The Biden Administration announced an executive order aiming to “ensure responsible development of digital assets”. Various federal and state regulatory bodies are mobilizing quick, such as the U.S. Securities and Exchange Commission (SEC). A recent SEC press release announced that its Crypto Assets and Cyber Unit was almost doubling in size with the addition of attorneys and fraud analysts. The SEC emphasized that this increase in staff demonstrates its commitment to protecting investors in the crypto space and ensuring businesses operate with appropriate cyber controls. The focus on crypto-asset offerings, exchanges, DeFi platforms & protocols, NFTs, and stablecoins is increasing.
The Crypto Assets and Cyber Unit has been responsible for over 80 enforcement actions, resulting in more than $2B in penalties since 2017. The actions have primarily resulted from fraudulent or unregistered offerings or platforms operating in the crypto sector. The division has also increased the number of actions against public companies and other SEC registrants for failure to maintain adequate cyber security controls or adequately disclose cyber-related risks or deficiencies, despite an overall decline in enforcement actions brought against public companies.
According to a report by Cornerstone Research, the 20 enforcement actions in 2021 represents a slowing down of actions when compared to the 29 in 2020, but recent activity suggests this trend is likely to change. The SEC’s 2023 budget justification requested an additional 125 staff members to help “accelerate enforcement actions” and address misconduct with an emphasis on crypto.
In light of the above, it is reasonable to expect an increase in regulatory action and that the institutionalization of crypto will have an increasing impact on the insurance industry. D&O insurance can provide meaningful protections for businesses facing regulatory inquiries, investigations, and litigation. Although it is generally challenging for digital asset businesses to obtain insurance coverage in the current environment, capacity and pricing are gradually becoming more favorable for companies with favorable risk profiles that partner with experienced insurance professionals who have the ability to access the market efficiently. Partnering with an insurance broker can help companies understand the characteristics that distinguish their risk profile, allowing them to navigate insurer uncertainty and avail themselves of available capacity. The Digital Asset practice at Aon has over 60 devoted specialists and is uniquely positioned to provide and service a full suite of commercially viable insurance solutions for businesses operating on the cutting edge of finance and technology.
The Financial Institutions Practice at Aon provides industry-focused solutions for banks and other diversified financial institutions.
If you have questions about coverage or are interested in obtaining coverage, contact your Aon broker.
Aon is not a law firm or accounting firm and does not provide legal, financial or tax advice. Any commentary provided is based solely on Aon’s experience as insurance practitioners. We recommend that you consult with your own legal, financial and/or tax advisors on any commentary provided by Aon. The information contained in this document and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity.