Global FinTech & Payments Blog

FinCEN Brings First Action Against a P2P Virtual Currency Exchanger

Posted in Cryptoassets, Payments

The enforcement action serves as a reminder that virtual currency exchangers, regardless of size, must comply with the BSA.

By Todd Beauchamp and Charles Weinstein

The US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) does not care if you are a multinational corporation or an individual operating out of your garage; regardless of size, if you violate the Bank Secrecy Act (BSA), you are fair game for enforcement. The financial services industry was reminded of this recently when FinCEN announced that it had assessed a civil money penalty against an individual for “willfully violating the [BSA’s] registration, program, and reporting requirements.”

The matter involved a single individual, Eric Powers, who solicited purchases and sales of bitcoin on the internet, and completed those transactions with other individuals in person, through the mail, and by wire. FinCEN claimed that Powers’ activity included executing around 160 purchases of bitcoin for approximately US$5 million through in-person cash transactions with individuals he met through a bitcoin forum. In connection with Powers’ virtual currency-related activity, FinCEN asserted that Powers operated as a peer-to-peer (P2P) exchanger of convertible virtual currency, and thus, as a “money transmitter” under the BSA. Continue Reading

US Digital Asset Bills: Will April Legislation Bring May Flowers?

Posted in Cryptoassets

Federal legislators introduce two bills in an attempt to provide the blockchain economy with regulatory certainty.

By Stephen P. Wink, Morgan E. Brubaker, Cameron R. Kates, and Shaun Musuka

US regulators and federal legislators may be heeding the calls of crypto-enthusiasts for legal clarity regarding the status of digital assets and cryptocurrencies (collectively, Tokens). Two weeks ago, the Securities and Exchange Commission (SEC) released an analytical framework for determining when a Token constitutes a security. Last week, US federal legislators followed up by introducing two bills that are designed to “provide regulatory certainty for businesses, entrepreneurs, and regulators in the US’ blockchain economy,” the Token Taxonomy Act of 2019 (H.R. 2144) (TTA) and the Digital Taxonomy Act of 2019 (H.R. 2154) (DTA, and together with the TTA, the Bills).

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Russian Civil Code Recognizes Digital Rights and Smart Contracts

Posted in Cryptoassets

The new legislation may act as a catalyst for a crypto-evolution within Russian law.

By Andrew C. Moyle and Elizaveta Bacheyeva

On 18 March 2019, the Russian legislator took the first step in introducing the Russian civil law system to the new universe of digital assets. The Russian Civil Code was amended to include concepts of digital right and smart contracts, and the legislator also recognized digital rights as an independent object of civil law regulation.

By way of background, the Russian civil law system is based on laws rather than precedents, and — unless a particular concept is explicitly mentioned in the legislation — then the concept is non-existent for civil law regulation and falls outside any legal protection. Prior to these amendments to the Civil Code, digital assets or cryptocurrencies did not fall within any category of assets recognized by the Civil Code, and there was much uncertainty on how these digital asserts were regulated and how transactions with such assets should be structured. In one instance, a Russian court failed to recognize Bitcoin as an asset and, on those grounds, refused to include the Bitcoin in a debtor’s insolvency estate.

These amendments to the Civil Code will come into force on 1 October 2019 and will apply to all transactions made after that date. The new legislation is only the starting point for a crypto-evolution within Russian law, as the Russian legislator is currently considering two draft laws “On digital finance assets” and “On crowdfunding.” These laws would provide more in-depth regulation of cryptocurrencies, tokens, and investments through digital platforms. Continue Reading

UK’s Proposed “Online Harms” Compliance and Enforcement Regime Will Target Platforms

Posted in Digital

UK publishes White Paper with hard-hitting regulatory proposals to tackle online harms.

By Alain Traill, Stuart Davis, Andrew Moyle, Deborah Kirk and Gail Crawford

On 8 April 2019, the Home Office and the Department for Culture, Media and Sport (DCMS) published an “Online Harms White Paper”, proposing a new compliance and enforcement regime intended to combat online harms. The regime is designed to force online platforms to move away from self-regulation and sets out a legal framework to tackle users’ illegal and socially harmful activity. Although the regime appears to target larger social media platforms, the proposals technically extend to all organisations that provide online platforms allowing user interaction or user-generated content (not limited to social media companies or even ‘service providers’ in the traditional sense) and set out a potentially onerous and punitive compliance and enforcement regime for a broad set of online providers. Continue Reading

New SEC Token Guidance: This Is Howey Do It

Posted in Cryptoassets

The SEC provides additional guidance for analyzing whether a digital asset is a security.

By Stephen P. Wink, Cameron R. Kates, and Shaun Musuka

On April 3, 2019, the U.S. Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology (the SEC) released a framework (the Framework) for assessing whether a blockchain-issued token or digital asset (each, a Token) constitutes an investment contract. An investment contract is an enumerated type of security subject to US federal securities laws. The Framework does not have the force of law, but rather, provides additional guidance on the factors to consider when applying the Howey test to Tokens. For background regarding the Howey test, please see Latham’s Client Alert. Latham’s read of the Framework suggests two key takeaways. First, it provides added insight into how existing Tokens may be reevaluated over time and may cease to be subject to federal securities laws. Second, it offers the clearest guidance to date that Tokens that are designed and marketed as purely “virtual currency” should not be considered securities. Continue Reading

Are You My Regulator? ABA Surveys US Crypto Regulatory Overlap

Posted in Cryptoassets

A new white paper explores jurisdictional conflicts and the regulatory status of digital assets.

By Yvette D. Valdez, J. Ashley Weeks, and Jacqueline M. Rugart

Members of the American Bar Association’s (ABA’s) Derivatives and Futures Law Committee recently published a white paper exploring the US regulatory landscape for digital assets (White Paper), including a 50-state survey and overview of certain non-US crypto regulatory regimes. The White Paper primarily focuses on the jurisdictional overlap between the US Commodity Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC) pertaining to the regulation of digital assets.

Latham & Watkins lawyers previously discussed the intersection of CFTC and SEC regulatory jurisdiction in the crypto context here and here.

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First Virtual Bank Licenses Granted in Hong Kong

Posted in Digital, Investing in FinTech

The HKMA has issued three virtual banking licenses as part of its broader initiatives to develop the local banking industry.

By Simon Hawkins and Kenneth Hui

The Hong Kong Monetary Authority (HKMA) recently announced the issuance of the first virtual banking licenses to three entities.

Virtual banks in Hong Kong are banks that primarily deliver retail banking services through the internet or other electronic channels, instead of through physical branches.

The HKMA previously issued a press release on 7 December 2018 announcing that there had been around 30 virtual banking applications as of the end of August 2018, and the HKMA had shortlisted a third of the applications for the next stage of assessment. Continue Reading

Hong Kong’s SFC Issues Policy Statement on Security Token Offerings

Posted in Cryptoassets, Data Privacy, Cybersecurity, and AI

The SFC’s guidance provides helpful clarity amidst growing interest in security token offerings.

By Simon Hawkins and Kenneth Hui

On 28 March 2019, the Hong Kong Securities and Futures Commission (SFC) issued a policy statement on security token offerings (STOs) summarizing the legal and regulatory requirements applicable to parties engaging in STOs. This guidance follows the SFC’s 5 September 2017 policy statement on initial coin offerings (ICOs).

STOs typically refer to specific offerings which are structured to have features of traditional securities offerings, and involving security tokens that are digital representations of ownership of assets (e.g., gold or real estate) or economic rights (e.g., a share of profits or revenue) using blockchain technology. Continue Reading

The Book of Jargon® – Cryptocurrency & Blockchain Technology Now Available

Posted in Blockchain, Cryptoassets

Mobile and desktop reference tool defines nearly 300 industry terms.

We are pleased to announce the launch of The Book of Jargon® – Cryptocurrency & Blockchain Technology, a comprehensive digital glossary of nearly 300 terms developed for the business, academic, and legal community. The easy-to-use reference tool demystifies the often complex legal and regulatory terminology, acronyms, and slang of the cryptocurrency and blockchain industry.

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From Geek to Chic: The Rapid Evolution of Payments and Cryptocurrencies and the Potential of Digital Central Banking

Posted in Cryptoassets, Digital, Investing in FinTech, Payments

International perspectives on regulatory developments impacting innovation in financial services.

Approximately 100 financial institutions and emerging companies recently convened in London for a forum on regulatory developments and other considerations that will impact innovation in financial services this year. The Latham-sponsored event — “From Geek to Chic: The Rapid Evolution of Payments and Cryptocurrencies and the Potential of Digital Central Banking” — featured a series of panels led by digital finance industry leaders and Latham lawyers from around the world. Panelists discussed a range of topics, including investing in innovation, international perspectives on the crypto “state of play,” and 2019 market trends and predictions for the digital finance industry.

See below for video highlights from the event.