USA Law and Practice Contributed by: Gregory Strong, Sarah W. Chen, Brian Farber and Amil Sumaiya Malik, Cahill Gordon & Reindel LLP
standard – a set of 40 Recommendations that form the international framework for preventing money laundering and terrorist financing – apply to activities or operations involving virtual assets, and imposed a corollary to the Funds Travel Rule on VASPs that process virtual asset transfers. In October 2021, the FATF updated its recommended guidance regarding virtual assets and VASPs. Notably, the FATF guidance broadly interprets the definition of a VASP to include “a central party with some meas- ure of involvement” with a decentralised application. If adopted in a specific jurisdiction, this broad inter- pretation would potentially bring a variety of parties within the definition of a VASP and subject them to compliance with AML/CFT laws in that jurisdiction. It is not surprising that the US delegation to the FATF pushed for a global Funds Travel Rule corollary and the expansive interpretation of the entities that might be deemed VASPs. In doing so, the USA is attempt- ing to promote AML/CFT compliance through global standard-setting, which would make it easier for the USA to enforce its domestic AML/CFT obligations as they apply to digital asset transactions and interme- diaries. Finally, under the Basel Committee’s prudential frame- work for crypto-asset exposures, member jurisdictions had previously agreed to implement standards by 1 January 2026 that would subject unbacked crypto- assets not meeting certain hedging recognition criteria to a 1250% risk weight – effectively requiring banks to hold capital equal to the full value of such exposures. However, US banking regulators have indicated that they do not intend to implement the Basel crypto- asset standards in their current form, opting instead to preserve regulatory flexibility and to promote innova- tion and competition. 2.2 Crypto-Asset Regulatory Frameworks As discussed in 2.1 Regulators and International Alignment , in the United States, there is still no single, comprehensive statutory framework governing the classification of digital assets. Broadly, securities are regulated by the SEC, while commodity derivatives are regulated by the CFTC. To the extent that fungible digital assets, or transactions in fungible digital assets,
are not regulated as securities, they would be treated as commodities and subject to CFTC’s anti-fraud and anti-manipulation jurisdiction in spot markets, as well as its broader jurisdiction over commodity derivatives. Under existing US law, digital assets that are intended to be securities or “tokenised” securities are treat- ed as securities. Fungible digital assets that are not themselves securities may nevertheless be transacted under circumstances that constitute “securities trans- actions”. Determining whether such circumstances exist requires application of the Howey test (discussed in 2.1 Regulators and International Alignment ), which is a facts-and-circumstances analysis and can be dif- ficult for market participants to apply in practice. Over the past 12–18 months, the SEC staff have issued a series of category-specific statements and interpretative materials addressing specific segments of the market, including meme coins, proof-of-work mining activities, and certain “covered stablecoins”. These statements generally reflect the view that not all crypto-assets, or activities involving them, fall within the scope of the federal securities laws, particularly where the asset does not convey rights to enterprise value or is not marketed based on the managerial efforts of others. The Joint Interpretation (discussed in 2.1 Regulators and International Alignment ) and its accompanying taxonomy framework provide further clarity on when crypto-assets or related activities may fall within the SEC’s jurisdiction. 2.3 Regulated Firms and Legal Wrappers In the USA, there are spot exchange-traded funds (ETFs) (eg, the SEC-approved Bitcoin and Ethereum products) that are typically organised as commodity or grantor trusts that own the underlying digital assets. Both spot ETFs and futures-based crypto funds are securities products subject to US securities laws. Both structures also face FINRA advertising stand- ards, Exchange Act custody and anti-fraud rules, and must maintain market-surveillance agreements with their listing exchanges. Specifically, starting in 2024, the SEC has been tak- ing steps to facilitate institutional access to digital
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