Category:Finance & Banking
The Financial Services Industry and Its Regulatory Landscape: 2021
Every year, hundreds of financial advisors and brokers across the country are convicted of a host of bad acts, which include conducting Ponzi schemes, misappropriating client funds and forging customer signatures. 2021 was no exception. Here are ten recent examples of how the legal system as well as regulators in the financial services industry, respond to allegations of fraud, misappropriation, improper hiring practices, and criminal activity.
Stablecoins: Tying Cryptocurrencies to Other Assets
Cryptocurrency has an air of mystery about it. It seemingly burst onto the scene a decade ago, and while some of the stories about it may seem outlandish, many of them are true. The first known Bitcoin purchase was for two pizzas and prices can fluctuate wildly based off of tweets. With the origins of such a thing being the subject of internet humor and its value being so volatile, what level of attention and care is due to it?
Insider Trading Isn’t Illegal if You Are a Member of Congress
Jon Ossoff, the freshman Senator from Georgia, has made it clear that he intends to put forth a bill that would ban members of Congress from trading individual stocks. This is a policy that seems likely to fail, but that doesn’t make it any less necessary. It is estimated that members of Congress and their families bought and sold over $500 million worth of assets. That’s not to say that all these trades were based on information not available to the general public, but it is clear that there is a massive conflict of interest in allowing law makers to trade stocks when their job is intrinsically tied to making decisions that affect the price of stocks.
White House Issues Guidance Regarding Fighting Corruption
On December 6, 2021, the White House issued a consolidated federal strategy regarding fighting corruption that threatens national security. The memorandum directed a number of federal departments to conduct interagency reviews that allowed them to come together and proceed with a joint strategy to combat corruption in the United States.
Lawmaker and Federal Official Stock Trading: Are More Stringent Regulations Necessary?
Although lawmakers must disclose their trades to the public, some members of Congress believe more stringent regulations are necessary to limit members’ trading activity. Specifically, Senator Jon Ossoff (D., Georgia) has become a leading voice, planning to introduce legislation that would compel members of Congress to put their assets in a blind trust. Moreover, Federal Reserve Chairman Jerome Powell has been pushing for stricter ethics rules for Federal officers amidst several resignations of Fed bank officers.
Regulating Crypto Markets through the Build Back Better Act: Crypto Investors’ Future Compliance with Wash Sale Rules
The Build Back Better Act, which passed through the House of Representatives in November 2021, has been stalled in the Senate for several months. Senate Majority Leader Chuck Schumer has insisted that Democrats will work until the bill is passed. Within the Build Back Better Act, cryptocurrencies are shifted from being treated like property to being treated more like traditional securities, subjecting all digital currencies to wash rules under Section 1091. With cryptocurrencies collectively evaluated at upwards of $3 Trillion in 2021, crypto investors under the Build Back Better Act would be subject to the regulatory anti-abuse rules that currently apply to both stocks and bonds. This move by Democrats is for taxing purposes, but ultimately will call into question the IRS’ ability to regulate certain crypto transactions and asset disclosures. Additionally, questions have been raised as to the future regulation of cryptocurrencies and what that will mean for one of the most volatile trading markets.
Investor Choice Act Approved by House Committee
For several years, broker-dealers and investment advisory firms have typically required harmed investors to dispute matters through arbitration rather than the court system. However, the House of Representatives’ Financial Services Committee has approved a bill aimed at prohibiting mandatory arbitration commonly imposed by broker-dealers and investment advisory firms. H.R. 2620, known as The Investor Choice Act, restricts investment advisors and broker-dealers from including pre-dispute binding arbitration clauses in their client agreements. The Investor Choice Act addresses “long-standing and deeply unfair practices of forcing customers to resolve their claims through arbitration instead of as part of a class action,” according to Maxine Waters, Chairwoman of the Financial Services Committee.
Coinbase Proposes a New Regulator to Oversee Digital Assets After Feud with SEC
In October 2021, the cryptocurrency exchange platform Coinbase released a proposal for a regulatory framework that would designate a single regulator for the digital asset markets. This proposal comes less than a month after Coinbase’s CEO had a public meltdown on Twitter after the Securities Exchange Commission (SEC) sent the firm a Wells Notice, a warning of potential litigation, about their planned cryptocurrency lending platform allegedly violating securities regulations. As the digital asset market grows and the financial institutions involved become more influential, regulators continue to struggle with jurisdictional and definitional questions around the new products.
Should Small Business Owner’s Allow Payments of Cryptocurrencies?
Cryptocurrency is a relatively new form of currency that has risen in popularity worldwide. Since the pandemic struck, many small businesses have begun to accept cryptocurrency as a form of payment for their goods and services. There is much debate regarding taxation and auditing of cryptocurrency transactions in small businesses, along with weighing the cost and benefit of providing this alternative payment method.
Treasury’s Proposal Aimed at Limiting Tax Evasion by The Wealthy, May End Up Harming Everyone Else
In May of 2021, the United States Department of Treasury (“Treasury”) introduced its revenue proposals for the 2022 fiscal year. One of the proposals that garnered significant attention was the Comprehensive Financial Account Reporting to Improve Tax Compliance; under this proposal, financial institutions will be required to report to the Treasury the total amount of inflow and outflow on bank, loan, and investment accounts for accounts that hold at least $600 a year. Since its introduction and after serious political push-back, this amount has since been increased to accounts that hold at least $10,000 a year.
If the reporting requirement is implemented, the Biden Administration proposes to raise the Internal Revenue Service (“IRS”) funding by $80 billion to finance the cost of additional auditors and equipment. However, the Biden Administration, with the proposal’s implementation, expects a payoff of $460 billion over ten years in additional revenue. Although this proposal is intended at limiting wealth tax evasion, this proposal misses the mark. Specifically, it does not adequately address businesses that are able to cheat tax codes by stretching the current law, and instead scrutinizes small businesses and individuals while it exponentially increases the personal data held by the Treasury.