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In the wake of significant crypto-related incidents in 2022, including the FTX and Terraform Labs collapses, the SEC's Crypto Assets and Cyber Unit responded with increased enforcement actions in 2023. Cornerstone Research's latest report, SEC Cryptocurrency Enforcement: 2023 Update, sheds light on this uptick in activity and highlights litigation trends and considerations for digital asset industry participants.
This report reveals enforcement actions in 2023 actions increased 53% from the previous year and is the most vigorous enforcement year to date. This surge included both litigations and administrative proceedings, with monetary settlements reaching an imposing $281 million. This is consistent with the upwards trend since the appointment of chair Gensler in 2021. The SEC continued its focus on initial coin offerings and most of the enforcement actions alleged fraud and/or offering of unregistered securities. Additional new areas of focus were observed in the actions against staking services and Non-Fungible Tokens.
A divergence in perspectives among SEC Commissioners becomes evident after analysis of the report, as Cornerstone specifically highlights public dissenting opinions issued by Commissioners Peirce and Uyeda. These differing views highlight the complexities and evolving nature of crypto regulation. Some commissioners advocate for a more cautious and measured approach, emphasizing the need for clear regulatory frameworks. Others push for more rigorous enforcement to protect investors and ensure market integrity. This disparity in opinions is critical for understanding the future of the SEC's regulatory direction in the cryptocurrency space.
Since the mainstream emergence of crypto markets in 2017, it has been the sentiment of many insurers that the uncertain regulatory environment and lack of data are the leading factors in avoidance of the crypto industry. This report validates at least one of the two concerns; however, as the industry continues to evolve, insurers can leverage this data to take a more informed underwriting approach for multiple lines of coverage, especially directors and officers insurance. Understanding the SEC's current enforcement trajectory is crucial for predicting potential loss scenarios and considering how businesses in the US plan to navigate these well know regulatory challenges that have been highlighted by allegations of non-compliance and misconduct.
In light of the SEC's stance, it's imperative for insurers to stay abreast of these developments and in close communication with their clients and brokers, adapting their underwriting strategies to navigate the evolving landscape of crypto-related risks and regulatory complexities. This proactive approach will be key in managing the dynamic risk profile of the crypto sector this year and beyond.
For more information, the full report can be accessed here.
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