CCE Regulatory & Legal Framework 5 — Questions and Answers
Question 1: The Infrastructure Investment and Jobs Act (2021) expanded IRS 1099 broker reporting requirements to include which crypto entities?
- Only centralized exchanges holding user funds
- Broadly defined 'brokers' potentially including node operators and software developers (Correct answer)
- Only crypto ATM operators with more than 50 machines
- Stablecoin issuers with over $10 billion in circulation
Correct answer: Broadly defined 'brokers' potentially including node operators and software developers
The 2021 Infrastructure Act's crypto broker reporting provision used an overly broad definition of 'broker' that critics argued could include miners, validators, and software developers who don't have customer information.
Question 2: Under the proposed Digital Commodity Exchange Act (DCEA), which agency would gain primary jurisdiction over spot markets for digital commodities?
- SEC
- CFTC (Correct answer)
- FinCEN
- OCC
Correct answer: CFTC
The DCEA, proposed in various forms in Congress, would grant the CFTC primary jurisdiction over spot markets for digital commodities like Bitcoin and Ether.
Question 3: What does 'Suspicious Activity Report' (SAR) filing threshold ($5,000 for banks, $2,000 for MSBs) mean for crypto exchanges registered as MSBs?
- They must file SARs for any crypto transaction over $2,000 involving a sanctioned country
- They must file SARs when they know or suspect a transaction of $2,000+ involves illicit activity (Correct answer)
- They must file SARs for all transactions over $2,000 with unhosted wallets
- They must file SARs only when law enforcement formally requests it
Correct answer: They must file SARs when they know or suspect a transaction of $2,000+ involves illicit activity
MSBs (including crypto exchanges) must file SARs with FinCEN when they know, suspect, or have reason to suspect a transaction of $2,000 or more involves illicit funds or has no lawful purpose.
Question 4: Which international standard-setting body published the 'Prudential Treatment of Cryptoasset Exposures' requiring banks to apply a 1250% risk weight to Group 2 crypto assets?
- Financial Stability Board (FSB)
- Basel Committee on Banking Supervision (BCBS) (Correct answer)
- International Organization of Securities Commissions (IOSCO)
- International Monetary Fund (IMF)
Correct answer: Basel Committee on Banking Supervision (BCBS)
The Basel Committee on Banking Supervision finalized its standard in December 2022, applying a 1250% risk weight (effectively 100% capital requirement) to unbacked crypto assets like Bitcoin held by banks.
Question 5: In El Salvador, what legal tender status does Bitcoin hold following the 2021 Bitcoin Law?
- Optional legal tender that merchants may choose to accept
- Mandatory legal tender that all businesses must accept alongside the US dollar (Correct answer)
- Legal tender only for government tax payments
- Legal tender only for international remittances
Correct answer: Mandatory legal tender that all businesses must accept alongside the US dollar
El Salvador's Bitcoin Law made Bitcoin mandatory legal tender, requiring all economic agents to accept it as payment, alongside the US dollar which remains the official currency.
Question 6: Which concept describes the legal risk that arises when a DeFi protocol's governance token holders collectively make decisions that could subject them to securities laws?
- Governance token risk
- Decentralization theater
- Sufficiency of decentralization defense (Correct answer)
- Howey fragmentation
Correct answer: Sufficiency of decentralization defense
The 'sufficiency of decentralization' defense argues that once a protocol is sufficiently decentralized, its token is no longer a security because there is no longer a central promoter whose efforts investors rely on.
Question 7: What is the primary legal challenge regulators face when attempting to enforce securities laws against a truly decentralized autonomous organization (DAO)?
- DAOs are explicitly exempted from securities laws under the Investment Company Act
- There is no identifiable central party or promoter to hold liable or serve with legal process (Correct answer)
- DAOs are incorporated in multiple jurisdictions simultaneously, requiring multilateral treaties
- Blockchain transactions are inadmissible as evidence in US federal courts
Correct answer: There is no identifiable central party or promoter to hold liable or serve with legal process
Truly decentralized DAOs have no central party, officers, or address to serve legal process to, creating fundamental enforcement challenges for regulators seeking to apply traditional securities laws.
CCE Regulatory & Legal Framework 5
The Infrastructure Investment and Jobs Act (2021) expanded IRS 1099 broker reporting requirements to include which crypto entities?