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The case for self-regulation for the digital assets industry
Journal of Financial Compliance,
7
(1),
15-34
(2023)
Abstract
The concept of self-regulation and the use of self-regulatory organisations (SROs) as a feature of legal and regulatory frameworks has been adopted to support effective and efficient capital market development in a number of countries around the world. Most notably, the International Organization of Securities Commissions (IOSCO) set forth through its SRO Consultative Committee a ‘model for effective self-regulation’, the general principles for self-regulation and why self-regulation should be incorporated into regulatory frameworks. Since 2000, this has served as the outline for SRO development. Today, many countries are struggling with the question of how to regulate cryptocurrency and digital assets — including the US. The rapid evolution, high degree of expertise and understanding needed, and decentralised, cross-border nature of digital assets presents unique challenges for regulators. In the wake of the failure of the centralised finance (CeFi) digital asset exchange FTX, this research explores whether an SRO may be suited to the nature of the digital asset industry and how it may provide a strong complement to formal US government regulation. Such a complementary relationship may offer United States regulators and legislators a mechanism for providing a high degree of regulatory coverage which balances the need for consumer protection and market integrity with the need for innovation. In exploring this subject, researchers undertook desk study on the IOSCO Framework for Effective Self-regulation and explored existing and emerging national SROs in the digital asset space. Desk study was coupled with individual one-on-one interviews with global digital asset industry leadership and public roundtable forums. This research concludes that an SRO may serve to provide the US legal and regulatory framework with a high-quality solution to the challenges of legislating and regulating in the ever-changing environment of digital assets.
Keywords: self-regulation; digital assets; crypto; cryptocurrency; regulation; the International Organization of Securities Commissions (IOSCO); National Futures Association (NFA); Japan Financial Services Agency (JFSA); Japan; Switzerland; USA; securities; commodities; Commodities Futures Trading Commission (CFTC)
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Author's Biography
Alma Angotti is a Partner in the Financial Crime, Fraud & Investigative Services (FFI) group at Guidehouse. Alma is a recognised expert in anti-money laundering (AML), combatting the financing of terrorism (CFT) and economic sanctions compliance. With over 25 years of experience in regulation and enforcement, Alma has held senior enforcement positions at the US Securities and Exchange Commission (SEC), US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) and FINRA (Financial Industry Regulatory Authority). In these positions, she was responsible for investigations and enforcement of the Bank Secrecy Act, the federal securities laws, and FINRA rules. At FinCEN and FINRA, she designed and led the AML enforcement programmes. Alma is responsible for preparing Guidehouse's financial services clients for emerging risks resulting from the fast changing regulatory and technology environments, and for changes in technology and risk. As a consultant, she has managed gap analyses, compliance programme reviews, risk assessments, remediation efforts, investigations and historical transaction reviews. Her clients include large, complex, global financial institutions, global payments institutions, mid-sized banks, broker-dealers, FinTech and digital assets companies, hedge funds, casinos and multinational corporations. Alma has held interim senior compliance leadership positions at several global and regional financial institutions providing day-to-day management of their compliance programmes and assisting them with remediation efforts, often in the context of a regulatory or criminal enforcement action. Alma is a prolific thought leader and sought-after speaker at conferences and webinars internationally. She has trained regulators, governments, boards of directors and industry participants globally.
Tracy Angulo is a Director in the Financial Crime, Fraud & Investigative Services practice at Guidehouse. She is an accomplished attorney, certified fraud examiner (CFE) and certified anti-money laundering specialist (CAMS) with over 20 years' expertise in administrative law and investigations, the last 15 in securities law and regulation, financial crime compliance, anti-money laundering (AML) and sanctions compliance, and financial fraud investigations, allowing her to bridge the worlds of regulation, auditing, compliance and litigation. At Guidehouse, Tracy has provided a wide compilation of financial compliance services including projects for virtual asset services providers (VASPS), broker-dealers, trust companies, digital asset companies, digital asset trust and custody institutions and cryptocurrency trading platforms. In addition to acting as the Global KYC Director for a global crypto exchange and leading independent assessments of global payment processing companies, Tracy's areas of experience include: internal audits; gap analyses; AML and sanctions risk assessments; independent testing; AML programme reviews and assessments; development of policies and procedures; management of a financial intelligence unit and transaction monitoring look-backs; conducting AML compliance and suspicious activity report filing training; assessments of customer identification programmes, know your customer and due diligence programmes. Prior to joining the private sector, Tracy served as a principal attorney investigator in FINRA's Enforcement Department for over six years. As an institutional integrity officer at the World Bank Group, Tracy was engaged as a lead investigator in a variety of complex, high-profile fraud and corruption investigations.
Gene Bolton is a Director in Guidehouse's FFI group. He works with financial services clients, including banks, broker-dealers, cryptocurrency exchanges, FinTech's, money services businesses (MSB), and insurance companies, to address their anti-money laundering (AML), counter-terrorism finance, and Office of Foreign Assets Control (OFAC) sanctions compliance challenges. While at Guidehouse, Gene has helped clients build and enhance compliance programmes, including developing risk assessment methodologies, executing financial crime risk assessments, conducting training, and preparing and delivering presentations to executive committees and independent consultants. Gene has been seconded to clients where he worked directly with chief compliance officers to enhance and sustain compliance programmes and prepare for regulatory exams. Gene has executed coverage assessments, transaction monitoring lookbacks, independent monitorships and targeted due diligence programme reviews. Gene has also conducted Bank Secrecy Act/AML and OFAC risk assessments for an institutional broker-dealer, insurance company, cryptocurrency exchange and global money transmitter, to help identify and mitigate financial crimes risks specific to their businesses. He has presented risk assessment findings to executive committees, senior management, independent consultants and internal auditors, as well as conducted risk assessment training for several clients. Gene has also helped clients develop target operating models to enhance compliance programme effectiveness. Gene also has experience in performing independent AML/sanctions programme reviews for global money services businesses, domestic and foreign financial institutions and peer-to-peer cryptocurrency platforms and exchanges. Prior to Guidehouse, Gene was an AML compliance analyst at JPMorgan Chase, where he was responsible for quality assurance and user acceptance testing as part of system implementation.
Gabriella Kusz serves as Chief Executive Officer of the Global Digital Asset and Cryptocurrency Association, a global voluntary self-regulatory association for the industry. Prior to this role, she served as the Principal for Strategic Initiatives at the International Federation of Accountants (IFAC) where, in addition to other areas, she supported the profession's leadership and innovation in the digital era. Her background has largely included working in international financial sector and economic growth including working with the World Bank Group Governance Global Practice where she was responsible for leading the Corporate Governance and Financial Reporting (CGFR) workstream for the Middle East and North Africa (MENA) region and advancing the dual goals of the World Bank: poverty reduction and shared prosperity.
