple services to be put on pause.

Equity Market Structure Review: 16 Democrats and 16 Republicans sent a bipartisan letter to SEC Chair Gensler calling for incremental review of equity market structure proposals, beginning with Section 605 disclosure of data provisions.

SEC Oversight Hearing: The House Financial Services Committee hearing, at which SEC Chair Gensler testified, discussed issues including the impact of a government shutdown on the SEC, need for incremental review of market structure, promotion of competition, AI review, codification of insider trading case law, and regulatory clarity for crypto, among other issues.

ETF Applications: The SEC has extended the deadlines for responding to spot bitcoin ETF applications by Ark Investment Management and Global X. These extensions come as Congress faces budget negotiation challenges, raising the possibility of a government shutdown. Ark Investment Management will now have to wait until January 10 for the SEC’s response while Global X will wait for its November 21 deadline.

Potential Binance Crash: Binance, once the dominant force in the cryptocurrency exchange space, is facing a tumultuous period marked by the departure of numerous senior executives and layoffs, all in response to looming enforcement actions by U.S. agencies. This shift brings concerns about liquidity and price volatility if Binance were to collapse. While the exchange continues to grapple with regulatory challenges, CEO Changpeng Zhao remains defiant but is reportedly bringing in new lawyers to handle the ongoing DOJ case.

Wall Street WhatsApp Probe: The SEC is reportedly finalizing settlements with approximately two dozen Wall Street firms to address investigations into record-keeping deficiencies related to their use of unapproved messaging apps, including WhatsApp. These settlements would require the firms to pay fines, admit wrongdoing, and commit to rectifying the lapses by hiring independent consultants to revamp their record-keeping programs. The SEC is expected to announce some of these settlements before its fiscal year-end on September 30.

Executive Order Leak: A recent White House leak suggests that President Joe Biden may issue an executive order on AI, sparking concerns within the crypto community. The order, as stated in a Semafor report, would force companies like Microsoft, Google, and Amazon to disclose excessive customer purchases of computing resources. This uncertainty highlights the challenges ahead for crypto and its relationship with evolving government policies.

AI Prevents Financial Crimes: The global battle against financial fraud and money laundering is seeing a significant shift towards the use of Generative AI tools. As concerns grow about the rising risks of financial crime, with cybersecurity and data breaches being major drivers, a substantial number of executives and risk professionals are turning to AI and machine learning to enhance their financial crime compliance efforts. Innovative AI tools like Lucinity’s Luci, Deutsche Bank’s Black Forest, and Quantexa’s software are revolutionizing the detection and prevention of financial fraud, helping streamline investigations and compliance efforts.