Weekly Roundup

Staking Crackdown: Crypto exchange Kraken is shutting down its US crypto staking service and paying $30 million in fines for not registering the program with the SEC. The settlement is the SEC’s first regulatory move against staking, a service that has become increasingly popular in the crypto industry.

Retirement Savings: The mutual fund industry is warning against a new SEC proposed rule that would require mutual funds, and some ETFs, to ensure that at least 10% of their net assets are highly liquid and would require a hard daily close of 4 p.m. Industry stakeholders claim this proposal would hurt those saving for retirement and “generally harm the best interests of tens of millions of fund investors.”

Crypto Regulation: Powerful financial regulators are taking an increasingly aggressive stance on crypto regulation. Industry critics worry that new crypto ventures may be smothered before they can take off.  Some policy experts say that regulators are “effectively building a wall between crypto trading and the banking and securities markets” to safeguard against systemic issues that could lead to a financial crisis.

Qualified Custodians: A new rule proposed by the SEC would make it significantly harder for hedge funds, private equity firms, and pension funds to work with crypto firms. The rule would require certain qualifications for crypto firms to hold digital assets on their client’s behalf as “qualified custodians.”

Retail Trends: According to Vanda Research, retail investors are showing an increased interest in the US stock market this year, as inflows have reached levels not seen since 2020-21.

Paxos Lawsuit: The SEC plans to sue crypto firm Paxos for violations of investor protection laws that resulted from the company’s partnership with Binance USD, an unregistered security. The potential lawsuit would mark the SEC’s first enforcement action against a major stablecoin. It is expected that the SEC will continue to ramp up stablecoin regulation.

Privacy Act Amendments: The Privacy Act, the law that federally governs the handling of personal information, might be revised under a new rule proposed by the SEC. SEC chair Gary Gensler believes the revisions would make the Privacy Act more relevant to the current technological landscape, and provide the public with greater clarity on accessing personal records.

T+1 Cycle Changes: New SEC rule changes will shorten the typical broker-dealer settlement cycle in securities from two business days to one. Proponents of the changes hope they benefit investors and reduce the credit, market, and liquidity risks in securities transactions. “I support this rulemaking because it will reduce latency, lower risk, and promote efficiency as well as greater liquidity in the markets,” said SEC Chair Gary Gensler.

In the Mix: This Week’s Top FinTech Thought Leader

  • Alice Tchernookova, Americas Editor for IFLR, wrote a piece criticizing the SEC’s equity market structure reform proposals, claiming they will dramatically alter the retail trading landscape and harm retail investors. She spoke with several critics who believe the SEC is over-regulating areas that are already functioning sufficiently. “There’s a feeling that the agency has allocated a lot of resources to areas that are already working pretty well,” said Nicholas Losurdo, partner at Goodwin Procter and former SEC counsel.

  • TuongVy Le, Partner and Head of Regulatory and Policy at Bain Capital, criticized the SEC for heavily regulatingthe digital asset industry through enforcement actions. Le emphasized the importance of setting clear compliance guidelines. “When the SEC tells us that something is not compliant, it’s not necessarily the same thing as telling us what they would consider compliant,” she said.

  • Gene A. Grant, CEO and co-founder of LevelField Financial, wrote an Op-ed in Forbes warning that the US banking system may fall behind other countries if new crypto-first companies aren’t embraced. Grant cited recent crypto-company failures, regulatory actions, and negative headlines in the media as main reasons why banks may be hesitant to venture into the crypto industry.

  • Hester Peirce, SEC commissioner, publicly criticized the SEC’s aggressive regulatory actions against crypto exchange Kraken. Peirce called her agency’s actions “paternalistic and lazy,” and worried that such aggressive regulation leaves very little space for crypto-related offerings to get off the ground.