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US SEC and FINRA Issued Latest Custody Guidance on Digital Assets Securities

The United States Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued a statement addressing regulatory issues regarding the custody of digital asset securities on 8 July.

The recent statement highlighted that any entity involved in the transactions with digital asset securities must register with the SEC as a broker-dealer, and broker-dealers are required to “safeguard customer assets and to keep customer assets separate from the firm’s assets” under the Customer Protection Rule.

It was noted that some broker-dealers engage in digital asset securities without custody functions. Such noncustodial activities do not raise the same level of concern as long as the activities are compliant with relevant securities laws, SRO rules, and other legal and regulatory requirements. An example of a non-custodial activity is a digital wallet, where an issuer settles the transaction between the buyer and the issuer. The broker-dealer only instructs the customer to pay the issuer directly and issuers to issue digital asset security to the customer directly.

The SEC recognized the custody of digital asset is exposed to fraud, theft, and the possibility of losing private keys. The regulators urged broker-dealer to comply with Rule 15c3-3, hold in possession, or control digital asset securities. Besides, regulators also raised concerns that the other party could have a copy of the private key and transfer the digital asset security without the consent of the broker-dealer. As a result, the broker-dealer might not be able to reverse or cancel mistaken or unauthorized transactions despite the private key is held by the custodian.

Investment Bank Cowen Joins Cryptocurrency Craze with Digital Asset Division Launch

US investment bank Cowen announced on Wednesday that it has launched a digital assets division, called Cowen Digital, that will provide full-service trade execution and custody solutions to institutional clients.

The digital asset division will offer cryptocurrency trading and custody solutions for institutional investors via Cowen’s partnership with PolySign’s Standard Custody and Trust Company. Cowen Digital will also offer financing solutions, derivatives and futures, and institutional DeFi and NFT access.

The firm has been building up its digital infrastructure for the previous few months ahead of the launch. In May last year, Cowen partnered with Standard Custody & Trust, a unit of digital asset infrastructure firm PolySign, to provide its customers with easier access to cryptocurrency.

In a statement, Dan Charney, co-president of the bank, said that Cowen Digital has been trading cryptocurrency on behalf of its customers for several months. The division is currently trading 16 cryptocurrencies including Bitcoin, Ether, Solana, USD coin (USDC), Chainlink, Uniswap, Polygon, and Decentraland, and has a client list in the hundreds.

Drew Forman, the Managing Director at Cowen, will lead the new digital unit. “Cowen Digital’s team has had calls with hundreds of potential clients including crypto-native firms, asset allocators, and multi-strategy hedge funds looking to participate in the space. Cowan has quite a large custody and clearing business, so that means they have hundreds if not thousands of institutional clients that trade through them. It’s a captive audience and it’s very early. Zero banks offer this,” Forman elaborated.

Delivering Value to Customers

Founded in 1918, Cowen Inc. is a US multinational investment bank headquartered in New York and with offices worldwide.

In January 2020, Cowen started trading as a member firm of the London Stock Exchange. The move demonstrated Cowen’s strong commitment to serving its customers and offering access to capital markets in the UK and Europe.

Cowen, a diversified financial services firm with over 100 years of history, has strategically built and grown a comprehensive, cross-border financial services platform to include prime brokerage, credit, equities, research, and sector-focused investment banking across Europe and the U.S over the last decade.

Recently, Cowen added seven new senior hires to its international sales and trading team as part of its efforts to deliver value-added capabilities to its clients in order to help them outperform.

Hex Trust Announces Integration of Polkadot Blockchain Network

Hong Kong-based digital asset custody provider Hex Trust announced the integration of the Polkadot blockchain network into Hex Safe.

Following the integration, Hex Trust now provides fully licensed custody for Polkadot’s native token (DOT). Hex Trust also has plans to support a full stack of services built on Polkadot.

“With this integration, we will be offering fully-licensed & highly secure custody for $DOT and the full stack of services built on the leading interoperability blockchain network,” Hex Trust said on Twitter.

Furthermore, the integration will enable the company’s more than 200 institutional clients to trade, lend and stake DOT without sending their assets outside the secure custody platform Hex Safe.

According to Hex Trust’s official website, Hex Safe helps users secure and manage digital assets with a compliance-first approach.

Hex Safe also provides access to liquidity providers, exchanges and industry-leading DeFi platforms.

Launched in May 2020, the Polkadot blockchain network facilitates the interoperability of blockchain networks.

The network runs on layer zero, known as Relay Chain, which supports 100 parachains, and sovereign blockchains that work in parallel with a high level of security.

Giorgia Pellizzari, Head of Custody at Hex Trust, said, “we’re excited to have integrated Polkadot and open up the endless possibilities their emerging ecosystem is enabling. Within Hex Safe, we endeavour for our clients to seamlessly hold and have the ability to trade leading tokens such as Polkadot in our multichain and highly secure custody platform.”

EU Policymakers Vote for Blockchain Use to Fight Tax Evasion, Crypto Asset Non-Taxation

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On Tuesday, the members of the European Parliament (MEPs) voted in favour of a resolution that calls for the use of blockchain technology to fight tax evasion and urges member states to coordinate more on the taxing of crypto assets.

The resolution, drafted by Lídia Pereira (a member of the European Parliament), was adopted in Parliament’s plenary session on Tuesday with 566 votes in favour, 7 votes against, and 47 abstentions.

The resolution sets out a framework through which both EU regulators and the member states can achieve the goals of uniformly taxing crypto assets and using blockchain in taxation.

However, the proposal calls for both a clear definition of crypto assets and what would constitute a taxable event. Certainly, a taxable event is any action or transaction that may result in taxes owed to the government. Nevertheless, the recommendation calls for the taxation of crypto assets to be fair, transparent, and effective. It also invites authorities to consider a simplified tax treatment for occasional/small traders and small transactions.

Regarding a taxable event, the proposal considers converting a crypto asset into a fiat currency as a more appropriate choice. It identifies blockchain as one of the major instruments that national administrations can use to facilitate efficient tax collection.

According to the resolution, blockchain’s unique features could offer a new way to automate tax collection, fight corruption, and better identify ownership of tangible and intangible assets, thus allowing for better taxing of mobile taxpayers.

The proposal calls on the EU regulators and member states to better integrate the use of blockchain into different programmes dealing with taxation and cooperation in the field. Member states should also enhance efforts to reform their tax authorities through their modernization efforts, the proposal further urged.

In short, as cryptocurrencies gain more mainstream attraction, it is not a surprise that regulation efforts emerge. Regulators, such as the EU, the IRS, and other agencies, nowadays expect taxpayers and businesses to pay regular capital gains tax on their crypto earnings. This implies that concrete regulations on digital assets are evolving rapidly.

Mastercard, BitOasis Roll Out Crypto-Linked Cards in the MENA Region

Payment giant Mastercard has inked a deal with Middle East-based cryptocurrency exchange BitOasis to establish a series of crypto card programs aimed at boosting daily cryptocurrency usage in the Middle East & North Africa (MENA) region, according to local media outlet Khaleej Times.

Through the strategic partnership, BitOasis users will have the chance to easily pay and shop by converting their crypto holdings to fiat at more than 90 million worldwide merchant outlets.

As a result, the cumbersome tag pegged on cashouts and crypto payments will be eliminated because BitOasis users will undertake transactions in fiat. Per the report:

“BitOasis customer transactions will be enabled to take place in Fiat currency, thereby adding consumer protection – such as provisions for dispute resolution and refunds – which doesn’t exist today when paying with a digital asset.”

Therefore, the partnership intends to address crypto pain points and enhance awareness and adoption in the MENA region.

Amnah Ajmal, Mastercard’s Executive VP for Market Development, MEA, pointed out:

“Through our collaboration with BitOasis, one of the most innovative crypto platforms in MENA, we enable the consumer experience to be seamless by using their cryptocurrencies in a safe and secure environment.”

She added that changing consumer demand was necessitating the crypto payment route.

On her part, Ola Doudin deemed the collaboration as a new digital financial system era where transparency, inclusivity, relevance, and regulation would be incorporated on a daily basis.

The CEO and co-founder of BitOasis added:

“We continue to witness sustained demand amongst our customers for crypto to be integrated into, and relevant, for their daily lives. Research tells us that 47% of the Middle East population now believe crypto is the future of money.”

The first bunch of BitOasis cards will be released in early 2023 in line with regulatory approvals.

Meanwhile, a paradigm shift is happening in the Middle East, especially the United Arab Emirates (UAE), because the region’s interests are changing from oil to crypto and metaverse, among other blockchain innovations, Blockchain.News reported.