Crypto Regulation Update — February 2020

This update is brought to you by Bridge Protocol (BRDG) as part of a series on cryptocurrency regulations.

Bridge is a RegTech company specializing in identity services and compliance for Know-Your-Customer (KYC), Anti-Money-Laundering (AML) and identity verification on the blockchain.

Read the last update here.

United States

Opporty founder calls SEC’s ICO lawsuit ‘grossly overstated’ and ‘untruthful’ in an open letter.

The SEC filed a complaint in court accusing the Opporty team for conducting an unregistered initial coin offering (ICO) using Regulation D and Regulation S, which was something legal experts recommended using at the time. The SEC claims that the founder, Grybniak promoted that the ICO was “SEC regulated.”

Grybniak said, “The legal framework from this token sale was not designed by me personally, or my companies,” he said. “We hired an independent professional law firm to prepare our offering materials, and they advised us to proceed as we did.” He is now asking the community for help in defense costs.

New York Governor Andrew Cuomo proposed changes to the state Financial Services Law (FSL), so licensed cryptocurrency businesses would have to pay for regulation costs associated with oversight.

The NYDFS is responsible for issuing BitLicense, a special business license for virtual currency entities operating in the state. In Dec. 2019, the agency published its plan to include two new coin listing options in its BitLicense issuance guideline.

Former Bakkt CEO Kelly Loeffler to help oversee CFTC.

Kelly Loeffler, former CEO of bitcoin derivatives exchange Bakkt and a newly-appointed U.S. Senator, has joined the committee that oversees the Commodity Futures Trading Commission (CFTC). Loeffler’s appointment to the committee raises concerns about a possible conflict of interest. Her husband, Jeffrey Sprecher, is the founder, chairman, and CEO of Intercontinental Exchange (ICE), which is regulated by the CFTC.

She says she will recuse herself when needed, on a case-by-case basis.

SEC highlights 2020 cryptocurrency priorities of the year and views.

In the new document, the agency emphasized how the emerging digital assets market presents risks to retail investors who do not necessarily understand how these assets differ from traditional ones.

“Crypto-Currency Act of 2020" — US lawmaker introduces draft bill.

The bill is called the ‘Crypto-Currency Act of 2020,’ and the stated purpose is to clarify which Federal agencies regulate digital assets, to require those agencies to notify the public of any Federal licenses, certifications, or registrations required to create or trade in such assets, and for other purposes.

An initial review of the bill provides for the following:

(1) Assigns a definition of ‘Federal Digital Asset Regulator’ or ‘Federal Crypto Regulator’ to three agencies — the Commodity Futures Trading Commission (CTFC), the Securities and Exchange Commission (SEC), and the Financial Crimes Enforcement Network (FinCEN).

(2) Splits digital assets into three different categories: crypto-currencies, crypto-commodities, and crypto-securities.

(3) The Federal Crypto Regulator is assigned one of the categories and is defined as the sole Government agency with the authority to regulate:

(a) CFTC — crypto-commodities

(b) SEC — crypto-securities

(c) FinCEN — crypto-currencies

(4) Each Federal Crypto Regulator is required to make available to the public and keep current a list of all Federal licenses, certifications, or registrations required to create or trade in digital assets.

(5) Requires the Secretary of the Treasury, through FinCEN, to establish rules similar to financial institutions on the ability to trace cryptocurrency transactions.

WorldWide

The U.K. Financial Conduct Authority (FCA) has made changes to its registration fees structure for crypto businesses.

The new structure is based on income crypto firms generate. If their income from U.K. crypto activity is up to £250,000 (~ $325,000), businesses will be charged £2,000 (~$2,600) registration fees. While those firms with an income of more than £250,000, will have to pay £10,000 (~$13,000).

Previously, the FCA had proposed a flat fee of $5,000 (~$6,500) for all crypto businesses, but based on feedback it received from the community, it decided to amend the fees. The main feedback was £5,000 charge would be “too high for small firms and start-ups.”

New Singapore law requires crypto firms to be licensed in the country.

Singapore’s new payments law has come into force today and it requires all crypto businesses operating in the country to be registered and licensed. The act covers “digital payment token services” — effectively all crypto firms and exchanges in the country.

It means they will have to comply with anti-money laundering (AML) and counter financing of terrorism (CFT) requirements.

MAS believes cryptocurrencies carry “significant” money laundering risks due to their anonymous and borderless nature of transactions. Therefore, all crypto businesses will have to be licensed to operate in the country.

Firms leaving the European Union (EU) in response to 5AMLD.

KyberSwap, currently the second-largest non-custodial cryptocurrency exchange by market share, is moving out of Malta to the British Virgin Islands (BVI), according to an email obtained by The Block.

The email, sent by KyberSwap to its registered users on Thursday, says that the exchange has taken the move in response to the Fifth Anti-Money Laundering Directive (5AMLD), which went into effect on January 10.

The complaints from the business came from the costs for ongoing monitoring of transactions and know-your-customer (KYC) requirements, in order to be compliant. The email also said the leadership will stay the same.

This comes on the news of Deribit, saying they are leaving the Netherlands to avoid the directive.