Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.
OCC Moves Forward with Plans to Develop Bank Charters for FinTech Firms
The Office of the Comptroller of the Currency (“OCC”) announced today that it plans to move forward with considering applications from financial technology (fintech) companies to become special purpose national banks. OCC Press Release from Dec. 2, 2016. The OCC has concluded, among other things, that “applying a bank regulatory framework to fintech companies will help ensure that these companies operate in a safe and sound manner so that they can effectively serve the needs of customers, businesses, and communities, just as banks do that operate under full-service charters” and that “applying the OCC’s uniform supervision over national banks, including fintech companies, will help promote consistency in the application of law and regulation across the country and ensure that consumers are treated fairly.” OCC, “Exploring Special Purpose National Bank Chargers for Fintech Companies” (Dec. 2016) (the OCC’s paper published concurrently with this announcement). The OCC derives its authority to issue charters for national banks and federal savings associations under the National Bank Act and the Home Owners’ Loan Act. See 12 U.S.C. §§ 1 et seq. and 1461 et seq. A special purpose national bank may limit its activities to fiduciary activities or to any other activities within the business of banking. A special purpose national bank that conducts activities other than fiduciary activities must conduct at least one of the following three core banking functions: (1) receiving deposits, (2) paying checks, or (3) lending money. See 12 C.F.R. 5.20(e)(1). The OCC’s reading of this authority to issue charters to special purpose banks will now extend to fintech companies that fit within the description of a special purpose bank.
Court Rules IRS May Seek Information on Coinbase Customers
A federal judge in the Northern District of California ruled on Wednesday that the Internal Revenue Service can serve digital-currency company Coinbase with a “John Doe” summons seeking information on its customers’ transactions from 2013 to 2015. Order The DOJ and IRS are investigating the use of bitcoin and the possibility that it has been used to evade federal tax laws over that three-year period. The agencies do not have any proof of tax evasion, and there is no allegation that Coinbase engaged in any wrongdoing.
Coinbase issued a statement communicating its plans to oppose the government’s action and noted that it remains “concerned with our U.S. customer’s legitimate privacy rights in the face of the government’s sweeping request.” Coinbase Comment
States Seek Comments on Proposed Digital Currency Laws and Guidance
The Texas Department of Banking (“TDOB”) is proposing a new on-ramp to money transmission licensure for startup companies. It has drafted a bill that would create a new subchapter of the Texas Money Services Act, which would provide a limited license to startups. The new startup license would allow for low net worth and other relaxed requirements but would require involvement of an established license holder as a sponsor. The TDOB has requested comments to be provided by December 2. Texas Money Transmitter Statute.
Similarly, the Illinois Department of Financial and Professional Regulation (“IDFPR”) has announced the release of the IDFPR’s proposed “Digital Currency Regulatory Guidance” for comment. The proposed guidance expresses the IDFPR’s interpretation of the Illinois Transmitters of Money Act (the “Act”) and the application of the Act to various activities involving decentralized digital currencies. The proposed guidance also seeks to establish the regulatory treatment of such digital currencies under the existing definition of money transmission in Illinois as defined in the Act because currently, they do not fit the statutory definition of “money” and do not trigger the licensing requirements of the Act. The IDFPR will accept comments until January 18. Illinois Press Release
Recent DOJ Convictions for In-Game Virtual Currency
Last month, the Department of Justice convicted its fourth defendant in a scheme that defrauded a software company of over $16 million worth of virtual currency. Defendant Anthony Clark, 24, was convicted after a jury trial in Fort Worth, Texas. The DOJ presented evidence that the Defendant and three co-conspirators defrauded the software company Electronic Arts (“EA”)—publisher of a video game called FIFA Football. Players of the game can earn “FIFA coins,” a virtual in-game currency generally earned based on the time users spend playing FIFA Football. A secondary market for FIFA coins has developed, and coins can now be exchanged for US currency. The Defendant and his co-conspirators were convicted after circumventing multiple EA-developed security mechanisms and fraudulently obtaining FIFA coins worth over $16 million. All defendants await sentencing. DOJ Release
Uganda Takes Steps Towards Regulating Bitcoin
This past summer, a meeting on bitcoin and digital currencies was held in Kampala—aimed at building awareness of digital currencies and establishing a basis for Uganda to regulate bitcoin. Should the effort move forward, Uganda would be one of the first African countries to regulate bitcoin. The United Nations African Institute for the Prevention of Crime and the Treatment of Offenders recently released a report of this first meeting and the next steps. Report
Britain’s Mint Plans to use Blockchain Technology for Gold Trading
The UK’s government-owned Royal Mint plans to use blockchain technology to operate a new gold-trading system. The Royal Mint is working with CME Group to develop a trading platform and to put $1 billion worth of gold on a blockchain sometime next year to allow customers to own and trade fractions of gold, stored in the Royal Mint’s vaults, using a digital token called Royal Mint Gold (RMG). Each RMG holds the value of one gram of gold. The Royal Mint is accepting comments from wider market participants. Royal Mint Announcement
For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.
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