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

SEC Suspends Trading of Four Bitcoin Firms and Warns About ICOs
The U.S. Securities and Exchange Commission (SEC) issued a press release this week warning investors about potential ICO scams, including ‘pump-and-dump’ and market manipulation schemes. This warning follows the SEC’s recent temporary trading suspensions of four publicly-listed technology companies. In its press release, the SEC identified certain circumstances that could lead to a suspension of trading, including lack of information resulting from a company’s failure to file periodic reports; doubts about the accuracy of public information including operational and financial information in a company’s press releases or reports; and questions about trading, including trading by insiders and potential market manipulation. The four companies subject to the SEC’s recent wave of suspensions are First Bitcoin Capital Corp., CIAO Group, Strategic Global Investments, Inc. and Sunshine Capital. All four of the SEC’s trading suspensions reference questions about the accuracy of information to investors. The most recent suspension was issued to First Bitcoin Capital on August 24 and is scheduled to last until September 7. Among its reasons for the suspension, the SEC cited doubts about the accuracy of press releases to investors about plans for an initial coin offering (“ICO”). The trading suspensions issued to CIAO Group, Inc., which was in effect from August 10 through August 23, and to Strategic Global, effective August 4 through August 17, also referenced questions about the accuracy of ICO information released to investors. SEC Press Release 8.28.17; Coindesk 8.24.17

New Hampshire Law Exempting State Money Transmitters Takes Effect
On August 1, New Hampshire’s money transmitter law (House Bill 436) took effect. The new law, which was signed into law in June, exempts digital currency platforms from registering with the state as money transmitters. New Hampshire HB 436 (Regular Session 2017); Virtual Currency Report (6/16/17)


Digital Currency Updates

Increase in Consumer Complaints About Bitcoin Exchange
The U.S. Consumer Financial Protection Bureau (CFPB) has reported receiving 293+ consumer complaints against Coinbase Inc. in 2017 alone, as of August 31. This number represents a steep rise in complaints since last year, when only 6 complaints against Coinbase were made to the Bureau in all of 2016. Digital currency exchanges have experienced significant increases in trading volume this year as the value of Bitcoin and other cryptocurrencies has spiked. Only 15% of complaints have involved accusations of fraud; most complaints have reported transaction and/or service problems. Greater trading volumes have caused slower processing times, delays in delivery of funds to bank accounts, and instances when certain exchanges were down and customers could not access their digital wallets. Fortune article 8.31.17


Fintech Updates

Basel Committee Issues Fintech Recommendations
This week, a task force within the Basel Committee on Banking Supervision (BCBS) released a consultation paper addressing Fintech developments and implications for the banking industry. The paper makes 10 primary observations and recommendations for banks with respect to regulation and business practices. The recommendations include balancing the integrity of the banking system and consumer protection while fostering innovation in Fintech; maintaining strong governance structures; establishing due diligence and monitoring procedures for operations outsourced to third parties, including fintech firms; and cooperating with public authorities charged with overseeing regulation. The paper also emphasized the need for banks to have solid risk management processes and IT protocols to combat money laundering and activities linked to terrorism, in addition to breaches in cyber-security.Basel Committee Paper – August 2017; ABA Banking Journal article 8.31.17


International Developments

Israel Regulators Form Committee to Study Token Sales
On August 30, the Israeli Securities Authority (ISA) announced the formation of a task force to research and make recommendations for potential regulation of ICOs. The committee identified several issues that it will focus on, including: the overlap of token offerings and other activities subject to securities law; examine applicability and enforceability of securities law with respect to token sales; recommendations for regulation that strikes a balance between encouraging innovation and protecting investors and the public; and potential collaboration with other regulators and the blockchain industry in Israel. The committee will also conduct a survey of worldwide regulations and include a comparison of the regulatory approaches of other countries in the report, which is due by the end of the year. ISA Release; ETHNews article 8.30.17

ICOs in Canada Could Be Subject to Securities Regulation
The Canadian Securities Administration (CSA) issued a notice on August 24 in which it indicated that many initial coin offerings (ICOs) and initial token offerings (ITOs) could be subject to Canadian securities or derivatives law. The notice made recommendations for companies planning ICOs, which included creating a prospectus for the ICO and limiting the sale to accredited investors. This announcement provides clarification as to how Canadian securities law applies to token sales, but it does not establish nationally-binding law, as securities in Canada are regulated on a provincial level.Notice 8.24; Fortune 8.28.17

Chinese Regulators Discuss the Future of ICOs
Chinese regulators reportedly discussed a plan to suspend all initial coin offerings within China, at a meeting on August 18 hosted by the People’s Bank of China (PBoC). Discussions at the meeting including placing limits on the size of ICOs and imposing stricter rules for information disclosure, token supervision, and publishing risk alerts to investors. However, reports have indicated that regulators could ban ICOs outright amid concerns about market risks. Any action would derive its authority from an executive order issued in 1998 permitting the banning of illegal financial activities, including fundraising endeavors conducted without legal approval. 1998 Order Coindesk 8.29.17


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