The Latest Insights Into Innovation in Financial Services
On October 11, 2019, the leaders of the Commodity Futures Trading Commission, Financial Crimes Enforcement Network, and Securities and Exchange Commission issued a joint statement to remind businesses that engage in digital asset activities of their anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) obligations under the Bank Secrecy Act (“BSA”).
As market…
On September 18, 2019, the Securities and Exchange Commission (“SEC”) filed its first civil suit alleging violations of broker-dealer registration requirements in U.S. digital asset markets. In a case filed in the U.S. District Court for the Central District of California, the SEC alleged that Defendants ICOBox and its founder, Nikolay Evdokimov, illegally conducted an unregistered public securities offering for their 2017 initial coin offering (“ICO”), and have operated an unregistered brokerage service facilitating the launch of ICOs in digital asset securities since 2017.
Continue Reading SEC Files First Suit Against Alleged Unregistered Broker-Dealer Operating in Digital Asset Markets
On May 2, 2019, a court in the Southern District of New York (“SDNY”) held that the Office of the Comptroller of the Currency (“OCC”) lacked the statutory authority to charter nondepository special purpose national banks (the so-called “FinTech Charter”). In denying, with one exception, the OCC’s motions to dismiss claims by New York’s Department of Financial Services (“DFS”), the Court held that the OCC could not charter a nondepository “national bank” because the National Bank Act “unambiguously requires that, absent a statutory provision to the contrary, only depository institutions are eligible to receive national bank charters from the OCC.”
Continue Reading Federal District Court Rules OCC Lacks Authority to Issue FinTech Charters
On April 3, 2019, staff of the Securities and Exchange Commission released (1) a framework providing principles for analyzing whether a digital asset constitutes an investment contract, and thus a security, as defined in SEC v. W.J. Howey Co. and (2) a no-action letter permitting TurnKey Jet, Inc., without satisfying registration requirements under the Securities…
The United States offers an innovative and diverse marketplace along with a sound infrastructure for new cryptocurrency and digital asset businesses. However, the U.S. regulatory framework for digital asset businesses creates significant barriers to innovation and risks frittering away the potential benefits of the U.S. markets’ creativity. One of the chief challenges for today’s cryptocurrency businesses, especially those offering exchange, trading, or custody services, is the fragmented and inconsistent state law framework currently applied to many of those businesses.
Continue Reading The Conference of State Banking Supervisors Seeks to Improve Consistency of FinTech Regulation, but Questions Remain
On March 12, the SEC’s Division of Investment Management (“Division”) published a letter from Paul G. Cellupica, Deputy Director and Chief Counsel of the Division, to Karen Barr, President and CEO of the Investment Advisor Association, laying out a number of issues under Rule 206(4)-2 (the “Custody Rule”). The letter included a request for information on possible revisions to the Custody Rule under the Investment Advisers Act of 1940 focused on a series of open-ended questions on the intersection between digital assets and the Custody Rule.
Continue Reading SEC Seeks Comments on Key Issues Around Custody of Digital Assets
On December 21, 2018, the Securities and Exchange Commission (SEC) announced settlements with two robo-advisors, Wealthfront Advisers LLC (Wealthfront) and Hedgeable Inc. (Hedgeable), for making false statements about investment products and engaging in misleading advertising in violation of the Investment Advisors Act of 1940 (Act). These settlements mark the SEC’s first enforcement actions against robo-advisors and serve as a reminder that, although technology may change how an investment adviser operates, the SEC expects full compliance with all requirements of the Act.
Continue Reading The SEC Announces First Enforcement Actions Against Robo-Advisors
On November 16, 2018, the U.S. Securities and Exchange Commission (“SEC”) Division of Corporation Finance (“Corp. Fin.”), Division of Investment Management, and Division of Trading and Markets issued a joint public statement on “Digital Asset Securities Issuance and Trading.” The public statement is the latest in the Divisions’—and the Commission’s—steady efforts to publicly outline and develop its analysis on the application of the federal securities laws to initial coin offerings (“ICOs”) and certain digital tokens. These efforts have combined a series of enforcement proceedings with public statements by Chairman Jay Clayton and staff, including a more detailed statement of the SEC’s analytical approach in Corp. Fin. Director William Hinman’s speech on digital assets in June 2018.
Continue Reading SEC Divisions Issue Public Statement on Digital Assets and ICOs, Echoing Recent Enforcement Actions
Over the past year, the U.S Securities and Exchange Commission (“SEC”) has increasingly scrutinized initial coin offerings (“ICO”) and certain digital assets. On September 20, 2018, the SEC’s Enforcement Division co-Director, Stephanie Avakian, gave a speech in which she addressed the Division’s approach to dealing with these new forms of tradeable assets. This speech came only days after the SEC settled its first case charging an unregistered broker-dealer for facilitating the sale of digital tokens from several ICOs since the 2017 DAO Report. In her speech, Avakian provided three key insights into the Division’s enforcement strategy.
Continue Reading SEC Enforcement Division Co-Director Provides Insight Into Commission’s Approach to ICOs and Cryptocurrencies
This week, the New York Department of Financial Services (“NYDFS”) announced approval for its two licensed FinTech-oriented state trust companies, Gemini Trust Company LLC and Paxos Trust Company LLC (formerly known as itBit Trust Company), to offer a new type of cryptocurrency referred to as a Stablecoin. The Gemini Dollar (“GUSD”) and Paxos Standard Token (“PAX”) are designed to be collateralized one-for-one by the U.S. dollar, and will permit payment for other assets traded on blockchains with instant settlement and minimal transaction costs. As described, GUSD and PAX are issued only when a customer of Gemini or Paxos deposits a corresponding amount of U.S. dollars, which are always held in a reserve account by the issuer on behalf of GUSD and PAX holders. At all times under this framework, Gemini or Paxos are required to hold, in a fiduciary capacity, at least as much fiat currency as GUSD and PAX in circulation.
Continue Reading New York Department of Financial Services Approves Gemini and Paxos Virtual Currency “Stablecoins”
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