investor protection

Bittrex Faces Potential Legal Action from US SEC

The US Securities and Exchange Commission’s (SEC) enforcement division is reportedly considering recommending legal action against Bittrex, a Seattle-based cryptocurrency exchange, over alleged violations related to investor protection. Bittrex’s general counsel, David Maria, confirmed that the enforcement unit had notified the company about the potential action in March. By that time, Bittrex had already begun the process of winding down its US operations.

The SEC’s notice of potential enforcement action, also known as a Wells notice, stated that Bittrex had violated laws by operating as an exchange, broker-dealer, and clearinghouse without registering with the regulator. In late 2022, Bittrex reportedly discussed with the SEC how to register its operations but found that there was no opportunity to comply with the SEC’s rules without essentially ceasing all of its revenue-producing activities in the country.

Bittrex has been operating in the US since 2014 and has been one of the larger cryptocurrency exchanges in the country. The exchange has faced regulatory scrutiny in the past, including in 2018 when it was denied a license to operate in the state of New York.

The SEC’s potential legal action against Bittrex comes amid increasing regulatory scrutiny of the cryptocurrency industry in the US. The SEC has been actively targeting cryptocurrency exchanges and other players in the industry for non-compliance with securities laws and regulations.

Many in the cryptocurrency industry have called for clearer regulatory guidelines to provide more certainty and stability to the market. The lack of regulatory clarity has been cited as a barrier to institutional adoption of cryptocurrencies, which some believe could help to legitimize the industry and bring in more investment.

In response to the potential legal action from the SEC, Bittrex has said that it is committed to complying with all applicable laws and regulations and that it has been working with regulators to ensure compliance. The exchange has also stated that it will continue to operate in other jurisdictions outside of the US.

In conclusion, the potential legal action from the SEC against Bittrex underscores the increasing regulatory scrutiny of the cryptocurrency industry in the US. While many in the industry have called for clearer guidelines, regulators are taking a more active approach to enforcement, which could have significant implications for the industry going forward. Bittrex’s decision to wind down its US operations highlights the challenges faced by cryptocurrency exchanges in navigating the complex and evolving regulatory landscape.

Taiwan Regulates Crypto Exchanges, Bans Unregistered Foreign Operators

Key Takeaways

Taiwan’s Financial Supervisory Commission (FSC) releases new guidelines for Virtual Asset Service Providers (VASPs).
Foreign VASPs are prohibited from operating in Taiwan without proper registration.
The guidelines were released on September 26, 2023, and aim to improve investor protection.

Regulatory Framework

Taiwan’s Financial Supervisory Commission (FSC) has taken steps to regulate the cryptocurrency market by releasing guidelines for Virtual Asset Service Providers (VASPs) on September 26, 2023. The guidelines cover a range of issues, including the separation of exchange treasury assets from customer assets, mechanisms for listing and delisting virtual assets, and internal control systems.

Foreign VASPs Face Restrictions

The FSC explicitly stated that foreign VASPs are not allowed to provide services in Taiwan unless they have been registered in accordance with Taiwanese law. This move aims to ensure that all VASPs operating in the country adhere to local regulations and compliance standards.

Self-Regulation Encouraged

The FSC also encourages self-regulation within the cryptocurrency industry. VASP associations are expected to formulate self-regulatory norms based on the contents of the guiding principles. This comes as local exchanges like Maicoin, BitstreetX, Hoya Bit, Bitgin, Rybit, Xrex, and Shangbito have formed the Taiwan Virtual Asset Platform and Transaction Business Association.

Global Exchanges in Taiwan

Major global crypto trading firms like Binance have also been serving customers in Taiwan. Binance reportedly applied for registration in Taiwan under the Money Laundering Control Act. Other exchanges like Kraken and Bybit have been offering services to clients living in Taiwan.

Investor Protection

The FSC has emphasized the need for investor protection, especially in light of recent incidents involving foreign crypto exchanges. The guidelines are part of a broader effort to mitigate risks associated with the highly speculative nature of virtual assets.

Ex-FTX Execs Launch New Crypto Exchange Backpack

Nearly a year after the dramatic collapse of FTX, several former executives of the defunct cryptocurrency exchange have banded together to launch a new venture in the digital currency space. This new endeavor, named Backpack Exchange, is set to reshape the crypto landscape with a focus on enhanced security and regulatory compliance.

Genesis of Backpack Exchange

Leadership and Vision: The project is spearheaded by Can Sun, previously a lawyer at FTX, with significant support from Armani Ferrante, a former FTX employee who now serves as CEO of Trek Labs, the holding company based in the British Virgin Islands. Trek Labs, a Dubai-based startup, has been authorized to offer cryptocurrency services in the region. Claire Zhang, Sun’s former legal deputy at FTX and Ferrante’s spouse, also plays a crucial role in the team, albeit with plans to step down post-investment round.

Mission and Technology: With lessons learned from FTX’s downfall, Backpack Exchange focuses on ensuring the security of customer funds, a critical aspect FTX failed at. The exchange incorporates a self-custody solution utilizing a multiparty computation (MPC) technique, designed for enhanced security in fund transactions.

Strategic Location and Regulatory Compliance

Dubai as a Crypto Hub: The choice of Dubai as the base for Backpack Exchange is strategic. Dubai’s progressive stance towards virtual assets and the regulatory framework established by the Dubai Virtual Assets Regulatory Authority (VARA) offers a conducive environment for crypto ventures. Backpack has obtained the Dubai Virtual Asset Service Provider (VASP) license, enabling it to operate within one of the world’s emerging financial centers.

Product Offerings and Launch Timeline: Backpack Exchange plans to commence operations with spot trading, featuring state-of-the-art features like zero-knowledge proof of reserves and low-latency order execution. Exclusive early access is set for November 2023 for existing Backpack and MadLads community members, followed by a broader public launch in early 2024.

The Road Ahead: Transparency and Market Integrity

Commitment to Transparency: In a bid to instill greater trust and compliance in the crypto industry, Backpack Exchange adheres to VARA’s stringent regulations. This commitment is seen as a major step towards the institutionalization of cryptocurrency trading in Dubai, enhancing investor protection and maintaining market integrity.

Dubai’s Regulatory Framework: The decision of Dubai to regulate and license exchanges like Backpack reflects a positive approach towards embracing blockchain technology, with a focus on creating a regulated yet thriving environment for crypto-assets.

NYDFS Introduces Stricter Crypto Listing and Delisting Rules

The New York State Department of Financial Services (NYDFS) has revised its guidelines on the listing and delisting of cryptocurrencies. This move aims to bolster investor protection and ensure that virtual currency businesses adhere to heightened regulatory standards.

Since 2015, the NYDFS has been a pivotal regulator in the virtual currency sphere, introducing specific regulations like BitLicenses and trust company charters. The department’s initial guidance on the adoption or listing of virtual currencies was released in 2020.

Replacing its 2020 guidance, the NYDFS’s new directive, effective immediately, introduces more stringent requirements after considering inputs from various stakeholders. The guidelines emphasize heightened consumer protection measures and clearer risk assessment procedures to reduce ambiguities in regulatory processes. Also included are exceptions for advance notifications in specific scenarios of coin delistings and updated definitions for clarity.

Entities involved in virtual currency activities are now required to obtain DFS approval for their coin-listing policies, maintain detailed records, and communicate with DFS regarding self-certified coins. Furthermore, a crucial aspect of the new regulations is the development of a comprehensive coin-delisting policy. Entities must formulate these policies and submit them for review, complying with the revised guidelines by January 31, 2024, while presenting their draft policies by December 8, 2023.

These guidelines are set to influence a range of licensed digital currency businesses in New York. The NYDFS aims to maintain its leadership in regulating the evolving virtual currency market.

The NYDFS’s initiative is part of its broader efforts to protect investors in the cryptocurrency market. Entities like Circle, Gemini, Fidelity, Robinhood, and PayPal must comply with these new regulations, reflecting New York’s commitment to monitoring the cryptocurrency industry closely.

SEC Accuses Kraken of Operating Without Registration, Alleges Mixing of Funds

The U.S. Securities and Exchange Commission (SEC) has filed a complaint against Payward Inc. and Payward Ventures Inc., collectively known as Kraken, for operating their cryptocurrency trading platform without the necessary registrations. The complaint, filed in San Francisco, alleges violations dating back to September 2018. Kraken is accused of functioning as an unregistered exchange, broker, dealer, and clearing agency, amalgamating the roles of these entities without proper registration. This reportedly deprived investors of crucial protections, such as SEC inspection and safeguards against conflicts of interest.

The SEC’s complaint outlines several concerns, including Kraken’s provision of a marketplace for securities transactions, effectively operating as an exchange; engaging in securities transactions for customers, thus acting as a broker; buying and selling securities for its own account, functioning as a dealer; and serving as an intermediary in settling transactions in crypto asset securities, thereby operating as a clearing agency. The complaint also alleges that Kraken’s business practices, including deficient internal controls and poor recordkeeping, pose risks to customers. Notably, Kraken is accused of commingling customer funds with its own, leading to potential loss risks.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the agency’s stance on Kraken’s preference for profits over investor protection. The SEC seeks injunctive relief, disgorgement of profits plus interest, and penalties. Earlier in February, Kraken agreed to a $30 million penalty and ceased offering crypto asset staking services.

This lawsuit is part of a wider SEC crackdown on cryptocurrency exchanges operating without proper registrations. Similar allegations were made against other exchanges like Binance and Coinbase. The SEC’s list of unregistered securities includes tokens like ALGO, MATIC, and NEAR. Kraken’s response, as expressed by CEO Dave Ripley, disputes the SEC’s claims and defends their position of not listing securities. The debate continues over the SEC’s approach to cryptocurrency exchanges and the absence of clear regulatory pathways.

South Korea Intensifies Measures Against Unlicensed Crypto Exchanges

South Korean financial officials issued a directive on December 4, 2023, requesting users to report any unregistered cryptocurrency exchanges operating in the area. This directive was made in an effort to control the market. This approach is a reflection of South Korea’s continuous attempts to simplify its digital asset market and protect investors from the possible hazards connected with virtual asset exchanges that are not regulated.

The Financial Intelligence Unit (FIU) of South Korea, in conjunction with the Digital Asset Exchange Association (DAXA), was the driving force behind this effort. A crucial part of the regulatory system is played by the Digital Asset Exchange Association (DAXA), which is comprised of the five most important digital asset exchanges in South Korea: Upbit, Bithumb, Coinone, Korbit, and Gopax. Within the scope of their combined efforts, they want to identify local as well as international virtual asset company operators who may be targeting Korean people, which might be considered a violation of Article 7 of the Specific Financial Information Act.

DAXA is the organization that first investigates reports of illicit business operations carried out by bitcoin exchanges. After the results have been compiled, they are sent to the FIU, which is responsible for determining the operator’s status and deciding what steps are required. If it is discovered that operators are continuing their operations that have not been disclosed, the Federal Investigation Unit intends to involve investigative authorities and take the necessary actions. The public is strongly urged to report these businesses using the tip email provided by DAXA. The information that is sent should include pertinent corporate information, grounds for suspicion, and proof of actions that have not been reported.

South Korea is making a wider push to boost its engagement in the cryptocurrency business, and this new development is a part of that larger endeavor. As part of an effort to promote openness, the Democratic Party of South Korea has demanded that candidates for parliamentary seats reveal their personal cryptocurrency holdings. In addition, the South Korean Financial Supervisory Service (FSS) made an announcement in October that it was making preparations for laws that would augment the Virtual Asset Users Protection Act that had been approved earlier in 2023. It is anticipated that these laws will be in effect by January 2024, which will represent a major milestone in the manner in which the nation approaches the regulation of cryptocurrencies.

In order to show its dedication to the development of a secure and regulated digital asset market, South Korea has taken a position on the regulation of cryptocurrencies. The nation’s goal is to safeguard investors and preserve the integrity of its financial system at the same time by carefully monitoring and taking action against cryptocurrency exchanges that do not have legitimate licenses.

SEC Delays Decision on Invesco and Galaxy Digital's Ether ETF

Invesco and Galaxy Digital have proposed a spot Ether (ETH) exchange-traded fund (ETF), and the United States Securities and Exchange Commission (SEC) has recently extended the period for making a decision about whether or not to approve or disapprove of the proposal. It is clear that the Securities and Exchange Commission (SEC) will continue to exercise caution with regard to financial products that are based on cryptocurrencies.

On the Cboe BZX Exchange, the proposal in issue calls for the listing of shares of the Invesco Galaxy Ethereum ETF and the trading of such shares. Should it be authorized, this exchange-traded fund (ETF) would be among the very first of its type. It would provide investors with the opportunity to obtain exposure to Ether, the cryptocurrency that is responsible for powering the Ethereum blockchain, via a regulated financial instrument.

In the beginning, it was anticipated that the SEC would reach a ruling by the 23rd of December in 2023. However, in a notification that was sent on December 13, the Commission declared that it would need further time to consider the plan. As a result, the deadline was extended to February 6, 2024. The SEC is now able to conduct a comprehensive analysis of the effects that such a financial product would have on the market and the protection of investors thanks to this extension.

The resolution to prolong the assessment time brings to light the continuing discussions that the Securities and Exchange Commission is having over the incorporation of cryptocurrency products into the conventional financial system. Although the cryptocurrency community is anxious for such products, the Securities and Exchange Commission (SEC) has taken a cautious attitude because it is concerned about market volatility, regulatory compliance, and investor protection in the cryptocurrency sector, which is relatively young and is always growing.

When it comes to the acceptability of cryptocurrencies by the general public, the establishment of an Ether exchange-traded fund (ETF) would be a big milestone. It would give investors with a regulated and perhaps less hazardous channel to obtain exposure to Ethereum, which is not simply a cryptocurrency but also a platform for decentralized apps and smart contracts. This would be something that investors could take advantage of.

Following the announcement that the deadline for the SEC’s judgment on the Invesco Galaxy Ethereum ETF has been set for the beginning of 2024, market players and cryptocurrency aficionados are keeping a careful eye on this development. It is quite probable that the conclusion will have significant repercussions for the future of cryptocurrency investments as well as the wider use of blockchain technology in the financial sector.

Hong Kong to introduce comprehensive stablecoin regulation, focusing on innovation and investor protection.

Hong Kong is poised to set a global precedent in the cryptocurrency sector by introducing comprehensive regulations for stablecoin issuers. This development, encompassed in a public consultation from December 27, 2023, to February 29, 2024, marks a significant step in the region’s approach to digital assets.

The Role of Stablecoins in Web3 and Virtual Assets

Stablecoins, integral to the Web3 and virtual asset ecosystem, are increasingly intertwined with the traditional financial system. Recognizing this, the Hong Kong government, through the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA), aims to introduce a regulatory regime for fiat-referenced stablecoin (FRS) issuers. This move intends to manage potential monetary and financial stability risks while providing clear guidelines in the rapidly evolving crypto landscape.

Sandbox Approach: Fostering Innovation and Compliance

A central feature of Hong Kong’s regulatory framework is the introduction of a ‘sandbox arrangement.’ This innovative platform offers a controlled environment for stakeholders to interact with regulatory bodies, share feedback, and align with new regulations. The sandbox underscores Hong Kong’s commitment to balancing innovation with effective oversight.

Legislative Framework and Public Consultation

The legislative proposal encompasses several key aspects:

Mandatory Licensing: All FRS issuers meeting specific criteria must be licensed by the Monetary Authority.
Retail Sale Restrictions: Only licensed entities are permitted to sell FRS to the general public.
Advertising Restrictions: The framework prohibits advertising unlicensed FRS offerings.
Regulatory Flexibility: Authorities can adjust rules in response to the evolving crypto market.
Transitional Measures: These are designed to ensure a smooth shift to the new regulatory environment.

The consultation period allows industry experts, stakeholders, and the public to provide input, emphasizing the government’s commitment to creating responsive and effective regulations.

Officials’ Perspectives

Mr. Christopher Hui, Secretary for Financial Services and the Treasury, and Mr. Eddie Yue, Chief Executive of the HKMA, have highlighted the significance of these measures. They emphasize the importance of aligning stablecoin development with international standards and fostering sustainable growth in Hong Kong’s virtual asset ecosystem.

Hong Kong’s approach to regulating stablecoins is a pioneering effort in the global crypto landscape. By integrating public feedback, fostering innovation, and ensuring robust regulatory standards, Hong Kong is setting a benchmark for other regions to follow.

UK Cryptocurrency Exchanges Adapt to Enhanced Regulatory Standards

The United Kingdom’s cryptocurrency landscape is undergoing significant changes as it aligns with the Financial Services and Markets Act. This pivotal development, marking a substantial shift in regulatory approach, aims to apply rigorous standards, akin to those in traditional financial services, to firms operating with cryptocurrencies and stablecoins.

Cryptocurrency exchanges like Coinbase, Crypto.com, and Gemini have already initiated measures in response to these new regulations. They have introduced risk assessments and finance tests for users in the UK, which include a declaration about their investor profile and a related questionnaire. These steps are critical for compliance with the requirements that demand crypto companies to inform users about the risks associated with trading cryptocurrencies and advertise their services responsibly. Notably, the failure to complete these measures will prevent users from trading with their crypto accounts.

The broader framework for these regulatory changes is set out by the UK Government, intending to balance innovation with financial stability and clear regulatory standards. New specific regulated activities for cryptoassets will be created, paralleling those in traditional financial markets. Consequently, crypto native firms, whose primary business revolves around cryptoassets, will need full authorization and supervision by the Financial Conduct Authority (FCA). Traditional finance firms will also have the opportunity to expand their permissions to include cryptoasset activities.

In addition to the direct impact on firms operating within the UK, these regulations extend their reach to offshore firms providing services to UK clients. These firms will need authorization in the UK, although exceptions like ‘reverse solicitation’ are under consideration. This new regulatory environment encompasses a range of activities including trading, custody, and lending, each with specific requirements. For instance, trading venues must offer fair access rules, transparent fee schedules, and effective conflict of interest management. Cryptoasset intermediation will be regulated akin to the rules for investment firms, emphasizing consumer protection and market abuse detection.

The HM Treasury is also exploring the regulation of decentralized finance (DeFi) and seeking to understand how regulatory outcomes achieved in traditional finance can be applied to DeFi. This includes consideration for cryptoasset investment advice and portfolio management, and how these services align with current regulatory practices.

South Korea's Stance on Virtual Currency Investment and ETFs in 2024

South Korea has reasserted its stringent position on virtual currency investments. The country’s top financial regulator, the Financial Services Commission (FSC), has unequivocally stated that it will continue to enforce its policy that restricts financial institutions from launching cryptocurrency exchange-traded funds (ETFs). This stance comes despite the increasing global acceptance of cryptocurrencies and the approval of crypto ETFs in the United States.

The Financial Services Commission has articulated that the decision to uphold the ban is rooted in the need to ensure the stability of financial markets and protect investors. According to local media reports, an official of the FSC highlighted that the approval of spot bitcoin ETFs in the U.S. does not influence Korea’s regulatory approach. The regulator’s firm stance reflects a cautious attitude towards the volatile nature of cryptocurrencies and a commitment to safeguarding the traditional financial system.

South Korea’s existing capital markets act limits the scope of underlying assets for investment contract securities, such as ETFs, to traditional financial investment instruments, currencies, and commodities. Cryptocurrencies, not being recognized as financial assets in South Korea, fall outside the purview of permissible investments for financial institutions. This policy has been in place since 2017 and remains a cornerstone of South Korea’s approach to managing the risks associated with digital currencies.

In addition to the ETF ban, South Korea is also working on comprehensive crypto regulation, which is being developed in two parts. The first part of this regulation, passed last year, is set to come into effect in July 2024. This legislation will establish clear rules regarding the issuance, listing, and delisting of cryptocurrencies. The second part of the regulation is still under construction and aims to further refine the legal framework governing digital assets.

Another significant aspect of South Korea’s regulatory framework is the Virtual Asset User Protection Act, scheduled to be enforced from July 19, 2024. This Act will enforce specific regulations for improved user safety and market stability in the virtual asset sector. Notably, the Financial Services Commission has declared that NFTs (Non-Fungible Tokens) and CBDCs (Central Bank Digital Currencies) are exempt from these regulations.

The recent developments indicate a cautious but evolving approach by South Korean authorities towards cryptocurrency and digital assets. While maintaining strict control over traditional financial institutions’ involvement in crypto, the government is also laying down a foundation for a regulated and secure environment for digital asset transactions.