DLx Alert: Commerce Department Proposes Rule to Require Cloud Infrastructure Service Providers to Adopt Enhanced KYC and Due Diligence Procedures, Citing National Security Concerns
DLx Alert: Commerce Department Proposes Rule to Require Cloud Infrastructure Service Providers to Adopt Enhanced KYC and Due Diligence Procedures, Citing National Security Concerns
Important Alert The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) has proposed a rule1 that could mark a significant development in the regulation of network infrastructure providers and digital assets (or “crypto assets”). The proposed rule seeks to address national security concerns associated with what the proposal refers to as U.S. “Infrastructure-as-a-Service” […]
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Review our Policy Tracker to stay informed about new or potentially forthcoming legislation or regulation affecting blockchain technology and high-tech financial services sectors in the United States. Come back for important updates.
Importantly, we make no representation whatsoever that the DLx Law Policy Tracker is up to date, comprehensive, or accurate, and it should not be relied on as legal or regulatory advice. Read our full disclaimer.
Jan 2, 2025
6th Circuit invalidates FCC’s recently reinstated net neutrality rules
United States (Regulatory)
Pointing to the U.S. Supreme Court’s Loper Bright decision from June 2024 overturning longstanding precedent on deferral to federal agencies in their promulgation of rules and regulations, on January 2, 2025, a three-judge panel on the 6th Circuit Court of Appeals ruled that the Federal Communications Commission (FCC) lacked the statutory authority to regulate broadband internet service providers (ISPs), invalidating the FCC’s net neutrality rule that was partially reinstated under President Joe Biden’s administration.
Without the FCC’s enforcement of net neutrality, the ability of private carriers to slow, block, or otherwise restrict access to internet content significantly undermines principles of openness and permissionless—principles that mirror the very ethos of decentralized blockchain networks. Ultimately, this change and the policy efforts of the Trump administration could jeopardize the frictionless flow of on-chain database transactions and access to various blockchain networks and dApps and could even threaten the innovation and adoption of AI technologies.
Rulemaking History:
- Jul. 1, 2014: The FCC publishes its initial proposed rule in July 2014 and accepts public comments. See 79 Fed. Reg. 37,448.
- Apr. 13, 2015: The FCC under President Barack Obama promulgates the original net neutrality rule and issues its final rulemaking notice, requiring internet service providers (ISPs) not to unfairly restrict internet communications, consistent with the principle that all online traffic ought to be treated equally. See 80 Fed. Reg. 19,738.
- Feb. 22, 2018: The FCC under President Donal Trump repeals the original net neutrality rule. See 83 Fed. Reg. 7,852.
- May 22, 2024: The FCC under President Joe Biden reinstates certain major parts of the originally promulgated net neutrality regulations, adopting a declaratory ruling, report and order, order, and reconsideration order re-establishing the Commission’s authority over broadband internet access service. See 83 Fed. Reg. 45,404.
- Jan. 2, 2025:The 6th Circuit Court of Appeals rules that the FCC lacks the statutory authority to regulate broadband internet service providers (ISPs) under its mandate in the Communications Act of 1934, as amended by the Telecommunications Act of 1996, thereby invalidating the FCC’s 2024 net neutrality rule. See Ohio Telecom Assoc. v. Fed. Comms. Comm’n, Case 24-3449, Doc. 139-2 (Opinion).
Dec 30, 2024
IRS issues final rule to require certain crypto service providers to report customer gross proceeds
United States (Regulatory)
With only weeks left in President Joe Biden’s administration, the Treasury Department promulgated a final rule at the end of December that seeks to require operators of ‘front-end’ web interfaces providing access to DEXs or other DeFi services to, starting in 2027, perform due diligence on users and file related transaction reports with the Internal Revenue Service (IRS).
The rule could be walked back under a Trump-appointed Treasury Secretary, but it could also potentially be expanded. The originally proposed rule was sought to be applied even against the developers of DeFi protocols and self-hosted digital asset wallets, and Treasury’s summary and response to comments on the final rule signaled it could still be exploring that possibility.
Rulemaking History:
- Aug. 29, 2023: Treasury and the IRS publish proposed regulations that would have qualified many crypto service providers and protocol developers as information brokers under Section 6045 of the Internal Revenue Code, requiring them to make regular reports on customer transactions. See 88 Fed. Reg. 59,576.
- Nov. 13, 2023: Treasury and the IRS hold a public hearing discussing the proposed rule.
- Apr. 5, 2024: The proposed rule’s public comment period closes.
- Jul. 9, 2024: Treasury and the IRS issue a final rule covering only certain components of the proposed rule, including the calculation of basis for certain digital asset sales and exchanges. See 89 Fed. Reg. 56,480.
- Dec. 30, 2024: Treasury and the IRS issue a final rule covering remaining components of the proposed rule, removing the requirements that originally would have directly implicated protocol developers. See 89 Fed. Reg. 106,928.
Dec 10, 2024
CFPB finalizes rule enhancing oversight of large digital payment application providers
United States (Regulatory)
On December 10, 2024, the Consumer Financial Protection Bureau (CFPB) published its final rule establishing federal oversight of large digital payment service providers. The final rule also clarifies that popular consumer-facing payment apps must comply with existing consumer protection laws and CFPB supervisory authority.
Intended to safeguard personal data, reduce fraud, and prevent unfair account closures (sometimes referred to as “illegal debanking”), the new rule defines “larger participants” in the digital payments market based on transaction volume and other objective criteria, thereby extending CFPB examination to those meeting the specified thresholds. Industry participants potentially subject to the rule ought to review their compliance programs to ensure adherence to enhanced disclosures, dispute resolution, and data protection requirements. The final rule becomes effective on January 9, 2025.
Rulemaking History:
- Nov. 17, 2023: CFPB officially issues a Notice of Proposed Rulemaking (NPRM), outlining criteria for defining “larger participants” in the digital payments market and detailing proposed supervisory requirements.
- Jan. 8, 2024: Public comment period closes, with industry stakeholders, consumer advocacy groups, and financial institutions submitting feedback on the NPRM’s proposed definitions and oversight measures.
- Dec. 10, 2024: CFPB publishes its final rule in the Federal Register, formally extending its supervisory authority to large digital payment app providers and setting forth new compliance requirements.
Oct 4, 2024
MAS seeks industry input on proposed regulations for ‘Digital Token Service Providers’
Singapore (Regulatory)
The Monetary Authority of Singapore (MAS) issued a consultation paper on October 4, 2024, outlining new regulatory requirements for Digital Token Service Providers (“DTSPs“) under the Financial Services and Markets Act of 2022 (FSMA). The proposed rules would apply to DTSPs operating from Singapore but providing services internationally. Key provisions include licensing requirements, anti-money laundering and countering the financing of terrorism (AML/CFT) obligations, and governance standards. The framework also emphasizes robust technology risk management and cybersecurity controls, aiming to safeguard against potential financial crimes and operational risks in the digital token ecosystem.
MAS has opened the consultation to public feedback, which is due by November 4, 2024. After this input period, MAS plans to provide at least four weeks’ notice before the new regulations take effect, requiring DTSPs to either secure a license or suspend operations if they are not compliant.
Read the consultation paper.Court Tracker
Consider DLx Law a source for updates on recent legal outcomes and ongoing cases that are shaping the landscape of blockchain and the financial services industry. With our Court Tracker, you can closely monitor other legal developments that are noteworthy for many of our clients and the industry as a whole. Check back in from time to time to stay informed about some recent regulatory enforcement actions and notable court cases.
Importantly, we make no representation whatsoever that the Court Tracker is up to date, comprehensive, or accurate, and it should not be relied on as legal or regulatory advice. Read our full disclaimer.
Notable Decisions
SEC v. Terraform Labs PTE Ltd. & Do Hyeong Kwon
S.D.N.Y. (Fed. Trial Ct.)
Filed: Feb 16, 2023
Description: The SEC charged Terraform Labs PTE Ltd and Do Hyeong Kwon with a multibillion-dollar crypto asset securities fraud. The SEC alleged that from April 2018 to May 2022, Terraform and Kwon raised billions of dollars from investors by offering and selling digital asset securities, including an algorithmic stablecoin called Terra USD (UST) and other crypto asset securities, many in unregistered transactions. In its complaint, the SEC alleged the following digital assets are unregistered securities: UST, LUNA, MIR.
Judgment entered
(Jun 12, 2024 )
Summary: The defendants entered a settlement agreement with the SEC, and the judge entered the consent order on June 12, 2024, with civil penalties, including just under $4.5 million in total monetary remedies against Terraform Labs, to be allocated under the organization’s Chapter 11 plan in U.S. Bankruptcy Court.
SEC v. Beaxy Digital, Ltd., et al.
N.D. Ill. (Fed. Trial Ct.)
Filed: Dec 25, 2023
Description: The SEC charged Beaxy (a digital asset trading platform) and its executives and founders with (1) raising $8 million in an unregistered securities offering (BXY tokens), misappropriating $900,000 of it for personal use, and (2) failing to register as a national securities exchange, broker, and clearing agency when facilitating the purchase and sale of digital assets as securities. The SEC alleged in its complaint that BXY tokens are securities.
Judgment entered
(Feb 13, 2024 )
Summary: The court entered default judgment against the defendants after they failed to make an appearance or respond to the SEC’s complaint.
In re: Coinbase Inc.
3d Cir. (Fed. Appeals Ct.)
Filed: Apr 24, 2023
Description: In spring of 2023, Coinbase filed an appellate-level petition seeking a writ of mandamus to compel the SEC to act on Coinbase’s pending rulemaking petition to provide clarity for the crypto industry.
Judgment entered
(Dec 18, 2023 )
Summary: Considered to be in large part the result of Coinbase’s mandamus petition seeking to compel a decision, the SEC on December 15, 2023, finally issued a formal decision denying Coinbase’s petition to have the SEC engage in rulemaking to clarify its interpretation of how securities laws can be applicable to business activities involving cryptocurrencies. As a result, the judge denied Coinbase’s mandamus petition as moot. Although it is not the outcome Coinbase sought, it now has a judicially reviewable decision to move forward with.
SEC v. Bittrex, Inc., et al.
W.D. Wash. (Fed. Trial Ct.)
Filed: Apr 17, 2023
Description: The SEC charged crypto asset trading platform Bittrex, Inc. and one of its founders for operating an unregistered national securities exchange, broker, and clearing agency. The SEC also charged its affiliate, Bittrex Global GmbH, for failing to register as a national securities exchange. In its complaint, the SEC alleged the following digital assets are unregistered securities: DASH, IHT, MANA, NGC, OMG, POWR, TKN.
Judgment entered
(Aug 15, 2023 )
Bittrex filed for bankruptcy in May, shortly after the SEC filed its complaint in April. The bankruptcy judge approved Bittrex Global’s settlement with the SEC to pay a $5.6 million fine and return $18.4 million in illicit profit within 60 days after its liquidation plan is filed with the bankruptcy court. The court entered a consent order to the SEC settlement agreement in its final judgment.
Ongoing Cases
SEC v. Consensys Software Inc.
E.D.N.Y. (Fed. Trial Ct.)
Filed: Jun 28, 2024
Description: The SEC charged Consensys Software Inc., the development company behind MetaMask, for allegedly conducting unregistered offers and sales of securities by facilitating investments by MetaMask users into certain cryptocurrency staking protocols, namely, Lido and Rocket Pool. According to the SEC’s complaint, Consensys failed to register as a broker and did not meet the legal requirements for offering staking services while it collected more than $250 million in fees. The SEC’s complaint comes shortly after Consensys sued the SEC in April following its receipt of a Wells notice from the agency, challenging its attempts to classify ETH tokens and related staking service protocols as being unregistered securities.
Status: Parties have made initial court appearances, and litigation and related discussions remain ongoing. Updated 7/12/2024.
[Anticipated] SEC v. Universal Navigation Inc. (Uniswap Labs)
TBD
Filed: Apr 26, 2024
Description: Uniswap Labs reportedly received a Wells Notice from the Securities Exchange Commission (“SEC”) on April 10, 2024, notifying the developers behind the Ethereum-based decentralized exchange that the agency had found potential violations of U.S. securities laws. Consequently, Uniswap Labs has been anticipating that the SEC might file charges against in the U.S. District Court of the Southern District of New York in the coming weeks or months. Then, on May 21, Uniswap Labs preemptively submitted a filing to the SEC arguing various reasons why the agency should not pursue legal action against the company.
Status: The SEC at this point is only anticipated to file charges against Uniswap Labs. Many experts speculate as to what exactly the SEC’s charges might include if it were to move forward, and some speculate the SEC’s ulterior motive might be an attempt to gather evidence in connection with Ethereum, which the federal agency has had a growing interest in in recent years. If and when the SEC files charges, we will provide updates. Updated 7/12/2024.
SEC v. Payward, Inc. & Payward Ventures, Inc. (Kraken Exchange)
N.D. Cal. (Fed. Trial Ct.)
Filed: Nov 20, 2023
Description: The SEC filed charges against Payward, Inc., and Payward Ventures, Inc. (collectively known as Kraken Exchange or simply as “Kraken”), alleging it has been operating as an unregistered securities exchange, broker, dealer, and clearing agency since at least 2018, generating millions of dollars in ill-gotten gains. The SEC’s complaint also accuses Kraken of failing to prevent conflicts of interest and commingling customer funds with its own operational accounts, which violates federal securities laws designed to protect investors.
Status: On February 22, 2024, Kraken filed a motion with the court to dismiss the SEC’s claims. On June 20, the parties attended a case management conference and hearing on Kraken’s motion to dismiss. Then, on July 5, the parties filed stipulations with the court along with a request for an order to permit both the SEC and Kraken to each file two-page letter briefs to address considerations resulting from a federal district court ruling on June 28 wherein the judge dismissed the SEC’s claims of securities law violations against Binance.US involving certain cryptocurrencies and the secondary sales of BNB tokens. The judge’s adjudication on Kraken’s motion to dismiss remains pending. Updated 7/12/2024.
In Case You Missed It
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Alerts & Announcements
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Coming Up
Bookmark this page to stay informed about upcoming events, pivotal dates, and industry happenings. Our calendar offers an overview of some important upcoming events, including conferences, panels, congressional hearings, regulatory happenings, and more.
Time moves fast in the rapidly evolving world of digital assets, blockchain, and financial technology, and it can be easy to skip a beat. Stay in sync, explore what’s on the horizon, and plan your engagements accordingly.
Jan 23, 2024
-Jan 25, 2025
DLx Law & Protocol Labs Host Webinar on Anticipated 2025 Digital Asset Policy Trends
Free Webinar hosted by DLx Law and Protocol Labs
Virtual Event
