Lowenstein Crypto advises leading digital asset and cryptocurrency projects, exchanges, and trading firms. Our practice covers regulatory advice, transactions and structuring advice, investigations, and adversarial matters including commercial disputes, bankruptcy, and related litigation. As these markets continue their rapid growth and market participants continue to evolve and mature their businesses, we are providing this weekly digest as a resource that highlights and summarizes a selection of key recent legal regulatory developments.
SEC Prepares for Amendments to Crypto Asset Custody Rules for Investment Advisers
On August 25, the Securities and Exchange Commission (SEC) sent a new proposal to the White House in connection with rules for investment advisers holding digital assets on behalf of clients. The SEC’s Division of Investment Management (Division) is considering recommending that the SEC propose amendments to the existing rules and/or propose new rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 in an effort to improve and modernize regulations concerning the custody of crypto assets on behalf of adviser client and fund assets. The Division notes that rulemaking would clarify the framework for the custody of crypto assets for investment advisers and investment companies and modernize the rules to remove outdated requirements and burdens that are not required to provide investor protections. See the pending proposal here.
Bankchain Alliance Announces Plans To Launch Industry-Owned Blockchain Network
On August 25, a coalition of 39 state bankers’ associations announced the formation of the Bankchain Alliance to provide secure and modern banking services for customers in the United States. The Bankchain Alliance aims to create an industry-owned blockchain network designed and governed by industry participants and groups. Participating financial institutions will have the ability to provide emerging banking capabilities while maintaining compliance with rigorous regulatory standards, security, and customer trust. Use cases include providing tokenized deposits, stablecoin payments, and automated settlements, with interoperable functionality. The Bankchain Alliance is targeting a 2027 launch. See the press release here.
Crypto Council for Innovation and Blockchain Association Sue Illinois Over Digital Asset Taxes
On August 21, the Blockchain Association and the Crypto Council for Innovation filed a complaint in the Circuit Court of Sangamon County, Illinois, seeking declaratory and injunctive relief against Illinois’s Digital Asset Tax Act (35 ILCS 195/3-5) (the Act), which imposes a 0.2 percent tax on the full value of digital assets each time they are exchanged, transferred, or stored through a digital-asset broker and is set to go into effect on January 1, 2027. The complaint advances seven independent grounds for invalidation: (1) preemption by the federal Internet Tax Freedom Act for discriminatorily taxing electronic commerce without similarly taxing analogous nondigital transactions; (2) violation of the dormant Commerce Clause due to risks of duplicative interstate taxation and a tax grossly disproportionate to the in-state services provided; (3) unconstitutional vagueness under federal and state due process clauses given the act’s numerous undefined terms backed by felony penalties; (4) violation of the Illinois Uniformity Clause by unreasonably distinguishing digital assets from economically similar financial assets; (5) unconstitutional delegation of Illinois taxing power to Congress and the U.S. Treasury by incorporating future amendments to IRC § 6045(c)(1)(D); (6) violation of the Illinois Constitution’s three-readings rule, as the 1,624-page “gut-and-replace” bill was passed within 24 hours of its public disclosure; and (7) violation of the single-subject rule, given the bill’s sprawling scope covering everything from truck weights to sports wagering. See a copy of the complaint here.
Post-Quantum Security Pilot Unites Banks and Regulators Across Several Jurisdictions
On August 24, the Responsible Fintech Institute and digital asset infrastructure firm Safeheron announced their launch of a cross-regional pilot to test post-quantum cryptography for digital asset transactions, bringing together banks and regulatory agencies. The initiative centers on a multiparty computation protocol integrating ML-DSA-65, the NIST FIPS 204 post-quantum digital signature standard, with participant testing covering wallet generation and on-chain transfers on the quantum-resistant NEAR testnet. Structured around a non-custodial two-of-two multi-party computation design intended to mirror real institutional operating models, the pilot aims to evaluate cross-border interoperability, operational resilience, and governance considerations as the financial sector prepares for quantum-era threats. The consortium plans to publish a white paper detailing its findings and to open-source the underlying protocol code, reinforcing a commitment to transparency, independent scrutiny, and industrywide standards development. Participants include the Abu Dhabi Global Market, Gelephu Financial Services Office, and Malta Financial Services Authority, as well as several banks. See the press release here.
Federal Reserve Staff Publishes Study of U.S. Cross-Border Payment Efforts
On August 26, the Federal Reserve’s staff published a FEDS Note reviewing a decade of U.S. efforts to improve cross-border payments, highlighting progress toward G20 targets for cost, speed, transparency, and access across wholesale, retail, and remittance segments. The note finds that North America consistently leads in wholesale payment speed and that informed U.S. consumers already have access to remittance services below the G20’s 3 percent cost target, though simple average costs remain elevated and significant corridor-level heterogeneity persists. The note discusses several recent developments positioned to reshape cross-border payments infrastructure: the Federal Reserve’s migration to ISO 20022 messaging; the proposed Regulation J amendments that would allow FedNow to facilitate cross-border transactions; the expansion of Fedwire operating hours to near-continuous availability; and in July 2025, the enactment of the GENIUS Act, which establishes a federal regulatory framework for stablecoins requiring reserve backing with safe and liquid assets. The staff acknowledged that stablecoins, particularly through the “stablecoin sandwich” model (converting fiat to a U.S. dollar-backed stablecoin, transferring it cross-border, and converting it back to local currency at the destination), have the potential to offer faster, lower-cost alternatives for traditional cross-border payments, with remittances as a frequently cited use case, while noting that tokenization and other emerging technologies may also bring efficiency gains to the payments system as regulators work to promote safe and responsible innovation. See the FEDS Note here.
