April 2019 – FinTech and Blockchain Law Watch

Italy’s legal recognition of blockchain-based timestamping

Apr 28 2019

By Claude-Étienne Armingaud and Alessandra Feller

Italian law no.12/19 dated 11 January 2019 (the “Law”) came into force on 13 February 2019 and cemented the legal enforceability of electronic timestamping performed through blockchain technologies.

As part of a national reform pertaining to the simplification of administrative formalities for companies, the Law explicitly states in its Article 8 ter, 3° that “storage of a computerized document through the use of technologies passed on distributed ledger creates the same legal effect as ‘electronic time stamp’”, as defined in the European Regulation no. 910/2014 on electronic identification and trust services for electronic transactions dated 23 July 2014 (“eIDAS”).

International Cryptocurrency Regulation Top of the Agenda for the Japan G20 Summit

Apr 26 2019

By Jim Bulling, Felix Charlesworth and Andrew Fay

In the lead up to the annual G20 Summit, to be hosted by Japan, Prime Minister Shinzō Abe has commissioned the creation of a cryptocurrency governance manual. The manual, which will be distributed at the G20 Summit, supports a uniform approach to regulating cryptocurrencies and contains regulatory proposals and justifications relating to the following issues:

protecting customer assets;
international security protocols; and
providing customers with information (particularly in the event of a hack).

Launch of European joint platform for EU sandboxes and innovation hubs

Apr 07 2019

By Giovanni Campi, Martina Topercerova and Jonathan Lawrence

On 2 April 2019, the European Commission announced the launch of the European Forum for Innovation Facilitators (“EFIF”). The EFIF will serve as a joint platform designed to foster collaboration and experience sharing among European financial supervisors on their engagement with FinTech firms through sandboxes and innovation hubs. On an ad-hoc basis, the European Supervisory Authorities (“ESAs”) and EU Member States’ National Competent Authorities (“NCAs”) will also be joined by third-countries’ authorities to exchange best practices, identify regulatory obstacles and share knowledge.

Cryptocurrency firms struggle to engage auditors

Apr 04 2019

By Jim Bulling and Andrew Fay

In January 2019, Canada’s largest cryptocurrency exchange, QuadrigaCX, announced that it had lost $180 million of virtual currency, prompting calls for tighter regulatory oversight of the industry.

Canada is home to 18 publicly listed cryptocurrency companies, more than any other jurisdiction in the world. This puts Canada at the heart of the issue, and has also put the Canadian Public Accountability Board (CPAB) on notice. The CPAB, which regulates auditors, has confirmed that it has been reviewing how existing Canadian audit standards apply to the cryptocurrency industry. Canada, like Australia, subscribes to the International Financial Reporting Standards.

Regulators tighten the reigns on robo advisory firms

Apr 04 2019

By Jim Bulling, Felix Charlesworth and Andrew Fay

In December 2018, the US Securities and Exchange Commission (SEC) settled an enforcement action with Wealthfront, one of the industry’s leading robo advisors. This came after Wealthfront made false statements about its software’s ability to implement a ‘tax-loss harvesting’ strategy. Wealthfront failed to properly execute the strategy, resulting in losses to a significant number of clients. Wealthfront ultimately agreed to pay a $US 250,000 penalty.

A Positive Step Forward or Much Ado About Nothing Yet Again? SEC FinHub Releases a “Framework for ‘Investment Contract’ Analysis of Digital Assets” and Historic No-Action Letter on Digital Assets for TurnKey Jet

Apr 03 2019

By Margaret N. Rosenfeld, Robert M. Crea, Jonathan M. Miner and Steven B. Levine

In a flurry of activity today, the U.S. SEC’s Strategic Hub for Innovation and Technology (“FinHub”) issued a “Framework for ‘Investment Contract’ Analysis of Digital Assets” and the SEC’s Division of Corporation Finance (“CorpFin”) issued a historic No-Action Letter to Turnkey Jet, Inc. (“TurnKey Jet”) in connection with its offer and sale of digital assets. The Framework doesn’t contain anything substantially new for U.S. securities law practitioners who have been giving guidance to companies regarding digital assets (or utility tokens, security tokens or digital securities depending upon your term of choice) for some time, but serves as a good reminder of the SEC staff’s thought process in this area for those new to the space.

And in case you missed Footnote 1 to the Framework, Bill Hinman (SEC Director of CorpFin) and Valerie Szczepanik (SEC Senior Advisor for Digital Assets and Innovation) released a Statement on the Framework reminding everyone that the SEC has not approved or disapproved of the content and it is not a rule or regulation. These types of Frameworks are often how the internal staff at the SEC get the ball rolling on regulatory innovations (recall the legendary Project Aircraft Carrier of 1998). The Framework applies the factors set forth in the U.S. Supreme Court’s Howey case to digital assets, without going further. Therefore, it’s worth questioning whether Director Hinman has lost the argument internally at the SEC that he posited in his June 2018 Digital Asset Transactions remarks, in which he included “does application of the Securities Act protections make sense” in his list of considerations for assessing whether a digital asset offering is an investment contract.

Archive:April 2019