Government regulators are increasingly focused on blockchain and cryptocurrency activity, a development that some, such as IMF head Christine Lagarde have called inevitable. In the US, the Financial Crimes Enforcement Network (FinCEN), the Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC) have issued statements, enforcement actions, and penalties involving blockchain and cryptocurrency activities, and they are not the only agencies monitoring these activities.  As a result, it is important for industry participants to be prepared to respond to potential regulatory inquiries.

This is why Steptoe has partnered with Thomson Reuters to publish a “one-stop” guide to the regulatory landscape and best practices for responding to blockchain and cryptocurrency-related investigations.Michael Rennock, Alan Cohn, and Jared Butcher co-authored the guide, which appears in the February/March edition of Practical Law The Journal – Litigation.  The guide discusses various activities that may trigger an investigation by an agency such as the SEC, CFTC, FINRA, IRS, FinCEN, OFAC, or FBI, and it also addresses the regulatory issues that arise with respect to virtual currencies, initial coin offerings (ICOs), and other investment or fundraising mechanisms. Certain blockchain-related activities are attracting more attention from regulators at the moment, such as with the SEC’s emphasis on ICOs, but it is also important to remember that issues such as taxation and economic sanctions, which are within the purview of the Internal Revenue Service (IRS) and the Office of Foreign Assets Control (OFAC) respectively, are also relevant to applications of blockchain technology.  The guide covers these angles and more.

Additionally, Steptoe’s guide provides practical tips for addressing and responding to a regulatory inquiry. Some of the steps will be familiar to those who have dealt with regulators in other areas—for example, preserving documents, conducting a preliminary investigation, and preparing a first response to the regulator continue to be prudent practices.  Other steps might be more novel, for example:

  • Engage the IT department early in the process to understand and address the technology at issue
  • Consider proactively educating the regulator about novel blockchain capabilities and issues
  • Determine whether the investigation involves issues of data privacy or cyber security and double check relevant systems and policies
  • Keep in mind that the regulatory landscape is evolving quickly and look for ways to use helpful developments persuasively

You can read the guide, “Blockchain Technology and Regulatory Investigations,” to learn more about how to prepare in advance and how to respond to an investigation.