The following summary are available in our sister blog, The Fintech Report.
Varo Bank Receives Preliminary Approval for a National Bank Charter
Blockchain Week in Review: Week of September 3-7, 2018
New Appointments to the SEC and CFTC Have Their Eyes on Virtual Currency
The U.S. Senate voted this week to confirm Dawn Stump (R) and Dan Berkovitz (D) as commissioners of the Commodity Futures Trading Commission (“CFTC”), and Elad Roisman (R) as a commissioner of the Securities and Exchange Commission (“SEC”). These appointments fill the remaining commissioner vacancies at both agencies bringing the political party balance at the SEC and CFTC to 3 to 2 in favor of Republicans.
The two recently appointed commissioners at the CFTC are generally reserved regarding their opinions on virtual currency regulation. However, Dan Berkovitz has been clear that he is familiar with and interested in the topic. Prior to joining the CFTC, Berkovitz was a partner at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, D.C., where he advised on virtual currency issues as chair of the firm’s futures and derivatives practice. In August 2017, Berkovitz co-authored an article on virtual currencies and token sales that summarized various CFTC positions. During his confirmation hearing, Berkovitz briefly mentioned virtual currency as an emerging issue facing the CFTC: “The emerging markets for cryptocurrencies are just the latest example of new market conditions that the CFTC has begun to address through its regulatory and enforcement programs. Similarly, as new information develops about existing markets, the CFTC must examine its existing regulations to determine whether they continue to serve their intended function and Congressional directives in the most efficient and effective manner.”
Elad Roisman has also made public statements regarding the regulation of virtual currency including the controversial topic of token sales. During a speech given to the Senate Committee on Banking, Housing, and Urban Affairs in July, Roisman regarded initial coin offerings and blockchain as being areas that require fairness and transparency. He also stated that the SEC should provide greater clarity regarding its positions on virtual currency to investors in the broader market. Among Roisman’s first decisions as a commissioner will be his vote regarding the upcoming VanEck Bitcoin ETF determination on September 30.
ShapeShift to Begin Collecting Customer Information for New Membership Program
On September 4, the cryptocurrency exchange, ShapeShift announced that it would gradually require customer identification information as part of several changes in the company’s business model. Historically, ShapeShift has allowed users to trade virtual currencies without collecting customer information and has generally allowed users access to its website and services anonymously. In 2015, ShapeShift discontinued services in New York following the passage of the BitLicense regulation, due in part to the customer identification obligations the regulation would impose on the company as a virtual currency business.
The new program will gradually implement membership tiers and place restrictions on trading for users who choose to divulge less of their customer information. This practice is similar to many other cryptocurrency exchanges that implement anti-money laundering and “Know Your Customer” onboarding procedures as part of their obligations as money service businesses with the United States Department of the Treasury’s Financial Crimes Enforcement Network and/or as money transmitters under relevant state financial services licensing regimes.
Please click here for the press release.
PwC Research Survey Identifies Regulatory Uncertainty and Counterparty Trust as the Primary Impediments to Blockchain Adoption
A recent survey conducted by PricewaterhouseCoopers (“PwC”) of 600 executives in 15 territories, found that 84% of respondents were actively involved with blockchain in some way, with 32% of respondents having projects in active development. PwC also identified several impediments to greater adoption and use of blockchain technology among respondents. Of those surveyed, 48% identified regulatory uncertainty as a primary concern and 45% identified lack of trust among users. Interestingly, only 29% of respondents identified the inability of blockchain technology to scale as a primary concern.
Please click here for the research survey.
Convicted Owner of BTC-e Extradited to Russia
On September 4, the Supreme Civil and Criminal Court of Greece ruled to extradite Alexander Vinnik to Russia in connection with his ownership and operation of the BTC-e cryptocurrency exchange. Vinnik was arrested by Greek authorities following his conviction by the U.S. Department of Justice in July, 2017. Vinnik was charged with fraud and money laundering involving at least $4 billion in Bitcoin during BTC-e’s operation. As the owner of BTC-e, Vinnik received the criminal proceeds from numerous high-profile hacking and ransomware scams including the proceeds from the hack of the now-defunct Mt. Gox cryptocurrency exchange and the Crypto Wall ransomware attack. French authorities have also charged Vinnik with fraud and in June received confirmation from a lower Greek court that Vinnik would be extradited to France. It is unclear why the Supreme Civil and Criminal Court chose to change Vinnik’s extradition from France to Russia. Greece plans to issue the written judgment of the case on September 14.
For more information regarding Vinnik and BTC-e please see our regulatory update here.
Australian Financial Regulator Provides New Framework for Cryptocurrency Exchanges
On September 7, the Australian Securities and Investments Commission (“ASIC”) released its corporate plan for 2018-2022. In the report ASIC detailed a new framework that included oversight of cryptocurrency exchanges and token sales. Cryptocurrency exchanges in Australia are already required to comply with new anti-money laundering and counter terrorist financing rules under AUSTRAC, the country’s financial intelligence agency. The framework emphasizes greater cross-departmental collaboration on cryptocurrency issues and will apply regulatory principles to cryptocurrency exchanges that are similar to those that apply to conventional forms of market infrastructure.
The corporate plan can be found here.
Australian Company Aims to Be First Publicly Traded Company to Launch a Cryptocurrency
On September 5, the Byte Power Group (“BPG”), a nationally listed technology company in Australia, submitted a response to the Australian Securities Exchange (“ASX”) related to an ongoing ASX investigation into BPG’s plans for a token sale. In the response, BPG provided the ASX with details regarding the use of the “BPX Token” in a loyalty program that would provide discounts to users of BPG’s cryptocurrency exchange. BPG alleges that the BPX Tokens would not constitute securities under Australia’s Corporations Act of 2001.
The complete query letter response can be found here.
The above 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.