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

CFTC Committees to Meet This Month to Discuss Virtual Currency Futures Markets

U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo announced that two committees within the CFTC would meet in January 2018 to discuss digital currency matters. Chairman Giancarlo noted that the CFTC is concerned about the risks associated with virtual currencies for investors, specifically bitcoin, but he did not reveal any expectations or plans to introduce new regulation following the meetings.  The CFTC Technology Advisory Committee (TAC) is scheduled to meet on January 23 to address the challenges, opportunities and market developments of virtual currencies.  The second meeting is scheduled on January 31, when the CFTC’s Market Risk Advisory Committee (MRAC) will convene to consider the self-certification process for new financial products and operational rules by Designated Contract Markets (DCMs) under the Commodity Exchange Act (CEA) and current CFTC regulations.

The same day, the CFTC issued a four-page “Backgrounder” on virtual currency futures markets.  The purpose of the memo is to clarify several regulatory issues with respect to virtual currencies and virtual currency futures trading, including: state and federal oversight of, and jurisdiction over, virtual currencies; the CFTC’s approach to regulating virtual currencies; the self-certification process that DCMs follow for new products and how recent contracts for bitcoin futures fit into existing procedures; and the CFTC’s “heightened review” for virtual currency self-certifications. The memo specifically addresses the self-certification of new contracts for bitcoin futures products in December 2017 by the Chicago Mercantile Exchange Inc. (CME) and the Chicago Board Options Exchange Futures Exchange (CFE), and the Cantor Exchange’s (CX) self-certification of a new contract for bitcoin binary options. For an in-depth look at the CME, CFE and CX’s self-certified futures products, refer to our blog post

LabCFTC to Hold Meetings with FinTech Innovators

LabCFTC has scheduled meetings with FinTech innovators on January 9 and 10 in Palo Alto and San Francisco, respectively. A fintech initiative launched by the U.S. Commodity Futures Trading Commission (CFTC) in 2017, LabCFTC is tasked with promoting responsible FinTech innovation and provide a forum for FinTech firms to discuss innovations and developments in the context of regulation with CFTC specialists.  LabCFTC also serves as an outlet for the CFTC to educate market participants about FinTech developments.

SEC Commends NASAA Statement to ICO/Cryptocurrency Investors

The U.S. Securities and Exchange Commission (SEC) commended the North American Securities Administrators Association (NASAA) for its statement warning investors to be cautious when approaching initial coin/token offerings (ICO/ITOs), cryptocurrency-related investment products, and cryptocurrencies generally. In a video accompanying the statement, NASAA warned that ICO/ITOs are not suitable for all investors, highlighting some of the risks associated with token sales, and common potential red flags of fraud. In the same statement, the SEC warned investors that while it pursues sellers and other market participants violating federal securities law, its efforts may not result in the recovery of lost investments. SEC Statement 1.4.18                  NASAA Statement 1.4.18

International Developments

South Korea to Introduce New Cryptocurrency Exchange Regulation

On December 28, South Korea’s government announced tougher regulation for cryptocurrency trading, which will take effect on January 20. The new regulations will ban anonymous cryptocurrency exchange accounts and may restrict the way digital currencies can be advertised.  Investors with accounts on cryptocurrency exchanges will need to link a verified bank account to their trading account and will be required to provide identification in order to deposit or withdraw funds.  The announcement of the new regulations follow the country’s ban of ICOs in September 2017.  The goal of the new regulation to be introduced this month is to curb speculative investing in digital currency and strengthen existing know-your-customer (KYC) rules.  The Financial Intelligence Unit and Financial Supervisory Service will be responsible for enforcing the new regulations. The South Korean Justice of Ministry considered a blanket shut down of cryptocurrency exchanges in an effort to temper runaway trading in cryptocurrency, which the Ministry says remains a possibility.  In response to the new regulations, a South Korean law firm filed a constitutional challenge, arguing that the new rules infringe on property rights.

WSJ 12.28.17 Korea Times article 1.4.18

China May Limit Power Supply for Bitcoin Miners

In a private meeting held this week, the People’s Bank of China (PBoC) drafted a plan that would empower Chinese authorities to curb the power supply to some of the country’s Bitcoin miners, citing concerns that miners of cryptocurrency have taken advantage of the low cost of electricity in certain areas. Some of the world’s largest miners operate in China, including some who have established large-scale hydroelectric facilities in the Sichuan and Yunnan provinces.  The country’s National Development and Reform Commission is the entity that oversees power consumption in China and will be involved in any new measures to limit the power supply.  Local officials have also been tasked with investigating high levels of power usage related to the cryptocurrency mining industry. Bloomberg 1.3.18