In May 2019, the UK Jurisdiction Taskforce (the “UKJT”) of the LawTech Delivery Panel published its public consultation paper on the status of cryptoassets and distributed ledger technology, as well as the enforceability of smart contracts, under English private law. While much of the literature around cryptoassets in the legal context has been centred on their regulation, the UKJT’s consultation paper focuses on the legal characterization of these instruments themselves. In this article, we consider how cryptoassets can be defined using the existing vocabulary of English private law and the implications of this characterization. Continue Reading Are Cryptoassets Property Under English Law?
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 11, 2019, the French parliament adopted a law (the “Loi Pacte”or “Law”) that establishes a new regulatory framework for initial coin offerings (“ICOs”) of blockchain based tokens by entities established or registered in France. At the heart of the Law’s ICO provisions is an innovative framework that will allow issuers to request an optional visa from the French Financial Markets Authority (the “AMF”) prior to undertaking an ICO. ICOs of tokens that are not financial instruments will still be permitted without a visa, but the expectation is that issuers obtaining the visa for an offering of such tokens will have a distinct advantage relative to offers that lack such approval. ICO issuers that do not obtain a visa also will be subject to restrictions on certain kinds of advertising and sales methods. By “white-listing” issuers serious enough to seek and obtain an AMF visa, France hopes to give investors a new tool for screening out potentially fraudulent offers and help ICO issuers establish the investor confidence necessary to secure funding. Many of the details of the new framework will be specified in implementing regulations to be adopted by the AMF, which are expected to be issued shortly after the Law is officially promulgated. The AMF published an overview of its planned regulations on April 15, 2019, providing further clarity on how the regime will work in practice. Continue Reading France’s Parliament Adopts an Innovative New Framework for Approving Initial Coin Offerings
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 Act of 1933 and the Securities Exchange Act of 1934, to offer and sell “tokenized” cards that are recorded on a permissioned blockchain and can be used for the limited purpose of purchasing air charter services.
The framework and no-action letter are a logical expansion of prior SEC statements and actions applying Howey to digital assets, but raises important interpretative issues for newly issued digital assets.
Please click here to read the full alert memorandum.
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 February 26, 2019, Steven Maijoor, the Chair of the European Securities and Markets Authority (ESMA), delivered a keynote speech to the 3rd Annual FinTech and Regulation conference in Brussels. In his speech, he highlighted ESMA’s recent initiatives in the crypto-asset and distributed ledger technology (DLT) space and noted ongoing areas of focus. Continue Reading ESMA Chair Delivers Keynote Speech on Crypto Assets and Distributed Ledger Technology
On February 20, the Securities and Exchange Commission (the “SEC” or “Commission”) issued a cease-and-desist order against Gladius Network LLC (“Gladius”) concerning its 2017 initial coin offering (“ICO”). The SEC found that the Gladius ICO violated the Securities Act of 1933’s (“Securities Act”) prohibition against the public offer or sale of any securities not made pursuant to either an effective registration statement on file with the SEC or under an exemption from registration. While this is far from the first time that the SEC has found that a particular ICO token meets the definition of a “security” under the Securities Act, this is notably the first action involving an ICO token issuer that self-reported its potential violation. Due to this, and Gladius’s cooperation throughout the investigation, the SEC stopped short of imposing any civil monetary penalties among its ordered remedial measures. Continue Reading SEC Issues First ICO Enforcement Action Against a Self-Reporting Token Issuer
On January 22, the Financial Industry Regulatory Authority (“FINRA”) released its 2019 Risk Monitoring and Examination Priorities Letter (the “Letter”). The Letter highlights material new priorities for FINRA examinations in the coming year, as well as priorities in areas of ongoing concern. The topics highlighted in this year’s Letter reflect FINRA’s increasing focus on its members’ interaction with, and adoption of, innovative financial technologies, as well as its implicit acknowledgement of the ability for such innovations to assist in regulatory compliance. The new priorities highlighted in the Letter include several related to FinTech, including online distribution platforms, use of regulatory technology (or “RegTech”), and supervision of digital asset businesses. In priority areas of ongoing concern, the Letter confirmed that FINRA will continue to focus on reviewing the adequacy of firms’ cybersecurity programs. Below we detail FINRA’s discussion of these priorities and analyze them in the context of other recent guidance and enforcement actions. Continue Reading FINRA 2019 Examination Priorities Letter Includes Focus on FinTech and Cybersecurity
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