U.S. Developments

The Federal Reserve Maintains Skepticism of Cryptocurrency Bitcoin

On the eve of the 10-year anniversary of Bitcoin’s Whitepaper, Chairman of the Federal Reserve Janet Yellen stated that she does not recognize cryptocurrencies as legitimate currencies to be used anywhere in the global economy. The Chairman used bitcoin as an example and said that the cryptocurrency does not represent a stable source of value or an efficient means of processing payments. She added that cryptocurrencies lack the requisite characteristics of fiat currency, like intrinsic value. Investing.com 11.1.18

New York DFS Approves Bitlicense for Bitcoin ATM Operator

On November 1, the New York Department of Financial Services (DFS) said it has approved Coinsource Inc. for a virtual currency license to operate 40 Bitcoin kiosks in New York City and neighboring counties. The Bitcoin kiosks are similar to ATMs in that users can insert cash to buy Bitcoin with their phones. Customers can also sell bitcoin for cash by scanning their mobile wallet at the station. To date, DFS has granted 12 Bitlicenses to virtual currency companies but Coinsource offers the first licensed cryptocurrency ATM. Reuters 11.1.18

International Developments 

Hong Kong Announces Plan to Regulate Virtual Assets and Sandbox for Trading Platforms

The Securities and Futures Commission (SFC) of Hong Kong released a statement on November 1 announcing its plan to regulate virtual asset portfolio managers, virtual asset fund distributors, and a plan for a regulatory “sandbox” to allow the SFC to study platforms trading in virtual assets. The SFC noted that it does not perceive virtual assets as a risk to financial stability but that investing in virtual assets poses significant investor protection risks that the Commission seeks to address. Under the existing regulatory framework, the SFC only has jurisdiction to regulate virtual assets where they fall under the definition of a “security” or “futures contract.” Consequently, certain firms (i.e. virtual asset portfolio managers and virtual asset fund distributors) investing in virtual assets do not fall under the purview of SFC regulation. Going forward, the SFC intends for these firms to be licensed or registered with the SFC, regardless of whether the virtual assets are considered to be securities or futures contracts.

For virtual asset trading platforms, the SFC said that it will establish a regulatory “sandbox” in which platforms will not require licensure to operate. The SFC’s purpose for this framework is purely observational, to determine whether virtual asset trading platforms are appropriate for SFC regulation, based on whether the SFC believes it can effectively provide protection against risks to investors. After the exploratory phase, if the SFC determines that regulation is suitable, it would likely propose a licensing scheme with standards of conduct comparable to the standards for existing providers of automated trading services.

A majority of the updates fall under the category of “Fintech” this week and will be posted on our sister site “The Fintech Report.” The following topics can be viewed here.

U.S. Developments 

Regulatory Updates  

FinCEN Issues Advisory on FATF’s Updated Recommendations

FDIC to Establish Office of Innovation to Address FinTech

Litigation Updates 

CSBS Re-Files Its Lawsuit Challenging the OCC’s Special Charter to FinTech Firms

The above is a summary of one 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.