Category: Cryptocurrencies & ICOs

1
Banks Invest in Developing a Digital Blockchain Settlement System
2
ASIC Updates Guidance on Initial Coin Offerings and Crypto-Assets
3
ECB Task Force recommends regulation of crypto-asset gatekeepers
4
Make cryptocurrency by driving a Jag?! Sign us up
5
International Cryptocurrency Regulation Top of the Agenda for the Japan G20 Summit
6
Cryptocurrency firms struggle to engage auditors
7
A Positive Step Forward or Much Ado About Nothing Yet Again? SEC FinHub Releases a “Framework for ‘Investment Contract’ Analysis of Digital Assets” and Historic No-Action Letter on Digital Assets for TurnKey Jet
8
American Bar Association Publishes White Paper on Digital and Digitized Assets
9
Surge In Cryptocurrency Exchange Hacking Activity
10
Crypto founder’s death elevates taking a secret to the grave to the next level

Banks Invest in Developing a Digital Blockchain Settlement System

By Jim Bulling, Felix Charlesworth and Andrew Fay

Late last month, several of the world’s largest banks invested $50 million in a digital cash settlement project with the aim of developing a more efficient clearing and settlement system. The new technology, referred to as the ‘utility settlement coin’ (USC), has been a work in progress since 2015, after Swiss bank UBS Group and London-based technology startup Clearmatics announced to the market that they had commenced working on the project.

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ASIC Updates Guidance on Initial Coin Offerings and Crypto-Assets

By Jim Bulling and Edwin Tan

On 30 May 2019, the Australian Securities and Investments Commission (ASIC) updated its Information Sheet 225 which sets out guidance for entities that are looking to raise funds through initial coin offerings (ICOs) or are otherwise involved with crypto-assets. Interestingly, ASIC has grouped crypto-asset participants into several distinct categories and has broadly set out the obligations that may apply to participants in each category.

Particular aspects of the information sheet that may be of interest to crypto-asset participants include:

  • ASIC has stated that entities should be prepared to justify a conclusion that their ICO does not involve a regulated financial product;
  • platform operators that allow crypto-assets that are financial products to be traded on the platform must hold an Australian market licence or be otherwise exempt. As at the time of release, there are no platform operators that have been appropriately licensed or exempt;
  • assessments of Australian Financial Services (AFS) licence applications for the purposes of crypto-asset-related financial products may take more time; and
  • clearing and settlement obligations may apply to “miners” that are part of the clearing and settlement processes for tokens that are financial products.

In summary, while ASIC’s updated Information Sheet does not break any new ground in relation to the regulation of crypto-assets in Australia, it serves as a useful resource for any entity that is looking to be involved as a crypto-asset participant. We remind our readers there are many avenues to market for token issuers, even where their tokens constitute financial products, and it may be useful to seek legal advice in this regard. For example, tokens that only constitute securities can be offered to sophisticated investors without attracting significant disclosure obligations including the provision of a prospectus.

ECB Task Force recommends regulation of crypto-asset gatekeepers

By Giovanni Campi

The European Central Bank’s Internal Crypto-Assets Task Force (“ICA-TF”) issued a report analysing the implications of crypto-assets for financial stability, monetary policy, payments and financial markets infrastructures (“FMIs”).

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Make cryptocurrency by driving a Jag?! Sign us up

By Cameron Abbott and Allison Wallace

Firstly, no, you don’t have to be an Uber driver driving a Jag to reap the benefit of the car manufacturer’s new innovation.

Jaguar Land Rover has announced it is testing “Smart Wallet” technology that will enable drivers to earn cryptocurrency while driving.

How? Technology embedded in the car will automatically report road condition data, such as traffic congestion and potholes to navigation providers and local authorities, which will earn the car’s driver credits.

The credits can be used to buy coffee, pay tolls and parking tickets – which all sounds pretty handy to us.

Jag has partnered with IOTA Foundation which is providing the “IOTA-powered car wallet” which uses a distributed ledger technology to make and receive payments. It is currently being trialled in Ireland. IOTA forecasts that 75 billion devices will be connected to the Smart Wallet technology by 2025 – we’re pretty excited to see how this unfolds.

International Cryptocurrency Regulation Top of the Agenda for the Japan G20 Summit

By Jim Bulling, Felix Charlesworth and Andrew Fay

In the lead up to the annual G20 Summit, to be hosted by Japan, Prime Minister Shinzō Abe has commissioned the creation of a cryptocurrency governance manual. The manual, which will be distributed at the G20 Summit, supports a uniform approach to regulating cryptocurrencies and contains regulatory proposals and justifications relating to the following issues:

  • protecting customer assets;
  • international security protocols; and
  • providing customers with information (particularly in the event of a hack).
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Cryptocurrency firms struggle to engage auditors

By Jim Bulling and Andrew Fay

In January 2019, Canada’s largest cryptocurrency exchange, QuadrigaCX, announced that it had lost $180 million of virtual currency, prompting calls for tighter regulatory oversight of the industry.

Canada is home to 18 publicly listed cryptocurrency companies, more than any other jurisdiction in the world. This puts Canada at the heart of the issue, and has also put the Canadian Public Accountability Board (CPAB) on notice. The CPAB, which regulates auditors, has confirmed that it has been reviewing how existing Canadian audit standards apply to the cryptocurrency industry. Canada, like Australia, subscribes to the International Financial Reporting Standards.

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A Positive Step Forward or Much Ado About Nothing Yet Again? SEC FinHub Releases a “Framework for ‘Investment Contract’ Analysis of Digital Assets” and Historic No-Action Letter on Digital Assets for TurnKey Jet

By Margaret N. Rosenfeld, Robert M. Crea, Jonathan M. Miner and Steven B. Levine

In a flurry of activity today, the U.S. SEC’s Strategic Hub for Innovation and Technology (“FinHub”) issued a “Framework for ‘Investment Contract’ Analysis of Digital Assets” and the SEC’s Division of Corporation Finance (“CorpFin”) issued a historic No-Action Letter to Turnkey Jet, Inc. (“TurnKey Jet”) in connection with its offer and sale of digital assets.  The Framework doesn’t contain anything substantially new for U.S. securities law practitioners who have been giving guidance to companies regarding digital assets (or utility tokens, security tokens or digital securities depending upon your term of choice) for some time, but serves as a good reminder of the SEC staff’s thought process in this area for those new to the space. 

And in case you missed Footnote 1 to the Framework, Bill Hinman (SEC Director of CorpFin) and Valerie Szczepanik (SEC Senior Advisor for Digital Assets and Innovation) released a Statement on the Framework reminding everyone that the SEC has not approved or disapproved of the content and it is not a rule or regulation.  These types of Frameworks are often how the internal staff at the SEC get the ball rolling on regulatory innovations (recall the legendary Project Aircraft Carrier of 1998). The Framework applies the factors set forth in the U.S. Supreme Court’s Howey case to digital assets, without going further. Therefore, it’s worth questioning whether Director Hinman has lost the argument internally at the SEC that he posited in his June 2018 Digital Asset Transactions remarks, in which he included “does application of the Securities Act protections make sense” in his list of considerations for assessing whether a digital asset offering is an investment contract.

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American Bar Association Publishes White Paper on Digital and Digitized Assets

By Clifford C. Histed

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.

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Surge In Cryptocurrency Exchange Hacking Activity

By Jim Bulling and Edwin Tan

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.

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Crypto founder’s death elevates taking a secret to the grave to the next level

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?

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