Crypto Regulation Update — November 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 identity verification on/off the blockchain.
Read last month’s update here.
United States
The SEC halts Telegram’s ICO.
The Securities and Exchange Commission (SEC) today announced it has filed “an emergency action and obtained temporary restraining order” against two offshore entities behind Telegram’s TON digital token offering. Telegram also promised to deliver its GRAM tokens to initial purchasers by Oct. 31. The SEC is alleging that Telegram and TON Issuer Inc. failed to register the sale and offering of Grams, stating that the tokens are “securities.”
The Commodity Futures Trading Commission (CFTC) chairman Heath Tarbert confirmed that a security can turn into a commodity and vice versa.
Tarbert made this remark on Monday at DC Fintech Week, when asked about a comment he made earlier this month that either is not a commodity. At the conference, Tarbert emphasized that the Securities and Exchange Commission (SEC) is the entity that determines when something is a security, while the definition of commodities, which fall under the CFTC’s jurisdiction, is broader.
Notably, the regulator filed an emergency action against Telegram and TON Issuer for failing to register the sale of their GRAM tokens, which the SEC is claiming is a security.
One U.S. Senator goes against the grain and still supports Facebook Libra, their digital currency ecosystem.
U.S. Senator Rounds (R-SD) sent a letter to Libra Association member Anchorage urging the company to stay on the project, even though Visa, PayPal and Mastercard have left the initiative.
“It is profoundly disappointing that my colleagues chose to address your peers in such an ominous tone, which I fear may put a chill on innovation in the long run,” Rounds wrote to Anchorage.
Rounds also made note that the Securities Act is extremely antiquated and states there is still no clear way to ascertain whether a cryptocurrency is a security.
South Datoka is aiming to be a leader in crypto legislation efforts. BitGo resides there and it is also home to the “Trust Task Force.”
SEC, FinCEN and CFTC issue rare 3-party joint statement on digital assets.
The statement declared, anyone involving themselves in digital assets must abide and follow anti-money laundering and countering terrorism financing (AML/CFT) obligations via the Bank Secrecy Act (BSA.) These institutions must establish and put in place effective AML programs including diligent record keeping and reporting, particularly of suspicious activity.
The agency says this is to “include instruments that may qualify under applicable U.S. laws as securities, commodities, and security/commodity-based instruments such as futures or swaps.”
U.S. Treasury Secretary says firms dropped out of Libra because it did not meet regulatory standards.
Steven Mnuchin, the U.S. Department of the Treasury Secretary, expresses his thoughts on the recent exodus of companies from Facebook’s blockchain project, Libra. Mnunchin states he has met on numerous occasions, representatives from the Libra Association and said the U.S. government would take enforcement actions against them, if Libra does not meet the money laundering standards of FinCEN.
New IRS Form 1040 will ask taxpayers if they own cryptocurrencies.
The Internal Revenue Service (IRS) has released an early draft of its new Form 1040, Schedule 1, Additional Income and Adjustments to Income, which for the first time will ask U.S. income tax payers about their crypto activities.
The form asks; asks: “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” followed by a yes or no option.
WorldWide
Stablecoins, including Facebook Libra could come under securities definitions.
The International Organization of Securities Commissions (IOSCO), a global securities watchdog, has said that stablecoin proposals and initiatives, such as the Facebook-led Libra project, could come under some existing securities market regulations.
In a statement published Monday, Spain-headquartered IOSCO said that given the potential benefits and risks of stablecoins, a case-by-case approach is needed to establish which specific securities rules would apply. The concern is some stablecoins have features of a security.
The IOSCO’s members include the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC), as well as 32 other members that regulate 95% of the world’s securities.
G20 members ask the International Monetary Fund to examine risks involved with stablecoins.
G20 nations are asking the International Monetary Fund (IMF) to help establish some of the economic implications associated with stablecoins, Reuters reports.
“Risks such as money laundering illicit finance, consumer and investor protection, need to be evaluated before stablecoin projects can commence operation,” the press release reads.
Hong Kong Regulators Issue Framework to License Crypto Exchanges.
Hong Kong’s Securities and Futures Commission (SFC) published a regulatory framework that enables cryptocurrency exchanges to be regulated. With the new set of rules, the nation is making a significant step towards the adoption of blockchain technology.
During the Hong Kong Fintech Week, the world’s first cross-border financial technology event, SFC CEO Ashley Alder announced the creation of new guidelines for licensing cryptocurrency exchanges.
Similar to EU AML Directives, the SFC says all cryptocurrency exchanges will have to comply with anti-money laundering (AML) and know-your-customer (KYC) procedures. They must establish the identity of each of their clients, as well as their financial situation, investment experience, and objectives.
Not everyone is happy, Leo Weese who is president of the Bitcoin Association of Hong Kong worries this puts a “cage and unreasonable burdens on digital asset exchanges.”
