Hello Fintech Friends,

What a week! Last week, the crypto and fintech communities were taken aback as the U.S. Securities and Exchange Commission (SEC) filed lawsuits against two giants in the industry: Binance, the world's largest crypto exchange, and Coinbase, the largest crypto exchange in the United States. Today, we delve into the key details of the SEC charges against the two crypto exchanges. We also provide comprehensive coverage of the latest developments in crypto regulation and policy, decentralized autonomous organizations (DAOs), payments, and fintech.

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1. Crypto Enforcement

On June 5, the SEC charged Binance, its U.S. platform (Binance.us), and CEO Changpeng Zhao (CZ) with 13 violations of U.S. Securities law. The SEC accuses Binance of secretly enabling U.S. customers to trade on Binance.com, while publicly insisting that Binance.us is an independent trading platform specifically designed for U.S. investors (which is very similar to the charges of the Commodity Futures Trading Commission (CFTC) against Binance). Additionally, CZ and Binance are alleged to have retained control over customers' assets, commingling or diverting those assets to third parties as they see fit. The SEC further claims that Binance conducted unregistered offerings and sales of tokens like BNB and BUSD, along with operating various products, including Simple Earn, BNB Vault, and the staking program, which the SEC considers unregistered securities. Another violation cited is the failure to register the Binance.com platform as an exchange, a broker-dealer, or a clearing agency as required by law.

On the following day, the SEC took action against Coinbase, alleging that the popular crypto asset trading platform had operated as an unregistered securities exchange, broker, and clearing agency. The SEC contends that it is unlawful to combine the functions of an exchange, broker, and clearing agency in one entity, especially when none of those functions has been registered with the SEC. Additionally, Coinbase was charged with the failure to register its crypto asset staking-as-a-service program, which in the SEC’s view represents an unregistered security offering. As a U.S. public company, however, and unlike Binance, Coinbase did not face charges related to unlawfully offering services to U.S. customers. Moreover, Coinbase was not accused of commingling investor assets or diverting them to a third party.

The SEC’s actions sent shockwaves throughout the crypto market. The initial move against Binance alone triggered a major sell-off of crypto assets, causing the market to lose 5% of its market cap, or more than $53B, in less than one hour.

The past week also witnessed other significant enforcement developments. The Third Circuit Court overseeing the case brought by Coinbase against the SEC requested the SEC to inform the Court by Wednesday about when it plans to answer Coinbase's petition for crypto rulemaking. Additionally, a Wyoming federal judge denied the Federal Reserve (Fed)'s motion to dismiss Custodia Bank’s case, allowing the bank to move to discovery in the case it brought against the Fed after it was denied a Fed Master account.

2. Crypto Regulation

In the realm of crypto regulation, House Republicans have been actively working on a new stablecoin bill that aims to incorporate significant elements from the Democrat proposal in an attempt to garner bipartisan support for stablecoin legislation. In another development, on June 13, the Republican-led House Financial Services Committee will hold a highly anticipated hearing on crypto titled "The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem." Further details regarding the specific topic and participants are yet to be announced.

3. DAOs

A federal judge sided with the CFTC in its case against Ooki DAO after the DAO failed to respond to the enforcement action brought forth by the CFTC. The court decision indicates that other DAOs may be held accountable for legal infractions as they are recognized as "persons" under the Commodity Exchange Act.

4. Payments

SWIFT, a global provider of secure financial messaging services, has joined forces with Chainlink and several financial institutions to explore how SWIFT’s infrastructure can be leveraged in tokenized assets' transfers across blockchains, which can revolutionize cross-border payments. In another notable update, Australia has announced that it will completely phase out checks by 2030 as part of its broader shift toward digital payments.

5. Fintech

In our fintech news for this week, Colorado’s governor has signed into law new legislation that protects Coloradans from predatory lending offered by out-of-state lenders who rely on schemes known as “rent-a-bank” to charge interest rates that are as high as 225%. Also, last week, federal bank regulators released much-anticipated guidance on the due diligence banks should perform when they partner with fintechs and other third-party vendors in order to ensure that such partners adhere to fair lending, privacy, and anti-money laundering laws.

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See you next week!