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Gary Gensler and crypto regulation

Cyber Risk Management|Financial, Executive and Professional Risks (FINEX)

By Miguel Cano | April 15, 2021

With Senate confirmation of Gary Gensler, what are the potential implications for the blockchain and crypto asset industry?

Over the past year, cryptocurrencies and blockchain technology have quickly become one of the hottest topics amongst retail investors and crypto fanatics who have been HODLing1 their crypto assets through tremendous volatility. It’s no secret why: Since March of 2020, Bitcoin has seen an increase in price of 620% and currently trades at more than $57,000 per coin. Similarly, Ethereum, the second largest cryptocurrency by market value, has increased in price by 942% over the last year and currently sits at approximately $2,000 per coin. These tremendous gains have garnered the attention of institutional investors who are chasing alpha through alternative investments, as well as regulators who are playing catch up in a fluidly evolving industry. A recent Goldman Sachs crypto asset survey, which received nearly 300 responses from institutional clients of the bank, showed that 40% of participants currently have exposure to crypto assets, and 61% of participants expect their crypto asset holdings to increase over the next year.2 These results support the underlying trend that crypto assets are beginning to become a mainstream asset class. Therefore, it is important to understand the regulatory landscape which will be top of mind in the next year for financial institutions, retail investors, and insurance underwriters in this space.

Most insurance underwriters have been reluctant to dip their toes into the digital asset space due to a combination of uncertainty with regards to policy and controls, as well as a lack of understanding of the blockchain technology itself. Carriers who have been more opportunistic in this space generally prefer to write asset managers with very small indirect exposure to digital assets (under 5% of assets). That means that asset managers and companies who have been investing in digital assets directly are involved in initial coin offerings (ICOs), or are digital asset custodians have been having a difficult time finding a home for their insurance policies. As regulators begin to provide more clarity on what they expect from companies involved in the digital asset space, it’s likely that we will see some carriers become more receptive when looking at companies with blockchain exposures. The demand for reasonably priced management liability policies has existed in the digital asset space for some time, the question is what it will take for insurance carriers to get comfortable underwriting the risk profile.

With the Senate's confirmation of Biden administration’s nomination of Gary Gensler for the role of Chairman of the U.S. Securities and Exchange Commission (SEC), many crypto enthusiasts and skeptics are asking themselves what the implications may be for the blockchain and crypto asset industry.3 One of the most looming questions that regulators will need to answer is the potential classification of crypto assets as securities (which would fall under the SEC umbrella for regulation). Observers in the space are seeking clues on this front by closely examining the ongoing SEC lawsuit against Ripple Labs, the Silicon Valley startup which has been associated with the cryptocurrency XRP. The lawsuit alleges that Ripple Labs has been violating securities laws for over seven years by selling XRP in unregistered securities transactions.4 If approved as chairman, Gensler would inherit what has become the highest profile crypto case for the agency. Gensler, a faculty member at MIT, taught a course called “Blockchain and Money” in 2018 where he stated in his own words that he believes XRP to be a non-compliant security.5 He elaborated by saying he believes that XRP would meet the requirements of the Howey Test, a supreme court case often used to determine whether something should be classified as a security, offering some insight into Gensler’s potential stance towards crypto as Chairman.6 We can only speculate on how the new SEC administration will choose to pursue the lawsuit, but what is certain is that the outcome of the case will set a roadmap for crypto policy going forward, as well as provide the insurance industry with the regulatory infrastructure that it needs to underwrite companies effectively.

As more institutional players continue to invest in this space, many are looking to regulators for clarity on how policy will look for custodians of crypto assets. In July of 2020 the Office of the Comptroller of the Currency (OCC) released a letter outlining some general guidelines for custodians of digital assets. The letter described the importance of custodians having clear documentation of their client base, including the identification and source of any funds being held in custody. The letter also covered topics such as safe management of cryptographic keys, storage of assets (cold vs hot storage), and the creation of processes for delisting assets (in the case they cease to operate or no longer meet minimum requirements to be held in custody).7 Although the letter from the OCC is merely a guidepost, it gives us a glimpse into how some regulators are thinking about the custody of crypto assets and therefore provides some clues on the types of disclosures we can expect to have from digital asset custodians.

As we move forward into 2021, investors, underwriters, and crypto companies will be looking to the new regime of regulators to provide clarity on what the future of digital asset policy will be. Although guidance on the classification of the asset, compliance procedures around KYC and AML policies, and custodian disclosures is an important first step for general adoption in the space, this is surely only the beginning of thoughtful regulatory policy and oversight in the crypto space. Some additional topics that will likely be top of mind for regulators will include ICOs, regulation of exchanges, sanctions regime, and Central Bank Digital Currencies (CBDCs).8,9












Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.


Associate Broker, Middle Market Financial Institutions
FINEX Global


Liz Dinneen (Sukay)
FinTech Industry Leader
FINEX Global

D&O Liability Product Leader
FINEX North America

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