By Rizwan Qayyum
The Government of Malta has issued a consultation paper on the framework relating to distributed ledger technology, ICOs and cryptocurrency exchanges and wallet providers dealing in such assets. This follows their initial Discussion Paper on ICOs and Virtual Currencies published in November 2017, which outlined the basis for this consultation paper.
By Rizwan Qayyum
Hong Kong’s Securities and Futures Commission (“SFC”) have issued formal warnings to seven cryptocurrency exchanges and seven issuers of initial coin offerings. This follows their initial statement on ICOs released on 5 September 2017, and represents their first regulatory action.
The SFC has sent letters to seven cryptocurrency exchanges “in Hong Kong or with connections to Hong Kong”, which provides a warning that they should not be trading cryptocurrencies which are “securities” as defined in the Securities and Futures Ordinance (“SFO”) without a licence. The exchanges responded immediately, either by confirming that they do not provide trading services for such currencies or took rectification measures, including removing relevant cryptocurrencies from their platforms.
By Jim Bulling and Michelle Chasser
As one year has drawn to a close it is time to look forward to 2018 and our tips for the most important 5 regulatory changes for the FinTech industry in Australia.
The Government has announced its intention to introduce an open banking regime in Australia under which customers will have the ability to give third parties such as FinTechs access to the customer’s banking data. Treasury is currently conducting a review into open banking models, with the report which was due at the end 2017 yet to be released.
Also planned to come in to effect by 1 July 2018 is mandatory comprehensive credit reporting which will give lenders access to deeper and richer sets of data on consumers to base their credit decisions on. Comprehensive credit reporting is currently voluntary.
By Rizwan Qayyum
The UK Financial Conduct Authority (FCA) has released a feedback statement on the Distributed Ledger technology discussion paper from April 2017 (DP17/3).
As a part of this, they commented on ICOs, noting:
“On the Initial Coin Offering (ICO) market, the FCA will gather further evidence and conduct a deeper examination of the fast-paced developments. Its findings will help to determine whether or not there is need for further regulatory action in this area beyond the consumer warning issued in September”
The feedback is available here.
On December 11, 2017, the SEC released a cease-and-desist order against a purported “utility token” sold by Munchee Inc. (“Munchee”) and a statement by Jay Clayton on Cryptocurrencies and Initial Coin Offerings. Two takeaways:
We will be providing a fuller analysis in the next several days.
By Claude-Étienne Armingaud, Emilie Oberlis, Alexandre Balducci, Sidney Lichtenstein and Alban Michou-Tognelli
The French Financial Markets Authority, the Autorité des Marchés Financiers (“AMF”), recently published a white paper requesting the views of stakeholders on the best means of regulating the fundraising activities based on cryptocurrencies and blockchain technology and is also launching a digital-asset research program called UNICORN (“Universal Node to ICO’s Research & Network”). In doing so, the AMF is following in the footsteps of the French Ministry of Finance, which published a draft document aimed at adapting the French legal framework to the use of blockchain technology on 19 September 2017 (see our coverage here).
The white paper focuses on initial coin offerings (“ICOs”) which are fundraising activities used to finance technology-based projects at an early stage of development. Participants to an ICO transaction receive tokens issued by the project initiator, in exchange for their investment in cryptocurrency or fiat currency. These tokens (a) have different characteristics depending on the transaction; (b) confer different rights to their owners; and (c) are intended for a technologically-oriented and informed audience that has a good understanding of (i) the nature of the project, (ii) the underlying technology, and (iii) the risks associated with the project.
By Robert M. Crea and Evan J. Glover
On December 4, 2017, the Securities and Exchange Commission’s (“SEC”) new Cyber Unit obtained an emergency asset freeze to halt a Canadian initial coin offering (“ICO”) called PlexCoin that had raised up to $15 million from thousands of investors. The SEC filed its complaint (“Complaint”) in the Eastern District of New York, alleging that the sponsor and his company, PlexCorps, marketed and sold securities to investors in the U.S. and elsewhere under a variety of false pretenses, including that PlexCoin would yield a 1,354% profit in less than 29 days. The complaint seeks permanent injunctions, disgorgement plus interest and penalties.
By Anthony Nolan and Eric A. Love
The U.S. Commodity Futures Trading Commission’s (CFTC) New York-based LabCFTC has released a twenty-page primer (the “Primer”) about virtual currencies, virtual tokens and initial coin offerings (ICOs). It’s the first in a series of educational primers that LabCFTC will issue in the coming months about innovations in the FinTech industry.
The Primer answers important questions about how CFTC regulations apply to virtual currencies, virtual tokens and ICOs. Notably, the Primer reiterates that Bitcoin and other virtual currencies are appropriately categorized as commodities and also states that virtual tokens can in some instances be commodities or derivatives contracts even if they are also considered to be securities under the U.S. securities laws. The Primer notes that, in applying U.S. commodity futures laws to virtual tokens, the CFTC will look beyond form and examine the “actual substance and purpose” of particular activities.
By Robert Crea
On Sunday, November 26, 2017, the New York Times published an interview with Joseph Grundfest, former SEC Commissioner and current Stanford law professor. Professor Grundfest is sharply critical of the posture of initial coin offerings under U.S. federal securities laws. Given his persuasive voice on securities law matters and his influence in Silicon Valley, this interview may very well serve as a sobering wakeup call to the ICO marketplace.
Some notable quotes:
The article may be found here.
By Nicholas Hanna and Samantha See
On 14 November 2017, the Monetary Authority of Singapore (the “MAS”) released “A Guide to Digital Token Offerings” providing general guidance on the application of the securities laws administered by the MAS in relation to offers or issues of digital tokens in Singapore.
The main consideration is whether the digital token is designed in a way that would make it a product regulated under Singapore’s securities laws i.e. if it behaves like a share, debenture or some other form of security. If a token does not function like a security, then technically, neither will the security laws apply.
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