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.

U.S. Developments

Arizona Bill Seeks to Recognize Validity of Smart Contracts and Blockchain Records

A bill introduced in Arizona seeks to legally recognize smart contracts, digital signatures, and other blockchain records.  Arizona House Bill 2417 proposes to define blockchain technology as “distributed ledger technology that uses a distributed, decentralized, shared and replicated ledger, which may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless.  The data on the ledger is protected with cryptography, is immutable and auditable and provides an uncensored truth.”  The bill is sponsored by Rep. Jeff Weninger.

Virtual Currency Provisions Proposed under Vermont’s Money Transmitter Laws

Duplicate bills with bipartisan support were introduced in Vermont in both the House and Senate proposing to add a definition of “virtual currency” to the state’s money transmitter regulation, and to allow companies dealing in virtual currency to hold virtual currency reserves. Vermont already regulates digital currency activity under its money transmitter laws – if the bills pass, the inclusion of a formal definition of virtual currency will merely provide statutory clarity.

SEC Seeking Comments to Proposed Listing of Bitcoin Investment Trust on NYSE Arca

The SEC published notice on February 9, 2017 soliciting comments on a proposal to list Bitcoin Investment Trust (BIT) on NYSE Arca, pursuant to NYSE Arca Equities Rule 8.201. Grayscale Investments, LLC is the sponsor of BIT, with digital currency exchange Xapo Inc. acting as the trust’s custodian. The Bitcoin Investment Trust is a private trust which holds exclusively bitcoin.  Interested parties may submit comments online, or via email or paper mail.  Comments are due 45 days from the date of publication.

International Developments

Philippines Adopt Virtual Currency Regulations

Establishing itself as one of the first governments in Southeast Asia to formally regulate digital currency, the Bangko Sentral ng Pilipinas (BSP) issued Circular No. 944 on February 6, 2017, regulating digital currency exchanges as remittance and transfer companies. Digital currency exchanges must obtain a Certificate of Registration (COR) and comply with annual filing and reporting obligations. In its effort to prevent money laundering and terrorist financing, the regulatory framework requires digital currency companies to implement appropriate risk management and security controls, and restricts “pay-outs” greater than $10,000 to checks and direct deposit.

This is welcome news for companies looking to operate in the Philippines, which has an annual remittance market estimated at over $28 billion.

People’s Bank of China Issues Warning to Digital Currency Exchanges

Citing legal, policy and technical risks inherent in digital currency trading platforms, the Central Bank of China issued a new warning to the country’s digital currency industry that it will continue its investigation into compliance with relevant administrative and tax regulation.  Immediately following the announcement, two leading digital currency exchanges, OKCoin and Huobi, announced suspension of digital currency withdrawals and other “refinancing operations.”  Both exchanges cite availability of Renminbi cash withdrawals. It is unclear from the statements whether the exchanges will continue providing BTC/RMB exchange services – essentially providing users a method to withdraw their bitcoin holdings in Renminbi.

Reserve Bank of India Warns Consumers Against Digital Currencies

Reiterating statements made in late 2014, the Reserve Bank of India has issued a warning of the potential “financial, operational, legal, customer protection and security related risks” of digital currencies, including bitcoin.  The RBI cites a lack of oversight as inherent to this risk, stating that it does not regulate businesses engaging in digital currency activities and has not issued any licenses.

In an effort to combat counterfeiting, India abruptly withdrew the popular ₹500 and ₹1,000 banknotes from circulation during its demonetization campaign in November, 2016. Some contribute the rapid rise in bitcoin’s price at the end of 2016 as propelled by increased adoption of bitcoin as a result.

New Questions Emerge on the Legality of Virtual Currency in the United Arab Emirates

Gulf News, a leading English-language online newspaper in the United Arab Emirates, reports that, despite previous interpretations of recently enacted regulation, digital currencies are not banned from the United Arab Emirates. On January 1, 2017, the Central Bank of the UAE issued a Regulatory Framework for Stored Values and Electronic Payment Systems, prohibiting “all Virtual Currencies (and any transactions thereof).”  UAE central bank governor Mubarak Rashed Khamis Al Mansouri reportedly told Gulf News on February 1 that the Regulatory Framework does not cover the regulation of digital currencies, which is “currently under review by the Central Bank.” Although the comment by Al Mansouri is encouraging, caution is advised until a formal statement is released by the Central Bank.

For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.

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Laurie Rosini

Laurie Rosini, an attorney in the Technology Transactions & Privacy practice, focuses her practice on electronic financial services, blockchain technology and digital currencies, and privacy and data security. Laurie has experience reviewing clients’ products and services to ensure sound privacy policies, data security…

Laurie Rosini, an attorney in the Technology Transactions & Privacy practice, focuses her practice on electronic financial services, blockchain technology and digital currencies, and privacy and data security. Laurie has experience reviewing clients’ products and services to ensure sound privacy policies, data security practices and transaction processing. Laurie also counsels clients regarding the regulatory compliance issues facing electronic financial services businesses and virtual currency firms.