California probes Voyager, BlockFi and other crypto lenders

abdelaziz Fathi

The California Department of Financial Protection and Innovation (DFPI) is investigating offerings of interest-bearing crypto-asset accounts as a part of a broader scrutiny against cryptocurrency lending platforms.

The state regulator did not accuse any crypto firms of any wrongdoings or brought charges yet. Rather, the DFPI is checking if their DeFi and lending products should be registered as securities.

“The Department warns California consumers and investors that many crypto-interest account providers may not have adequately disclosed risks customers face when they deposit crypto assets onto these platforms. Crypto-interest account providers are not governed by the same rules and protections as banks and credit unions, which are required to have deposit insurance,”  the DFPI said.

The securities regulator also stated that it’s scrutinizing Voyager Digital, the Canadian crypto investments firm, and BlockFi over its offering of interest-bearing crypto accounts. The department found that certain crypto-interest accounts were unregistered securities.

“The purpose of securities registration, in part, is to ensure that investors receive all material information needed to evaluate whether to enter into these crypto-interest account arrangements, such as risks being taken with deposited funds,” it added.

Crypto lenders fall under microscope

The effort continues a yearlong battle by California and other state watchdogs to bring crypto interest accounts under their regulatory domain. BlockFi was the first lender to fall under their microscope and it ultimately settled with state and federal regulators.

The crypto lending platform, backed by billionaire Mike Novogratz’s Galaxy Capital, settled last month with Iowa regulator for an administrative fee of $1 million without admitting or denying the charges. BlockFi also agreed to pay a $50 million penalty to the SEC and additional $50 million in fines to 32 states to settle similar charges.

The move comes as US regulators signaled a big change in policing cryptocurrencies and the growing Defi sector after they blocked Coinbase from launching a new crypto lending product. The SEC officials have increasingly been talking about a need to crack down on these products, which are essentially unregistered interest-bearing accounts, the agency claims.

Before the recent crisis, the use cases presented by major players reflect that the lending trends are shifting to a reliance on digital assets to support business’ operations rather than for only betting on the short term price moves. Specifically, there was substantial interest from the institutional players to borrow in order to facilitate a specific strategy such as for shorting, arbitrage, or working capital purposes.

SEC’s head Chair Gary Gensler called on Congress to give the agency more authority to better police crypto trading and lending platforms, which pay customers rates higher than most bank savings accounts.

Read this next

Industry News

CFTC wins case against broker for secretly taking other side of client orders in block trades

“As we said at the outset of this case, the illegal use of inside or confidential information undermines confidence in markets and will not be tolerated.”

Technology

BankiFi raises $4.8m to bring embedded banking platform to North America

“Our mission is to make all aspects of cash management and payments easier for SMBs everywhere, and this investment is another huge step to making that a reality.”

Executive Moves

Shieldpay hires ex-Payoneer Chris Andrews as Head of Sales

“We’ll be expanding our position in existing markets and accelerating growth into new verticals, whilst building on our direct and indirect channels.”

Digital Assets

Crypto.com secures preliminary approval to operate in Canada

Crypto.com, one of the longest-established crypto platforms, has become the first digital asset platform to sign a Pre-‘Registration Undertaking’ with the Ontario Securities Commission (OSC) in Canada.

Retail FX

CySEC hits IC Markets One with regulatory warning

The Cyprus Securities and Exchange Commission has once again stepped up its fight against unauthorized brokers.

Uncategorized

XTAGE now offers bitcoin and ether trading to 3.6M Brazilian investors

Brazilian financial services giant XP has officially launched its crypto trading platform XTAGE, which was built on major American stock exchange Nasdaq’s trading technology.

Institutional FX

FX volume drops 7pct at CLS Group in July 2022

FX settlement specialist CLS Group today reported that the executed volumes of currency trading on its platforms were notably down in July.

Digital Assets

Web3 startup PIP integrates with Binance ecosystem

Web3 payment provider PIP has announced integration with the Binance ecosystem, which allows the firm to vastly develop and propose needed products and improvements that are worthy of competing with others chains.

Industry News

Celsius $750m insurance claims are fraud, says lawyer seeking EU crypto superfund

“It is an intentional deception in aid of a billion-dollar securities offering.”

<