In the wake of the recent $100 million BlockFi settlement with the SEC and as the wider crypto-lending sector considers how to respond, Nexo has moved quickly – announcing it will no longer offer interest-bearing accounts for new U.S. customers.
The news that New York-based BlockFi had settled with the SEC for $100 million is a clear warning to other major crypto lending platforms that they will need to comply with US securities laws if they wish to grow in that market. In response, Nexo has moved quickly to limit its exposure to action from the SEC.
Headquartered in London, Nexo said in a statement that it was voluntarily implementing changes to its Earn Interest Product in the US to comply with the newly-announced guidance.
The company said existing US Earn customers would continue to receive their interest payments, but no new Earn clients would be accepted from the US. “The current changes only affect Nexo’s Earn Interest Product in the U.S. and have no impact on any other Nexo products,” a spokesperson said. “Non-U.S. clients are not subject to the SEC’s guidance and remain unaffected.”
Nexo says it is now moving to register its Earn Interest Product with “the relevant regulatory bodies.” Once it has completed that process, Nexo says it plans to launch “Earn Interest Product 2.0”, but there are no details as yet as to what the new product’s feature set will be.
Celsius welcomes “Clarity” offered by BlockFi Settlement
Speaking to the BlockFi settlement on his regular YouTube ‘ask me anything’ session, Celsius founder Alex Mashinsky said his company was “happy to see regulators all over the world making it more clear as to what you can do and cannot do.” He said he was also looking forward to President Biden’s looming executive order on cryptocurrencies, which is due out later this month. “All of that is good,” he said, “because it will provide more clarity.”
SEC Guidance For Crypto Lending Platforms
In its $100 million settlement, BlockFi has agreed to pay $50 million to the Securities Exchange Commission and $50 million to 32 US states after being charged with violating securities law with its interest-based offerings.
The SEC said BlockFi had agreed to a number of conditions to settle the action, including paying the $100 million settlement, stopping its unregistered offers and sales of BlockFi Interest Accounts (BIAs), and bringing its business within the provisions of the Investment Company Act within 60 days. According to SEC Chair Gary Gensler, the settlement was the “first case of its kind” with respect to crypto lending platforms.
“Crypto lending platforms offering securities like BlockFi’s BIAs should take immediate notice of today’s resolution…”
-Gurbir S. Grewal, Director of the SEC’s Division of Enforcement
SEC head of enforcement Gurbir Grewal indicated that it would likely not be the only action in the space and made it clear that the SEC would no longer have a ‘hands off’ approach to crypto lenders.
“Crypto lending platforms offering securities like BlockFi’s BIAs should take immediate notice of today’s resolution and come into compliance with the federal securities laws,” he said. “Adherence to our registration and disclosure requirements is critical to providing investors with the information and transparency they need to make well-informed investment decisions in the crypto asset space.”
Moving forward it appears that crypto lenders will need to comply with all applicable sections of the Securities Act of 1933 and the Investment Company Act of 1940 and apply to register their interest-bearing accounts as securities offerings using the SEC’s Form SC-1. There is no guarantee they will be approved.
In a statement about the settlement, BlockFi founder Zac Prince put a positive spin on the deal, saying “Today’s milestone is yet another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients.”
Prince said that BlockFi would file a registration statement on Form S-1 with the SEC “for the offering of BlockFi Yield (BY), which is anticipated to be the first SEC-registered crypto interest-bearing security.”
Only US Users Affected – For Now
BlockFi says the ceasing of its BIA product only affects new users in the US, and existing users will continue to receive their interest payments. Similarly, Nexo says the halting of its Earn Interest Product would only apply in the US – and like BlockFi, existing US savings account holders would continue to receive their interest payments.
To date, no other major platforms have announced their position on the SEC action, but it appears likely that any which are based in the US or accept US customers for interest-bearing accounts, will also put the acquisition of new users on hold.
While being headquartered out of the United States may be initially reassuring for other platforms, the SEC has frequently taken enforcement action beyond its own borders – arresting and extraditing senior executives of foreign cryptocurrency-related businesses it considered were breaking U.S laws.
Although this has typically been in relation to scams, ICO frauds and money laundering, merely being based overseas is no guarantee other platforms and their executives won’t face enforcement action from the SEC.
In something of an olive branch to the industry, though, SEC Chair Gary Gensler says the Commission was willing to “work with crypto platforms to determine how they can come into compliance with those laws.”
Check the latest BlockFi and Nexo interest rates for new non-US customers here.