On June 1, 2022, the Department of Financial Protection and Innovation (DFPI) in California issued a request for comments seeking input from the public in developing guidance and regulatory clarity and supervision of covered persons/service providers involved in the offering and provision of crypto asset-related financial products. The DFPI provided a number of sample questions for parties to consider in the areas of both Regulatory Priorities and Regulation and Supervision. Some examples of the questions raised for comment are the following:
- What steps should the DFPI take to better ensure consumer protection in the offering and provision of crypto asset-related financial products and services?
- What steps should the DFPI take to better ensure financial stability in the market from risks posed in the offering and provision of crypto asset-related financial products and services?
- How should the DFPI strive to harmonize its regulatory approach to crypto asset-related financial products and services with federal authorities?
- How can the DFPI make California the most desirable home state for responsible companies when developing guidance and, as appropriate, regulatory clarity and supervision of persons involved in the offering and provision of crypto asset-related financial products and services in California?
- Are regulations needed to specify crypto asset-related financial products and services that should be included in the definition of a “financial product or service” subject to authority?
- Are regulations needed to identify any unlawful, unfair, deceptive, or abusive acts or practices in connection with the offering of crypto asset-related financial products and services?
The link for the full request for comments is here: https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/06/DFPI-crypto-invitation-for-comment-5-31-22.pdf. Comments have been requested by August 5, 2022.
VIP: The DFPI action is inline with President Biden’s recent Executive Order on Ensuring Responsible Development in Digital Assets where concerns were raised regarding the increased risks of crimes such as fraud, theft, and unfair and abusive acts or practices that digital assets may pose. Per the Executive Order, digital exchanges and trading platforms should be subject to regulatory and supervisory standards that govern traditional market infrastructures and financial firms, in line with the general principle of “same business, same risks, same rules.” This clearly implicates existing regulations concerning market abuse and manipulation. Similar regulatory developments have been and continue to occur globally concerning digital assets. Within the past month, the government of Gibraltar passed new regulatory principles requiring providers of distributed ledger technology to implement measures to prevent, or mitigate the effects of any type of manipulation of prices, liquidity or market information. Validus maintains several, existing surveillance procedures for the monitoring of potentially manipulative/deceptive trading of crypto assets. These include flashing, frontrunning, spoofing/layering and wash trading to name a few. Our digital asset clients operate globally. Deploying Validus helps these companies bolster their reputation with regulators and protect their customers from manipulative practices. Within our Regulatory Affairs team we have subject matter experts monitoring ongoing regulatory developments involving digital assets and we regularly communicate with our clients as such changes evolve. Additionally, as new rules/regulations may be issued specific to crypto trading or existing regulations are modified in that regard, Validus procedures are continuously enhanced to reflect the current regulatory requirements.
Eventus is a leading global provider of multi-asset class trade surveillance and market risk solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets. Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventus.com.