This past week, we received further evidence that U.S. federal regulators will continue to scrutinize potential compliance issues in virtual currency trading and initial coin offerings (“ICOs”) under existing law. However, the key takeaway is that the U.S. regulators, so far, are doing so under established interpretations of their existing authority. In our view, none of these events should be construed either as establishing a new regulatory framework or as a significant expansion of prior regulatory authority.

Please click here to read the full alert memorandum.

On March 6, 2018, the World Economic Forum (WEF) published a white paper report analyzing challenges that financial services and fintech firms face in protecting customer information against the increasing risk of cyber-attacks and setting out proposals to better manage this cyber-risk.[1] As described below, the report recommends industry-wide efforts to adopt standardized cyber-risk metrics and to develop mechanisms for assessing cybersecurity. In conjunction with the publication of these recommendations, Citigroup Inc., Kabbage, Inc., Zurich Insurance Group AG and the Depository Trust & Clearing Corporation have formed a consortium to address cybersecurity risks in the fintech industry.[2] Continue Reading World Economic Forum Publishes Recommendations for Managing Cyber-Risk

Further to its consultation on potential legal framework of Initial Coin Offerings (“ICOs”) (the “Consultation”), the French Autorité des Marchés Financiers (“AMF”) published on February 22, 2018 a summary of the responses received.[1]

The majority of respondents favor an optional authorization regime for ICOs, which is seen as a balanced and pragmatic approach.

  • Initiators of ICOs targeting French investors would obtain a visa from the AMF subject to satisfying certain conditions and providing guarantees to investors.
  • An offer launched without visa would not be illegal but would contain a warning informing potential investors that they have not received an authorization and that is a risky transaction. Failing such warning, tokens offers would give rise to sanctions.

Continue Reading AMF Consultation on ICOs – Initial Feedback

On October 26, 2017, the French Autorité des Marchés Financiers (“AMF”) launched a consultation on Initial Coin Offerings (“ICOs”) and the potential regulation of such offerings (the “Consultation”). The Consultation was opened as of October 26, 2017 until December 22, 2017. It is expected that responses to the Consultation will be published during the first quarter of 2018 and a final position will be issued thereafter.  In addition, the AMF advises all market participants contemplating an ICO offering to inform and liaise with the AMF with respect to the ICO project and white paper in advance of the launch.

In parallel with the launch of the ICO consultation, the AMF announced the launch of a new sandbox called UNICORN (for “Universal Node to ICO’s Research & Network”), which is a support and research program focusing on digital asset fundraising and, specifically, financing based on blockchain technology. The program aims to provide a framework allowing initiators to develop transactions while ensuring the protection of buyers and other market participants.  The AMF will meet with initiators (French or foreign entrepreneurs and their advisors) as well as academics and intends to publish an initial impact analysis of these new forms of financing by the end of 2018. Continue Reading The AMF Consults on Potential Legal Framework for ICOs and Launches Digital Asset Fundraising Sandbox

On February 6, 2018,  Chairman Clayton of the Securities and Exchange Commission (SEC) and Chairman Giancarlo of the Commodity Futures Trading Commission (CFTC) testified before the Senate Banking Committee (the Committee) on their agencies’ oversight role for virtual currencies.  Consistent with his prior statements, Clayton took a strong stance on SEC regulation of Initial Coin Offerings (ICOs).  But, when it came to cryptocurrencies themselves, he and Giancarlo struck a somewhat more circumspect tone.  In particular, despite acknowledging that their existing jurisdiction does not extend to spot transactions in cryptocurrencies, the Chairmen did not yet seek additional regulatory authority.

However, Chairman Clayton particularly expressed concerns about whether virtual currency exchanges provided adequate protections for investors and whether state regulation as payment services was sufficient.  While the Chairmen did not request new authority, it is clear that there would be support within the Committee for legislation in this area, and Clayton and Giancarlo committed to work with each other and other authorities (including bank regulators and law enforcement authorities) to develop an appropriate approach.  When the Chairmen of the SEC and CFTC express that they are “open” to exploring whether increased federal regulation is needed, there is a clear message. Continue Reading SEC and CFTC Testimony on Virtual Currencies: Is More Regulation on the Horizon?

Recent media reports, including in State-connected media, suggest that China is about to block access to all cryptocurrency trading platforms, including those operating overseas.  In September 2017, the People’s Bank of China (“PBOC”) and six other government agencies jointly issued guidance  immediately banning fundraising through offerings of tokens, such as initial coin offerings (“ICOs”), and requiring the closure of cryptocurrency exchanges in China by the end of September 2017.  Continue Reading Chinese Government Moves To Effectively Ban Cryptocurrency Trading

On Friday, January 12th, during an appearance at The Economic Club in Washington, D.C.  United States Treasury Secretary Steven Mnuchin announced that the Financial Stability Oversight Council (FSOC) was forming a virtual currency working group.  The announcement follows FSOC’s discussion of virtual currency issues, including “price volatility, investor protection and the potential for illicit use”, and commitment to continue reviewing these risks at its meeting in December.[1]

In his remarks to The Economic Club, Secretary Mnuchin emphasized that Treasury was concerned about the potential for money laundering and the risk to consumers investing in virtual currencies.  Continue Reading Secretary Mnuchin Announces FSOC Working Group to Combat Money Laundering and Speculative Risks in Virtual Currencies

Following the December 2017 listing of futures contracts based on Bitcoin by two exchanges regulated by the Commodity Futures Trading Commission (CFTC), several fund sponsors and securities exchanges applied to the Securities and Exchange Commission (SEC) to list exchange-traded funds (ETFs) that would invest in those futures contracts.[1]  By investing in futures contracts regulated by the CFTC, instead of Bitcoin itself, these ETFs seemed designed to address concerns that had previously led the SEC to deny applications to list ETFs linked to Bitcoin.  This change was not sufficient, however, as the SEC raised new concerns in early January that led to the withdrawal of these new applications.[2]   Exchanges, ETF sponsors and investors are now left wondering:  what will it take for an ETF linked to Bitcoin to pass muster with the SEC? Continue Reading SEC Requests Withdrawal of Bitcoin Futures ETFs

On January 4, 2018, the North American Securities Administrators Association (NASAA) released an investor reminder regarding the risks associated with cryptocurrencies, initial coin offerings (ICOs), and cryptocurrency-related investment products.  In the warning, the NASAA described factors that investors should consider before making investments in cryptocurrencies and cryptocurrency-related investment products, as well as common red flags of investment fraud. Continue Reading Regulators Remain Focused on Risks Associated with Cryptocurrencies, ICOs, and Cryptocurrency-Related Investment Products

On Friday, December 15, 2017, the Commodity Futures Trading Commission (CFTC) issued a proposed interpretation of the term “actual delivery” for purposes of determining whether certain virtual currency transaction could be deemed “retail commodity transactions” subject to the CFTC’s jurisdiction under the Commodity Exchange Act (CEA).[1] Continue Reading The CFTC Issues a Proposed Interpretation Regarding Retail Commodity Transactions Involving Virtual Currency