Crypto Regulation Update — June 2019

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 more on the blockchain.

Read last month’s update here.

United States

  1. Binance.org, announced that it will be blocking users in 29 countries, one of which is the USA. The changes take affect July 1. Trading and wallet access will be disabled on binance.org.

2. Poloniex Exchange, owned by Circle, announced last week it would halt trading of a number of cryptocurrencies on its platform. This affects U.S. customers and is due to concerns of policies and regulations.

Poloniex chose to delist nine coins in the U.S. because recent guidance from the Securities and Exchange Commission (SEC) has regulators broadening which crypto assets could be considered securities, according to Allaire. Those U.S. customers holding ARDR, BCN, DCR, GAME, GAS, LSK, NXT, OMNI or REP on the exchange will have until May 29 to close. After that, customers will still be able to withdraw any currency supported globally by the exchange.

“Our decision to geofence assets represents our effort to respond responsibly to the uncertain regulatory climate in America,” Allaire said in a post. Other companies may not choose to geofence assets, which Allaire said is indicative of the lack of clarity in the SEC guidance.

3. Ron Paul stands up to Anti-Crypto Congressman at Consensus 2019. Former U.S. Congressman and Republican presidential candidate Ron Paul was at Consensus 2019 in New York City in April, where the libertarian discussed his belief that the federal government should keep its long-arms out of cryptocurrency.

He dismissed a move by U.S. Rep. Brad Sherman (D-Calif.) to ban crypto purchases, calling the congressman, “just another thug in Washington,” adding “people like him are driven by power.” Sherman’s call for the ban came during a May 9 House Financial Services Committee meeting.

4. Rumors of Facebook Coin raise suspicions in Washington, D.C. as Senators press for more information. Members of the Senate’s banking committee penned the letter, asking Zuckerberg to outline what Facebook’s coin will look like, how it will work, and the regulatory precautions taken. Codenamed “Project Libra,” they also raised questions about the coin’s possible impact on consumer privacy and what users should expect in terms of protection. The letter also wanted to know what Facebook expected to do with the coin and the data around it.

5. FinCen releases new Crypto Guidance. The Financial Crimes Enforcement Network (FinCEN) issued new “interpretive guidance” today that “consolidates current FinCEN regulations, and related administrative guidance issuance since 2011” relating to the application of the Bank Secrecy Act (“BSA”) to money transmission involving “convertible virtual currencies” (“CVC”).

The document was divided into six (6) key sections. Focusing on key concepts like money transmission rules, CVC guidance and their “existing regulatory approach.”

A full copy of the FinCEN guidance can be found on their website.

6. Securities and Exchange Commission (SEC) Director of Corporate Finance William Hinman said that some ICOs may be eligible for “No-Action” Relief.

One such example, he cited TurnKey Jets, which secured a no-action letter earlier this year, reassuring the firm that the SEC staff would not recommend taking enforcement action against it. Hinman explained that the company’s token, network and use case were all fairly mature when the letter was issued, meaning the token had a functional use case and the network was fully developed.

Hinman posed a hypothetical in his discussion that said, even if the project launched without a mature network and then went to the SEC three years later, they may be able to work through a no-action letter.

He reiterated mentioning this to show the flexibility of the regulatory framework they are working under.

7. Kik commits $5 million in ETH, BTC, and KIN token to fight the SEC. The CEO of Kik, Ted Livingston said they have spent over $5m USD so far in just responding and talking to the SEC about their token sale. They have not been able to receive any answers after a Wells Notice, that stated the SEC may seek enforcement action.

They have launched a website called Defend Crypto which allows people to join for updates and contribute if they would like.

Kik is encouraging other supporters to fight this “innovation tax” by donating cryptos that will held in a Coinbase account and only be used once Kik’s $5 million has been spent. Unused funds will be allocated to “other initiatives.”

8. SEC Halts ICO, Charges Argyle Coin, Jose Angel Aman, Others With $30 Million Ponzi Scheme. On May 20th 2019, the (SEC) was granted an emergency court order entailing a temporary restraining order and temporary asset freeze against Jose Angel Aman, Argyle Coin, and other companies charged as relief defendants. More than $10 million of investor funds from unregistered offerings were allegedly embezzled.

The ICO targeted over 300 investors throughout the U.S. and Canada, claiming the offering was 100% guaranteed by an insurance bond.

According to the SEC, Aman collaborated with Harold Seigel and Jonathan H. Seigel to deceive prospective investors of Argyle Coin by claiming the investment was risk-free since it was backed by diamonds.

7. US Court Claims Rapper T.I. Sold Unregistered Securities in FLiK ICO. The Atlanta division of the United States district court of the northern district of Georgia claims in an order published on May 20 on Twitter by lawyer Stephen Palley that Rapper T.I. — real name Clifford Joseph Harris Jr. — sold unregistered securities in his FLiK initial coin offering (ICO).

Still, according to Palley, the court noted that there is a problem, since claims for unregistered sale of securities have to be brought to court within a year after the violation under federal law. He concludes that “because this isn’t pleaded, these claims are dismissed with leave to refile.” Lastly, Palley also said that the merits still have to be litigated. T.I. also is states he is not an owner, equity shares in the business, but his liability was created when he promoted the ICO on his personal twitter, which has been taken down.


WorldWide

  1. Australian Securities Regulator Releases Cryptocurrency, Mining, ICO Guidelines. The ASIC published new initial coin offering (ICO) and crypto guidelines on its official website on May 30. The regulator also noted that “entities and their advisers need to consider all the rights and features of the ICO (regardless of how it is named and marketed) in determining whether the crypto asset is a financial product or involves a financial product.”

2. Bank of China Council Member says that Owning Bitcoin (BTC) is still legal. Sa Xiao, Council Member at the Bank of China Law Research Association, was reported as saying that holding BTC in China is still legal. Xiao added that in addition to that, trading Bitcoin amongst individuals remains legal in the country.

In a report by The Beijing News, Xiao was cited as saying that owning Bitcoin is legal in the Asian country. While cryptocurrency exchanges have been banned from operating in the country, people can still transfer Bitcoin amongst themselves, Xiao added.

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