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

Regulatory Updates

Illinois Regulators Determine that Digital Currencies Are Not Considered Money
In new guidance provided and finalized by the Illinois Department of Financial and Professional Regulation (“IDFPR”), the agency has taken the stance that decentralized digital currencies are not money because they are not “authorized or adopted by a domestic or foreign government as a part of its currency” and as such, businesses involving decentralized digital currencies generally do not need to obtain a license under the Illinois Transmitters of Money Act (“TOMA”).  The guidance goes on to advise that any “person or entity engaging in a transaction involving both decentralized digital currencies and ‘money’ should request a determination from the Department on whether or not such activity will require a TOMA license.”  IDFPR Digital Currency Guidance

Delaware Legislature Considers “Distributed Ledger Shares” Bill
The Delaware Senate passed SB 69 last week, a bill designed to enable corporations to use distributed ledgers for the creation and maintenance of corporate records, including the corporation’s stock ledger.  If passed, the bill would amend Title 8 of the Delaware Code Relating to the General Corporation Law.  It is also expected that, if passed, SB 69 will reduce the time and cost companies spend on internal record keeping due in part to the potential for instantaneous transfer of share ownership in the blockchain.  The bill has passed the House Judiciary committee.  The bill still needs approval from the Delaware House of Representatives and to be signed by Governor Carney before it will become a law.  SB 69 Text

Connecticut Senate Passes Bill Concerning Money Transmitters Dealing in Virtual Currency
Last Week, the Connecticut Senate passed House Bill (HB) 07141 (earlier passed in the House), which would repeal and replace the existing statute concerning permissible investments for money transmitters.  The bill requires each “licensee that engages in the business of money transmission in this state by receiving, transmitting, storing or maintaining custody or control of virtual currency on behalf of another person shall at all times hold virtual currency of the same type and amount owed or obligated to such other person.” The bill will now go to Governor Malloy for his approval before the bill will be adopted.  CT HB 07141;  CT HB07141 Summary

New Hampshire Governor Signs State Money Transmitter Exemption into Law
Earlier this month, New Hampshire Governor Sununu signed  HB 436 into law, which adopts a definition of “virtual currency” and exempts companies that deal solely in convertible virtual currency from registering as money transmitters in the state.  HB 436 Summary;  Virtual Currency Report (4/28/2017)

Upcoming Meeting of the Drafting Committee on Uniform Regulation of Virtual Currency Businesses Act
The Drafting Committee on Uniform Regulation of Virtual Currency Businesses Act will meet on Friday, July 14, 2017 at 12:00 pm in Grant B on the lower level of the U.S. Grant, in preparation for the afternoon reading of the most recent draft.  The committee also met June 9, 2017 to discuss and resolve particular issues in the draft.  2017 Annual Meeting Issues Memo

The U.S. House of Representative Subcommittee Holds Hearing Addressing Virtual Currency
Last week, Congressman Steve Pearce (R-NM) lead a House Financial Services Subcommittee hearing on Terrorism and Illicit Finance.  The hearing was entitled: “Virtual Currency: Financial Innovation and National Security Implications.”  Hearing participants recognized that the benefits of virtual currency are clear—“families in underserved areas are finding more choice and options than ever before.  People can pay for their goods in-store without the need for cards or cash.”  Nevertheless, the committee expressed concern for government and regulatory bodies to keep up with advancements in financial services and made plans on “measures we can take to keep our nation safe.”  Subcommittee Hearing on Virtual Currency (06/08/2017); Committee Memo

The U.S. Senate Considers Bill Requiring Digital Currency Holdings to be Declared at US Borders and Customs
A new bill, S.1241, proposes adding the terms “digital currency” and “prepaid access devices” to the existing list of financial items subject to AML procedures.  The law, designed to prevent trafficking funds over $10,000 in value, gives broad powers to border authorities.  If passed, the bill would require the Secretary of the Homeland Security, in consultation with the Commissioner of the U.S.  Customs and Border Protection, to submit a report (1) detailing a strategy to detect prepaid access devices, digital currencies, or other instruments at border crossings and other ports of entry and (2) assessing the infrastructure needed to carry out the strategy. S.1241

Fintech Updates

FINRA Announces Its Innovation Outreach Initiative
The Financial Industry Regulatory Authority (“FINRA”) announced its plans this week to establish the Innovation Outreach Initiative to properly assess the Fintech Industry’s impact and to embrace a collaborative effort to track Fintech developments.  The announcement comes on the heels of FINRA launching its Fintech Webpage, which is dedicated to emerging topics in the Fintech field.  FINRA will host the 2017 Blockchain Symposium in New York next month to kick of this new initiative, where they plan to discuss blockchain use cases with regulators and other heads of the industry.  June 13, 2017 FINRA Press Release Re: Innovation Outreach Initiative

OCC Supplements Guidance Related to Third-Party Relationships between Banks and Fintech Companies
The Office of the Comptroller of the Currency (“OCC”) issued guidance to supplement its 2013 Bulletin, “Third-Party Relationships: Risk Management Guidance.”  In this supplement, the OCC notes that if a “fintech company performs services or delivers products on behalf of a bank or banks, the relationship meets the definition of a third-party relationship and the OCC would expect bank management to include the fintech company in the bank’s third-party risk management process.”  The guidance also provides that a bank’s relationship with a fintech company may or may not involve critical bank activities (which require a bank to have more comprehensive and rigorous management of the third-party relationship), depending on a number of factors, such as whether the activities: (1) could cause the bank significant risk if the third party fails to meet expectations, (2) could have significant bank customer impact, (3) could have major impact on bank operations, and more.  Finally, the guidance explains that banks can engage with a start-up Fintech company with limited financial information as long as the bank assess the company’s access to funds, its funding sources, earnings, net cash flow, expected growth, and other such factors.  The FAQ also addresses whether a bank can offer products or services to underserved populations through Fintechs and what a bank should consider when entering marketplace lending with nonbank entities.  The entire FAQ provided by the OCC is available at: OCC Bulletin 2013-29 (06/09/2017).

International Developments

Court Rules: Israeli Banks May Deny Services to Bitcoin Firms
A district court in Tel Aviv ruled last week that Israeli banks can deny services to bitcoin firms.  The bitcoin exchange, Bits of Gold, filed suit against its bank, Bank Leumi after the bank stopped servicing Bits of Gold. Bank Leumi claimed that Bits of Gold could not follow the bank’s AML regulations and was responsible for hackers infiltrating the bank’s accounts to send funds from the bank to purchase bitcoin.  The bitcoin exchange filed the action to force the bank to resume their services, but the court found in favor of Bank Leumi stating that the bank can deny its services.

Hong Kong and Australia Sign Fintech Cooperation Agreement
This week, the Hong Kong Securities and Futures Commission (“SFC”) and Australian Securities and Investments Commission (“ASIC”) agreed to share information about Fintech developments and to assist Fintech firms to operate in the others’ jurisdictions.


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