CCA Regulatory and Legal Frameworks 3 — Questions and Answers
Question 1: Under the Howey Test, which element is NOT required to classify a crypto token as a security?
- Investment of money
- Common enterprise
- Expectation of profits
- Physical delivery of the underlying asset (Correct answer)
Correct answer: Physical delivery of the underlying asset
The Howey Test has four prongs: investment of money, in a common enterprise, with an expectation of profits, derived from the efforts of others — physical delivery is not a factor.
Question 2: Which U.S. agency published guidance in 2019 stating that certain crypto-to-crypto exchanges do not require MSB registration because they involve no fiat currency?
- The SEC
- The CFTC
- FinCEN (Correct answer)
- The OCC
Correct answer: FinCEN
FinCEN's May 2019 guidance clarified which crypto activities trigger MSB registration requirements, noting that certain peer-to-peer and software-only activities may not require registration.
Question 3: Wyoming's Special Purpose Depository Institution (SPDI) charter is significant because it allows banks to:
- Issue their own stablecoins backed by state reserves
- Custody digital assets without obtaining federal deposit insurance (Correct answer)
- Operate as unlicensed money transmitters within Wyoming
- Issue securities tokens without SEC registration
Correct answer: Custody digital assets without obtaining federal deposit insurance
Wyoming's SPDI charter allows banks to legally custody digital assets for customers without being required to carry FDIC insurance, making them 100% reserve institutions.
Question 4: Under OFAC sanctions rules, a U.S. crypto exchange must:
- Screen only transactions above $10,000 for sanctioned parties
- Screen all transactions and block transfers involving sanctioned individuals, entities, or jurisdictions (Correct answer)
- Report sanctioned transactions to the FBI, not OFAC
- Only screen fiat on-ramp and off-ramp transactions
Correct answer: Screen all transactions and block transfers involving sanctioned individuals, entities, or jurisdictions
OFAC requires U.S. persons and entities, including crypto exchanges, to screen all transactions—regardless of amount—and block any involving parties or jurisdictions on OFAC's SDN or other sanctions lists.
Question 5: The 'crypto mom' nickname refers to which SEC commissioner known for advocating a regulatory 'safe harbor' for token projects?
- Hester Peirce (Correct answer)
- Caroline Crenshaw
- Allison Herren Lee
- Elad Roisman
Correct answer: Hester Peirce
SEC Commissioner Hester Peirce earned the nickname 'Crypto Mom' for her proposal of a three-year safe harbor that would allow token networks time to decentralize before being subject to securities laws.
Question 6: A VASP that provides custodial wallet services is generally considered to be which type of regulated entity under U.S. law?
- A registered investment adviser (RIA)
- A money transmitter subject to FinCEN MSB registration (Correct answer)
- A commodity pool operator (CPO)
- A national bank subject to OCC oversight
Correct answer: A money transmitter subject to FinCEN MSB registration
Custodial wallet providers are generally classified as money transmitters and must register with FinCEN as MSBs and comply with applicable state money transmission licensing requirements.
Question 7: Which provision of the Infrastructure Investment and Jobs Act (2021) significantly expanded cryptocurrency tax reporting requirements?
- Section 6050I, requiring reporting of crypto payments over $10,000
- Sections 6045 and 6045A, redefining 'broker' to include crypto exchange operators (Correct answer)
- Section 6051, requiring crypto wages to be reported on W-2 forms
- Section 6041, requiring 1099 forms for all crypto purchases
Correct answer: Sections 6045 and 6045A, redefining 'broker' to include crypto exchange operators
The 2021 Infrastructure Act amended IRC Sections 6045 and 6045A to expand the definition of 'broker' to include crypto exchange operators, requiring them to report customer transaction data to the IRS.
CCA Regulatory and Legal Frameworks 3
Under the Howey Test, which element is NOT required to classify a crypto token as a security?