Crypto Regulation Update — February

This update is brought to you by Bridge Protocol (TOLL) 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 more on the blockchain.

Read last month’s update here.

United States

  1. Chat App Kik Says It Will Fight SEC Over Possible ICO Action. Canada-based messaging app company, Kik, is planning to fight a likely U.S. Securities and Exchange Commission (SEC) enforcement action over its 2017 initial coin offering (ICO). Arguments in the Wells Response from the CEO, Ted Livingston; include points about Howey being not applicable due to tokens diminishing common enterprise prong, Commissioner statements about “how Ethereum may have been security but they missed it” and has been allowed to operate.
Livingston said in a Medium post on Sunday that there are “dozens of projects at a similar point” with the SEC, and adding: “We all believe that this industry needs regulation, but we also believe that this is not the way to get it.”

2. Regional Director, Shamoil T. Shipchandler of SEC Fort Worth Office who pursued AriseBank ICO Fraud and others leaves the agency. One of the high profile cases that Shipchandler pursued was the AriseBank initial coin offering (ICO) and affiliated fraud. During the height of the ICO frenzy, AriseBank claimed to be “the world’s first decentralized bank.” Shamoil is headed to private firm Jones Day.

“Shamoil approached his public service with passion, commitment, and flair, and always with the interests of our investors in mind,” said SEC Chairman Jay Clayton. “The Fort Worth office made significant contributions to both the Enforcement and Examination programs under his leadership and I thank him for his service to the agency.”

3. US SEC is seeking companies that can aid in identifying and improve compliance with blockchain technology. A Sources Sought Notice on FBO.Gov request for businesses to apply who can help SEC’s effort to “monitor risk, improve compliance, and inform Commission policy with respect to digital assets.” The Commission is known for setting up the FinHub last year and it is going to be releasing “Plain English” guidance when and how cryptocurrencies can be classified as securities “soon.”

4. US: Pennsylvania Rules That Crypto Exchanges, ATMs Are Not Money Transmitters. The American state of Pennsylvania has clarified that cryptocurrency exchanges do not fall subject to the Money Transmitter Act (MTA), according to a Department of Banking and Securities (DoBS) document published, Jan. 23; he document also clarifies that in regard to crypto kiosks, ATMs and vending machines; regardless of whether they enable one-or two-way deposits and exchange of crypto and fiat, no money transmission is deemed to be involved, as there is no transfer of money to a third party.

5. Canadian Crypto Boss dies with passwords needed to unlock $190 million in customers’ funds. Gerald Cotten, the 30-year-old founder of QuadrigaCX, died due to complications with Crohn’s disease, according to Sky News, citing Cotten’s wife, Jennifer Robertson. The executive reportedly passed away in December while traveling in India to open an orphanage. Family claims he was the only one with the passwords and after extensive engineering, the family and business still cannot find the keys.

Citing a sworn affidavit by Robertson as she filed for credit protection, Sky News reports that Cotten held “sole responsibility for handling the funds and coins.”

6. US Representative Soto: Most Cryptos Need CFTC’s Light Touch, Not SEC Oversight. Soto is an author to the Token Taxonomy Act. A Democrat from the 9th District of Florida fostered a bipartisan effort with Congressman Ted Budd to promote a more friendly cryptocurrency regulatory environment. According to Soto, crypto should be overseen by the Commodities and Futures Trading Commission (CFTC) and Federal Trade Commission (FTC) — rather than classed as securities under the Securities and Exchange Commission (SEC)’s charge.

Soto said:

“We’ll be saving the SEC for true securities, knowing predominantly that these are commodities and currency transactions. The [CFTC and FTC] are agencies with a lighter touch and we have grown consensus among the industry that they’d be appropriate for the majority of these types of cryptocurrency transactions and the nature of these assets.”


  1. OECD Calls for ‘Delicate Balance’ in Global ICO Regulation. The Organisation for Economic Cooperation and Development (OECD) has stated that global regulators should work together to facilitate the development of initial coin offerings (ICOs), according to a report released Jan. 15. The report emphasizes things in traditional financial markets like the importance of standardized disclosure requirements, enhanced investor protection Anti-Money Laundering (AML)and Counter Terrorist Financing (CFT) measures. The group describes themselves as the economic equal to NATO.
  2. Australian Treasury considers new ICO regulations.Treasury has now opened up consultations on ICOs and has released an issues paper on the topic, where it considers whether an entire new set of regulations is needed to deal with ICOs, similar to what was implemented for crowdfunding. The Treasury is balancing whether the new regulations are needed, the cost to implement and whether it will stifle growth. This news comes on the heels of a number of jurisdictions competing to attract ICO activity and position themselves as a hub for the technology.
  3. Malaysia gets authority to Regulate ICOs as Securities. According to a notice from the country’s Securities Commission (SC), the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 will come into force on Jan. 15 following a statement from the finance minister this morning.

“Any person offering an ICO or operating a digital asset exchange without SC’s approval may be punished, on conviction, with imprisonment not exceeding 10 years and fine not exceeding 10 million Malaysian ringgits [$2.44 million],” Finance Minister Lim Guan Eng said in his statement, according to a report from The Star Online.

4. South Korea re-evaluates and reaffirms its “Ban” stance on Crypto and ICOs. The South Korean Financial Supervisory Service (FSS) started the investigation into ICO platforms in September 2018. The basis of the investigation was set on the cooperation with 22 local ICO companies. Having inspected their documentation such as white papers and press releases, the government got to know that no single company had actually started up a project. Although all of them were building platforms.

Party leaders are split on the decision to keep the strict government stance ongoing. Another politician, Kim Sun-dong, a member of the Liberty Korea Party, was unsatisfied with the tactics that had been chosen by the government. He argued that the authorities had to take into account the future development of blockchain technology and the crypto market.

5. Malta “Blockchain Island” Regulatory keeps Attracting Crypto Players.The International Monetary Fund (IMF) claimed that the growth of blockchain is creating major risks for money laundering and terrorism in the small island’s economy. Complexities of the Fifth AML Directive that the EU introduced in July 2018 makes it hard for crypto businesses in Malta to convert to fiat. The banks won’t open accounts for crypto businesses due to the worry of non-compliance for money laundering.

“All operators, agents, and services providers hoping to conduct business in Malta will need to stringently adhere to obligations under the AML framework in Malta, which has always been implemented a notch above what is normally required on an European level. We recognize certain risks related to such a new industry as this one [crypto], which are mostly associated with exchanges and ICOs, and therefore we are doing everything we can to address them from the get-go.”

6. Philippines Announces New Cryptocurrency Regulations. Dubbed the Digital Asset Token Offering (DATO) regulations, the guidelines require the creators of all crypto assets, in relation to initial coin offerings, to provide clear offer documents carrying relevant details of the issuer, project, and accompanying advice and certification of experts, according to a report by Vietnamese English daily Vietnam News. The rules have been broken down into three levels of digital asset offerings; with the first level, tier one, covering assets and investments not exceeding $5 million with payment made in digital tokens. Digital assets covered under tier two range between investments worth $6M to $10M, while tier three covers investments exceeding $10 million.

We have active communities on Telegram, Reddit and Twitter; watch these social media channels for the newest from our team!