On March 13, 2019, the American Bar Association’s Derivatives and Futures Law Committee published a white paper called Digital and Digitized Assets: Federal and State Jurisdictional Issues. As stated in its preface, this White Paper was prepared by members of the Jurisdiction Working Group of the Innovative Digitized Products and Processes Subcommittee (“IDPPS”) and their colleagues, who generously contributed substantial time and effort to this ambitious undertaking. The authors have sought to provide a comprehensive explanation of federal and state laws that may apply to the creation, offer, use and trading of digital assets in the United States, along with summaries of key initiatives outside the United States. The White Paper also recommends an analytic framework for considering potential issues of jurisdictional overlap between the Commodity Futures Trading Commission and the Securities and Exchange Commission under the separate federal statutes they each are responsible for administering.Read More
Cryptocurrency exchanges have always been a prime target for hacking activity due to the vast amounts of cryptocurrency and money held within each exchange. Finding and exploiting weaknesses in exchanges can be very profitable for hackers, and such hacking activity has grown exponentially year on year.
In late December 2018, Coindesk published an article revealing that the amount of cryptocurrency stolen from exchanges increased 13 times in 2018 compared to 2017. Analytics firm Chainalysis reported that approximately $1 billion worth of cryptocurrency was stolen from digital currency exchanges in 2018.Read More
By Cameron Abbott and Ella Richards
In an age where cyber security breaches are a near daily occurrence, and where we’re frequently reminded to keep our passwords secret and safe, the story that’s emerged regarding the fate of over AU$190 million of crypto-currency following the death of Gerald Cotten, the founder of Quadriga CX, is a little ironic to say the least.
The untimely death of the 30-year-old in December brought with it an unexpected sober reality – Mr Cotten was the only person with access to Quadriga’s coin reserve. No really … the ONLY person… you can see where this is going can’t you?Read More
The UK Financial Conduct Authority (FCA) has issued its consultation paper, Guidance on Cryptoassets. It focuses on where cryptoassets interact with the FCA’s regulatory “perimeter” (the perimeter). The guidance looks at where cryptoassets would be considered ‘Specified Investments’ under the Regulated Activities Order (RAO), ‘Financial Instruments’ such as ‘Transferable Securities’ under the Markets in Financial Instruments Directive II (MiFID II), or captured under the Payment Services Regulations (PSRs), or the E-Money Regulations (EMRs). It also covers where cryptoassets would not be considered ‘Specified Investments’ under the RAO. Comments on the consultation paper are requested by 5 April 2019.Read More
Rain, a cryptocurrency exchange in Bahrain has received a Shari’a compliance certification from Shariyah Review Bureau (SRB). SRB is licensed by the Central Bank of Bahrain as a Shari’a advisory firm authorised to issue Shari’a compliance certifications. SRB reviewed Rain’s brokerage service and determined that the sale, purchase and custodian activities of Rain are in compliance with Shari’a principles. The Shari’a certification covers three cryptocurrencies (bitcoin, ethereum, and litecoin). Rain aims to enable family offices, investors and Islamic institutional investors to buy, sell and store cryptocurrency in an Islamic-compliant way.
Rain was co-founded in 2017 by blockchain professionals from Saudi Arabia, Egypt and Silicon Valley. In September of that year, Rain was invited to join the Central Bank of Bahrain’s regulatory sandbox. It was the first digital currency exchange to be admitted to the sandbox – but since then four more have joined including UAE’s BitOasis. However, many governments in the Middle East (including those of Saudi, Egypt and Morocco) have officially banned cryptocurrencies, urging residents not to invest in them.
The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published two complementary assessments of the regulatory coverage of crypto-assets under existing EU legislation and also set out their advice to the European Commission on potential policy initiatives in the future.Read More
Authors: Cameron Abbott and Sara Zokaei Fard
The New York City Economic Development Corporation (NYCEDC) is looking at 2019 with fresh eyes. Although digital coin prices plummeted in 2018, some by as much as 90%, NYCEDC has announced that it will open a blockchain centre in Manhattan. The blockchain centre is being developed by NYCEDC in partnership with blockchain industry leaders Future\Perfect Ventures and the Global Blockchain Business Council.
It is reported that the blockchain centre will be a resource for industry professionals as well as those interested in learning about the technology. It will create a peer community that will provide business support, mentorship as well as public education to assist people to understand how blockchain can impact daily life. The block chain centre will also be utilised to convene bodies including from industry and government to further dialogue on a regulatory environment that supports both consumers and innovation.
Industry leaders have described it as “a nascent technology” and a “burgeoning innovation sector”. The question now becomes, should we invest in bitcoin, or the blockchain centre itself as Microsoft and IBM have done!
On 19 December 2018, the UK tax authority, HM Revenue and Customs (“HMRC”), published a policy paper on the taxation of cryptoassets. The guidance is limited to HMRC’s view in relation to individuals holding cryptoassets and does not extend to tokens or assets held by businesses. The guidance confirms that HMRC does not consider cryptoassets to be currency or money for tax purposes and separates crypto assets into three categories of “tokens”: exchange tokens, utility tokens and security tokens. The guidance focuses on the taxation of “exchange tokens,” a term encompassing assets such as Bitcoin.Read More
On January 2, the Texas Department of Banking (“DoB”) updated Supervisory Memorandum – 1037 (“Guidance”) which provides guidance regarding the application of the Texas Money Services Act (the “Act”) to virtual currencies. First issued on April 3, 2014, the Guidance divides virtual currency into two categories: centralized and decentralized.
Centralized virtual currencies are virtual currencies “created and issued by a specified source” that “rely on an entity with some form of authority or control over the currency”. Decentralized virtual currencies, on the other hand, are virtual currencies that do not have an administrator or a central repository.
Stablecoins are considered decentralized virtual currencies, provided they do not have an administrator or central repository. According to the Guidance, whether the Act applies to centralized virtual currencies requires a case-by-case determination. As for decentralized virtual currencies, the Guidance states that the Act only applies when sovereign currency is involved, and only in certain cases, because decentralized virtual currencies do not constitute money or monetary value.Read more
The Financial Conduct Authority (FCA), the UK financial regulator, confirmed to the Financial Times on 30 December 2018 that it was investigating 18 businesses involved in the sale of cryptocurrencies. The regulator has also issued alerts and warnings about dozens of companies suspected of cryptocurrency investment fraud. Currently, the transfer, purchase and sale of cryptocurrencies are not regulated in the UK. However, companies that sell regulated investments with an underlying cryptocurrency element may need FCA authorisation to do so depending on their activities.Read More