Virtual Currency Legal Report – Week of July 19 – Technology

Weekly Fintech Focus

  • Members of Congress reintroduce bill to define digital assets
  • President’s Financial Markets Task Force Meets to Discuss Stablecoins
  • President Gensler notes that the SEC is focusing in the future on the potential regulation of crypto through the authority of security-based swaps
  • DraftKings Announces Launch of Digital NFT Marketplace
  • Mastercard announces enhancements to digital currency card program
  • European Commission proposes to expand regulation on cryptocurrency service providers
  • Russian central bank urges stock exchanges to avoid listing crypto companies

Developments in the United States

Legislation

Members of Congress reintroduce bill to define digital assets

U.S. Representative Tom Emmer (MN-06) reintroduced legislation to define how regulators should classify and treat cryptocurrencies. Emmer initially introduced the bill (the Securities Clarity Act) in September 2020, with the support of then-representative Michael Conaway (R-Texas); however, the bill did not move forward after being referred to the Financial Services Committee. Emmer has since garnered the support of Democratic representatives Darren Soto (D-Fla.) And Ro Khanna (D-Calif.), Who are the co-sponsors of the bill. As noted in a previous article, Representative Emmer also co-wrote a letter to then-SEC Chairman Jay Clayton, asking the SEC to take action to clarify numeric values ​​in the context of custody. brokers.

The bill builds on the definition of “investment contract” in the Securities Act of 1933, with particular emphasis on its application to token offerings and the underlying assets of the offerings (i.e. i.e. the tokens or accompanying coins). Specifically, the bill proposes a new definition of tokens – the assets of investment contracts – which would be treated as commodities and not as securities, and therefore could be sold or traded without registration with the Securities and Exchange Commission. Representative Emmer’s announcement explains that the legislation “provides a solution for people who have complied with existing securities registration requirements, or who have qualified for an exemption but, after meeting those requirements, entrepreneurs innovators can distribute their assets to the public without fear of further regulation. These assets are in fact, and always have been, commodities.

You can find the text of the bill here.

Regulation

President’s Financial Markets Task Force Meets to Discuss Stablecoins

On July 19, 2021, the U.S. Department of the Treasury announced that Treasury Secretary Janet Yellen had convened the Presidential Financial Markets Task Force (PWG) to discuss stablecoins.

Federal Deposit Insurance Corp. President Jelena McWilliams, Acting Currency Comptroller Michael Hsu, Under Secretary of the Treasury for Home Finance J. Nellie Liang and Federal Reserve Vice Chairman for Oversight Randal Quarles joined Treasury Secretary Janet Yellen on Federal Reserve Chairman Jerome Powell, Securities and Foreign Exchange Commission Chairman Gary Gensler and Commodity Futures Trading Commission Acting Chairman Rostin Behnam during the meeting.

The meeting covered several topics: the rapid growth of stablecoins, the potential uses of stablecoins as a means of payment, and the potential risks to end users, the financial system and national security.

While Secretary Yellen urged regulators that the government must act quickly and the announcement indicated that the PWG expects to issue recommendations in the coming months, it is not clear when, in particular, the PWG publish its recommendations.

The topic of stablecoins – and how best to reach out to issuers and users of stablecoins – has sparked many proposals from regulators and industry participants. During his testimony to Congress, Federal Reserve Chairman Jerome Powell noted that Federal Reserve officials will extensively examine the universe of digital payments, including the plausibility of a central bank digital currency, in a discussion paper that could be released in early September. Discussions about stablecoins also extend to the academic space. A research paper titled “Taming Wildcat Stablecoins,” which was published in the Social Science Research Network on July 19, 2021, by Yale finance professor Gary Gorton and US Federal Reserve attorney Jeffery Zhang, argued in favor of supervision and regulation. of stablecoin issuers in a manner similar to banking regulation. The article describes stablecoins as privately produced money and compares the current landscape to the free banking era of the 19th century. Citing the consequences resulting from money issued by the private sector and “wild banks” in the past, the authors suggest plausible ways to regulate the industry.

President Gensler notes that the SEC is focusing in the future on the potential regulation of crypto through the authority of security-based swaps

On July 21, 2021, SEC Chairman Gary Gensler spoke at the American Bar Association’s Derivatives and Futures Committee’s Virtual Mid-Year Program, which presented the agenda. current SEC regulations regarding security-based swaps (SBS), including swap reporting, clearing and execution facilities. trade and substituted compliance.

Among the areas discussed, President Gensler addressed the “intersection of [SBS] and financial technology, “including with respect to crypto-assets, explaining that”[t]Here are initiatives from a number of platforms to offer crypto tokens or other products that are priced below the value of the securities and work as derivatives. securities, or any other virtual product that offers synthetic exposure to the underlying securities is implied by the securities regime, whether the platform is in the decentralized or centralized financial space.

More importantly, President Gensler suggested that these products could fall under the definition of “securities-based swap” and, therefore, become subject to the regime of securities-based swap rules, including proposing requirements. registration to retail customers. President Gensler noted that the SEC has already initiated enforcement actions involving retail securities-based swap offers and intends to continue to rely on its regulatory and enforcement authority.

A page on the SEC website summarizes the actions of the SEC to date.

Industry

DraftKings Announces Launch of Digital NFT Marketplace

On July 20, 2021, sports betting and fantasy sports firm DraftKings announced plans to launch a non-fungible token (NFT) marketplace featuring content that will be delivered through new partnerships with entertainment firm Lionsgate and the NFT Autograph platform.

The marketplace will provide access to organized NFT versions in the entertainment and sports fields and facilitate secondary market transactions. Through its partnership with Lionsgate, the marketplace will create collectible digital content based on its flagship entertainment properties such as the John Wick action franchise, the Hunger Games and Twilight Saga franchises, and the Mad Men and Dirty Dancing television series.

Autograph, an NFT platform co-founded by Tom Brady, will provide officially licensed Autograph NFT sports-related exclusively to the market.

Mastercard announces enhancements to digital currency card program

On July 20, 2021, Mastercard announced plans to improve its card program for cryptocurrency wallets and exchanges to better facilitate conversions between traditional fiat money and cryptocurrency. Mastercard plans to partner with Evolve Bank & Trust and Paxos Trust Company, the leading blockchain infrastructure and regulated stablecoin issuance platform, and Circle, a global fintech company and the primary operator of USD Coin , a digital currency in dollars or stablecoin. The partnerships planned with Paxos and Circle will allow the platforms to facilitate the conversion of currencies via stablecoins backed by trust funds.

International developments

European Commission proposes to expand regulation on cryptocurrency service providers

On July 20, 2021, the European Commission announced a set of legislative proposals aimed at strengthening European Union (EU) anti-money laundering and terrorist financing (AML / CFT) rules, which propose to extend EU regulation to the cryptocurrency sector. The announcement noted that the purpose of the package “is to improve the detection of suspicious transactions and activities, and to close loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.”

The legislative package is made up of four proposals, including amendments to the 2015 regulation on fund transfers to trace transfers of crypto-assets (regulation 2015/847 / EU). If adopted, EU AML / CFT rules, which currently apply to certain categories of crypto-asset service providers only, will apply to the entire cryptocurrency industry, thus requiring all cryptocurrency service providers to exercise due diligence vis-à-vis their customers. The proposal would also extend the “travel rule” to crypto, which the Financial Action Task Force already applies to wire transfers. If passed, the rule would require cryptocurrency service providers to collect specific data to enable the prevention and detection of the possible use of cryptocurrency transfers in money laundering or terrorist financing. . Extending these requirements to cryptocurrency transfers would ban anonymous crypto-asset wallets.

The legislative package is currently being examined by the European Parliament and the Council.

You can find our September 21, 2020 article here for more information.

You can find the European Commission fact sheet here.

You can find the legislative package proposal here.

Russian central bank urges stock exchanges to avoid listing crypto companies

The Bank of Russia issued a newsletter on July 19, asking Russian exchanges to stay away from quotes from foreign and local companies involved in a wide range of crypto services.

Explaining, in part, that digital assets are characterized by high volatility, lack of price transparency, low liquidity, and specific technological, regulatory and other risks, the Bank of Russia recommended that Russian stock exchanges not allow the listing of companies (national or foreign). ) whose activity is based on crypto market prices, including digital financial assets or crypto derivatives and crypto funds. The Bank of Russia has also recommended that asset managers exclude these instruments from mutual funds.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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