Treasury crypto sanctions portend broad regulatory response

Financial regulators on Tuesday began cracking down on cryptocurrency exchanges and laid out significant concerns with digital assets.

Sanctions: The Treasury Department announced the first-ever sanctions on a crypto exchange—Russia-based SUEX—as part of a government-wide effort to combat ransomware attacks. Treasury said over 40% of SUEX’s known transaction history is associated with illicit actors.

Ransomware: More broadly, Treasury said virtual currency exchanges are critical to the profitability of ransomware attacks and that it will continue targeting these entities to reduce incentives for cybercriminals.

OCC’s Hsu: Also Tuesday, Acting Comptroller of the Currency Michael Hsu revealed deep skepticism of digital asset innovations in remarks to the Blockchain Association. Among his remarks, Hsu said:

• The cryptocurrency and decentralized finance sector is replete with scams, innovations that do little more than increase trading, and few solutions for the real economy.
• Some of those who will be hurt in the crypto space are the least likely to be able to afford it.
• Stablecoins and other crypto instruments pose systemic risks.
• Financial innovation should be anchored in purpose.

Background: Recent ICBA blog posts detail growing stablecoin risks to consumers and the financial system, how policymakers are responding, and what DeFi means for community banks.