Digital Assets and State Regulatory Challenges

Bitcoin, cryptocurrency, digital assetOne of the challenges for firms regulated by states is the state’s autonomy to both draft and enforce their own laws It is important to be aware of the regulations in any states where you may be conducting business, including the offer or sale of digital assets.

A review of state regulations reveals one common theme: states generally require firms and individuals engaging in the offer/sale of digital assets to register as money transmitters. However, some states have either enacted legislation providing an exemption to the money transmitter registration or have not addressed the issue with respect to of digital assets. The need to understand the regulations in any states in which a digital asset may be offered is critical.

In some states there has been a movement to become more proactive in protecting, regulating and monitoring digital assets. For instance, New York has established a comprehensive written regulatory framework applicable to all digital asset-related entities operating in the state. In February 2018, this same state issued guidance to all registered businesses highlighting the importance of effectively preventing and responding to fraud and similar wrongdoing regarding such assets., On May 21, 2018 the North American Securities Administrators Association (“NASAA”) announced the signing of a Memorandum of Understanding (“MOU”) with the Commodity Futures Trading Commission (“CFTC”). The MOU is to share information and is designed to assist the co-signers in enforcing the Commodity Exchange Act, which state securities regulators and state attorneys general are statutorily authorized to do alongside the CFTC. Each state may need to execute their own MOU directly with the CFTC  to engage in the information sharing. Information shared under the MOUs could generate enforcement actions under state securities laws, common law fraud, or other areas of law. One of the areas of cooperation will most likely include the review of digital asset offerings to the extent they are deemed securities.

Also on May 21, 2018 NASAA announced coordinated enforcement actions by state and provincial securities regulators in the United States and Canada to crack down on fraudulent Initial Coin Offerings (“ICOs”), digital asset-related investment products, and those behind such schemes.  NASAA members from more than 40 jurisdictions throughout North America participated in “Operation Cryptosweep,” which has resulted in nearly 70 inquiries and investigations and 35 pending or completed enforcement actions related to ICOs or digital assets since the beginning of May 2018.

For more information about federal regulatory challenges around digital assets  read our previous blog, Cryptocurrencies and the Regulatory Challenges Around Them

How Can Oyster help?

Oyster can help firms view the opportunities and risks associated with digital assets from a strategic, operational, and compliance standpoint for the emerging industry and for exchanges, broker-dealers, FCMs and RIAs.

For more information about how Oyster can assist your firm or to request a consultation, complete our contact form or call (804) 965-5400 and one of our Relationship Managers will be happy to help you.


Bill Reilly is an Associate Director at Oyster Consulting. Bill provides essential compliance services to broker-dealers, investment advisers and industry professionals, leveraging his examination expertise and relationships with state and federal regulators and self-regulatory organizations to guide clients through both proactive and reactive regulatory processes and compliance issues.

Don Horwitz is an independent consultant associated with Oyster Consulting. During his thirty-plus years in the industry, Mr. Horwitz focused on assisting futures commission merchants (FCMs), broker-dealers, derivatives exchanges and their central counterparty clearinghouses (CCPs). He served as general counsel and/or chief compliance officer to three FCMs (through mergers and acquisitions), president of a broker-dealer and several developing exchanges.