On Monday, crypto lending platform BlockFi disclosed that it had decided to settle its charges with the US Securities and Exchange Commission (SEC) by paying $100 million in penalties. Backed by investor Peter Thiel, BlockFi presents itself as a bank-like platform that offers its services to crypto users. It’s popular crypto lending product that allows clients to obtain interest on their cryptocurrency holdings is what made it a target of the SEC. The platform is offering annual yields as high as 9.25%, which is significantly higher than the rate of returns offered on savings accounts by incumbent financial institutions.
According to the company, it is able to offer such high yields because large institutional investors are ready to pay more for the privilege of being able to borrow crypto deposits. However, since Bitcoin and the other cryptocurrencies available in the market are unregulated, it has given rise to a lot of concerns. Authorities are especially worried about the lack of oversight associated with crypto-related services that are similar to regulated traditional financial products, as in the case of BlockFi’s offering. The SEC disclosed on Monday that they had charged the crypto lending platform due to its failure of registering their product known as BlockFi Interest Accounts.
Furthermore, the SEC also added that BlockFi was also in violation of the Investment Company Act of 1940. The SEC has reached a settlement with BlockFi, where the latter would pay $50 million to the authority and not admit or deny liability or wrongdoing. It will also pay $50 million over similar charges to 32 states. Gary Gensler, the chairman of the SEC, stated that this case was the first of its kind where crypto lending platforms are concerned. He said that this settlement made it apparent that adherence to time-tested securities law is a must for the crypto market as well.
BlockFi announced after the settlement that customers in the US would no longer be permitted to open new interest accounts on the platform. The company said that they can continue receiving interest on their existing holdings, but will not be able to add more. It further added that they were going to register a new crypto savings product with the SEC known as BlockFi Yield. It said that it plans on shifting existing users in the United States to this new product eventually unless they are not willing to do so. According to BlockFi, this would offer some regulatory clarity.
Zac Prince, the founder, and CEO of BlockFi, stated that from the day they had launched the platform, they were aware that they would have to engage with regulators at some point in order to provide financial services related to cryptocurrencies. He said that this was another milestone in establishing regulatory clarity, the same way that they had done in the case of their crypto-backed loan. Other crypto lenders that offer similar services were also issued a warning by the SEC about taking notice of this resolution and ensuring compliance with the securities law.