Challenging Regulators: Law Decoded, Jan. 29–Feb. 5

United States Securities and Exchange Commission (SEC) Commissioner Hester Peirce has expressed disagreement with her agency’s denial of a petition to amend its 1972 “gag rule.” This rule prevents defendants from denying or refusing to admit to the SEC’s allegations after a settlement. Peirce argues that this policy is unnecessary, undermines regulatory integrity, and raises concerns about the First Amendment. She believes that if the SEC has confidence in its investigative work and analysis, it should not demand silence from settling defendants.

Some U.S. Congress members are seeking to repeal the SEC’s Staff Accounting Bulletin 121 (SAB 121). This bulletin imposes limitations on banks that want to hold their clients’ cryptocurrency assets, requiring them to keep these assets on the balance sheet. Representatives Mike Flood, Wiley Nickel, and Senator Cynthia Lummis have introduced a resolution to disapprove SAB 121 and remove its legal force. These lawmakers argue that the bulletin threatens the willingness of regulated banks to act as crypto custodians and treats crypto holdings differently from other assets.

Leaders of the U.S. House Financial Services Committee and Subcommittee on Digital Assets, Financial Technology, and Inclusion have called for a longer comment period on a proposed rule from the Consumer Financial Protection Bureau (CFPB). They claim that the impact of this rule on the digital asset space would be unclear if implemented. Representatives Patrick McHenry, Mike Flood, and French Hill question how the proposed rule, scheduled for November 2023, would apply to specific entities within the digital asset ecosystem. The CFPB rule suggests extending its supervisory authority over depository institutions, including digital assets in its definition of “funds” and allowing it to target wallets.

China is planning to amend its Anti-Money Laundering (AML) regulations to include cryptocurrency-related transactions. Policymakers in the country have called for greater scrutiny of the nascent crypto industry. The revised draft of China’s AML regulations was proposed in 2021 and is expected to be signed into law by 2025 after inclusion in the legislative work plan of the State Council in 2023. Wang Xin, a professor at Peking University Law School, emphasized the urgent need to address issues related to crypto money laundering at a legal level. Xin noted that while the revised draft includes provisions for preventing digital asset money laundering, there is a lack of operational guidance on subsequent asset seizure, freezing, deduction, and confiscation in cases of money laundering crimes.

Hong Kong’s Office of the Privacy Commissioner for Personal Data (PCPD) has launched an investigation into identity verification project Worldcoin’s local operations. The PCPD cited “serious risks to personal data privacy” as the reason for the investigation. The commission executed warrants and entered six premises controlled by Worldcoin in Hong Kong. It has requested documents and information and warned Hong Kong residents to consider how their biometric data may be used. Worldcoin utilizes iris-scanning orbs for user identity verification. The PCPD states that any personal data controlled by Worldcoin must be collected for a lawful purpose related to the project’s function or activity.

The European Union has made progress in its regulatory framework for artificial intelligence (AI) with the approval of the final text of the AI Act by all 27 member states. Commissioner for Internal Market of the EU Thierry Breton confirmed the endorsement of the political agreement reached in December 2023. The AI Act is a risk-based strategy for regulating AI applications and covers aspects such as the governmental use of AI in biometric surveillance, regulation of AI systems like ChatGPT, and transparency rules before market entry. Breton describes the AI Act as historical and a world first.

This is just a selection of the latest news in the world of cryptocurrency and technology. Other topics include UK police’s ability to handle crypto crimes, the U.S. government’s survey on crypto mining’s impact on electricity use, and the Irish Council for Civil Liberties calling for an investigation into the Microsoft-OpenAI partnership.