Landmark crypto case could pave a path to credibility

Recent U.S. enforcement action against crypto lender BlockFi may help accelerate the evolution of standards and compliance in the crypto sector, Fitch Ratings says.

In a new report, the rating agency said the US$100-million settlement reached recently among BlockFi, the U.S. Securities and Exchange Commission (SEC), and assorted state securities regulators may set a precedent for a broader crackdown on undisclosed risks by crypto lenders and inspire increased adherence to regulatory standards by digital asset firms.

Regulators sanctioned BlockFi for offering unregistered interest-bearing crypto accounts, establishing that these sorts of accounts “must now be classified and registered as securities,” Fitch said.

The settlement could also accelerate compliance with securities legislation by crypto firms generally, it said.

Fitch noted that, following the settlement, various other crypto platforms signalled their intention to seek registration for their products, or dropped plans for products that may run afoul of regulators.

“Increased disclosure and regulatory requirements and the classification of digital assets as securities could accelerate the growth of crypto by attracting more investors,” it said.

“This, along with other regulatory developments and more clearly defined restrictions for centralized and decentralized finance (DeFi) firms, would be credit positive for the sector.”

At the same time, it noted that regulation will also translate into higher costs and compliance hurdles for crypto firms, along with lower yields, “which could make it less attractive to retail investors.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.