Regulators have been slow walking the imposition of cryptocurrency regulation schemes despite multi-billion-dollar thefts and losses. This lack of regulation could be coming to an end…and fast, with the finance capital of the world at the forefront.
On Friday, May 5, 2023, New York Attorney General Letitia James proposed the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act. If passed, the comprehensive CRPTO Act would set the foundation for state and federal regulation nationwide.
The purpose of the legislation is to protect digital asset customers and investors from fraud, eliminate conflicts of interest, and increase transparency. The law would amend the general business law pertaining to digital assets, the financial services law concerning oversight by the department of financial services to include digital asset brokers, advisors, issuers, and marketplaces, as well as the tax law and reporting requirements.
With great accountability comes great liability. The bill includes an extensive list of definitions and obligations that could effectively increase the number of potentially liable parties, including “digital asset influencers.” Digital asset influencers, like brokers, advisers, issuers, and marketplaces, will be required to disclose ownership interests, file detailed registration statements, and comply with securities and banking laws; Instagrammers and TikTok-ers beware.
The Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SIPC) have repeatedly stated that they do not cover crypto-exchanges or cryptocurrency; invest at your own risk. The New York CRPTO Act fills in the gap. Cryptocurrency platforms and marketplaces would now be responsible for reimbursing victims of fraud. The CRPTO Act also provides for hefty civil penalties including fines ranging from $10,000 to $100,000 per violation. Additionally, any violation would also be violative of the banking laws potentially further exposing individuals and platforms to more liability, and violators to harsher penalties.
The proposed CRPTO Act could be the model framework that states and the federal government have been waiting for.
