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Heads of SEC, CFTC and FinCEN Jointly Warn Crypto Industry to Follow Regulations

The heads of the three major US financial regulators have issued a joint statement warning the cryptocurrency industry to adhere to banking regulations in the development of digital assets.

The joint statement was signed by Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert, Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco and Securities and Exchange Commission (SEC) Chairman Jay Clayton. The statement reiterates that digital assets must comply with the various banking and financial services laws already in place in the US, regardless of what they call their cryptocurrencies or tokens—citing the Bank Secrecy Act (BSA) which outlines how financial services must be registered in compliance with regulators.

The details of the statement spoke to the nature of digital asset-related activities, explaining that the “activities a person engages in are a key factor in determining whether and how that person must register with the CFTC, FinCEN, or the SEC.”

The statement further highlights that an ‘exchange’ in a digital assets market may or may not qualify or be categorized as an ‘exchange’ in the federal securities market. Quoted from the joint statement, “Regardless of the label or terminology that market participants may use, or the level or type of technology employed, it is the facts and circumstances underlying an asset, activity or service, including its economic reality and use (whether intended or organically developed or repurposed), that determines the general categorization of an asset, the specific regulatory treatment of the activity involving the asset, and whether the persons involved are ‘financial institutions’ for purposes of the BSA.”

Comments from the SEC

In additional comments, Chairman Jay Clayton, Securities and Exchange Commission (SEC) spoke on the responsibilities of his department stating that “The statutory mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. In general, the SEC has jurisdiction over securities and securities-related conduct. Persons engaged in activities involving digital assets that are securities have registration or other statutory or regulatory obligations under the federal securities laws.” Clayton concluded, “Broker-dealers and mutual funds are required to implement reasonably-designed AML Programs and report suspicious activity These rules are not limited in their application to activities involving digital assets that are “securities” under the federal securities laws.”

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Arab's Financial Security Publishes a Tentative Draft Resolution for Crypto Regulations

On Oct.15th, the Securities and Commodities Authority (SCA), an organization responsible for regulating and developing the financial market of the United Arab Emirates, released a draft on its website containing their tentative resolutions on how the crypto market will be regulated.

In line with the report, the 28 articles contained in the draft resolution address the United Arab Emirates’ crypto assets industry ranging from the requirements for token issuers, to safe circulation and custodial policies or practices, measures for protecting investors’ interests and compliance with fighting financial crimes, information security controls, as well as technology governance standards, and performance for every market intermediaries.

SCA opened a door for fair opinions for all the capital market participants in the state. This includes dealers of different categories such as investors, intermediaries, financial analysts, researchers, media and interested parties. SCA claimed that the observations, contributions, and proposals of these participants are to be taken into consideration when they will be preparing the final wording of the resolution. These participants are enjoyed to review the contents of the draft and air their opinions or views by no later than 29 October this is to enable them to get familiarized with the findings of the industry and the opinions of participants in the market.

The report has also noted that the draft set parameters and criteria for enough participants such as: token issuers; investors; custodians; crypto trading platforms; brokers, and promoters in the industry. And thus, once the regulation is enforced, market participants will be able to request the SCA’s guidance on a specific issuance of symbolic instruments or regulatory requirements through its services system.

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Harbor Becomes First Blockchain Company to Hold Both Transfer Agent License and Brokerage License

Harbor, a digital assets firm for security token issuance, has been granted a transfer agent license by the United States Securities and Exchange Commission (SEC).

On Thursday, Oct 31, Harbor CEO Joshua Stein announced to the Block that the SEC had granted their request for a transfer agent license which now makes Harbor the first security token platform to have both a transfer agent license and a broker-deal license.

With the transfer agent license Harbor will now have the ability to maintain records of security token ownership, keep track of account balances and pay our dividends to investors. Harbor plans to attract blockchain companies that are looking to conduct Regulation A+ offerings and to engage with these companies it is crucial they have a transfer agent license to comply with SEC regulations.

Regulation A+ funding was introduced in 2012 and is an alternative type of initial public offering aimed towards startups for preliminary funding.

Harbor had previously been granted a brokerage dealer license last September. According to Stein, holding both licenses enables Harbor to facilitate the complete life cycle of security token issuance as well as regulated trading. This combination will further increase Harbor’s appeal to companies that are looking to make security token offerings.

Stein said, “Think of the entire life cycle of this, there is… selling the investors into the investment, maintaining the investment while they are in, and controlling how they are traded. The broker-dealer is mostly involved in gaining the investors into the investment. The transfer agent maintains the records while they are in and pays out dividends, and the transfer agent controls when they pay out.”

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US CFTC Rounded Up Over $1.3B in Regulatory Penalties in 2019, 40% More Than the Previous Year

The US Commodity Futures Trading Commission (CFTC), the derivatives regulator in the US, has collected over $1.3 billion in regulatory and administrative penalties in the fiscal year of 2019, including funds collected from cryptocurrency businesses, which ended on Sept. 30.

In the annual report released by the CFTC Division of Enforcement, the regulator stated that 69 actions were brought during the fiscal year of 2019, noting a slight increase over the average of 67.5 in the previous five fiscal years.

The result in regulatory penalties has also increased by 40% compared to the fiscal year of 2018, of around $947 million.

James McDonald, the Director of Enforcement at the CFTC, said: “The breadth and significance of the enforcement activity in FY 2019 is reflected in the fact that the filed cases involved some of the most significant commodities fraud, manipulation and spoofing cases in the history of the agency.”

McDonald also added that the CFTC will continue to work against fraudsters and will “operate in parallel with our criminal law enforcement colleagues.”

Several charges were pointed out, including the $147 million crypto scheme Control-Finance Ltd, Jon Barry Thompson, who was accused of a $7 million Bitcoin-related fraud, and Joseph Kim, who was charged with defrauding investors. However, the CFTC did not specify the exact amount of regulatory penalties obtained from these companies.

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German Banks Authorized for Crypto Custody and Sales in 2020

From Jan. 1, 2020, German banks will be legislatively authorized to sell and provide custody of cryptocurrencies as reported by German newspaper Handelsblatt.

German Parliament passed the new law on Nov.29, amending the fourth EU Money Laundering Directive. The bill was altered for the final version to allow financial institutions to act as custodians, conditional to procuring the relevant license. Previous iterations of the bill required banks to store cryptocurrencies with third-party custodians—as the change occurred late in the bills passing, the deadline for financial institutions has also been extended.

German Pioneers

Sven Hildebrandt, a partner at Hamberg-based Distributed Ledger Consulting, praised German legislators for their foresight and initiative. He told Handelsblatt, “The German legislator is playing a pioneering role in the regulation of crypto storage.”

While Hildebrandt affirms that the move is turning Germany into a “crypto heaven,” there are some German industry experts that are concerned with consumer protection under the new law. Niels Nauhauser’s told Handelsblatt that he has concerns that consumers may still have little understanding of how cryptocurrencies work and the risks that are associated with the industry, and may be given false confidence by institutional banks to invest in cryptocurrencies.

Nauhauser said, “So far, distribution was only possible for the banks through special bonds. Here, they had to inform their customers in advance about costs and key investor information. This is not the case in direct sales of Bitcoin.”

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IRS Refuses Watchdog Request to Clarify 2019 Crypto Tax Guidelines

The Internal Revenue Service will not clarify how taxes work with cryptocurrencies and digital asset transactions according to a US congressional watchdog’s report released on Wednesday.

Following Rep. Ken Brady’s (R-TX) request for clarity on how taxes are levied against cryptocurrency, the Government Accountability Office (GAO) published a report evaluating the IRS’ current approach and public guidelines on cryptocurrency.

GAO Recommends Disclaimer to 2019 Crypto Guidelines, IRS rejects

Following the report, GAO made recommendations to the IRS, as well as an additional recommendation to the Financial Crimes Enforcement Network (FinCEn).

The recommendations were, “GAO is recommending that IRS clarify that part of the 2019 guidance is not authoritative, and take steps to increase information reporting; and that FinCEN and IRS address how foreign asset reporting laws apply to virtual currency.”

In response to the recommendations, GAO reported that the IRS, “Agreed with the recommendation on information reporting and disagreed with the other two, stating that a disclaimer statement is unnecessary and that it is premature to address virtual currency foreign reporting.”

Despite the IRS’ refusal to disclaim the guidelines as non-authoritative, GAO believes a disclaimer would increase transparency and that IRS can clarify foreign reporting without waiting for future developments in the industry.

FinCEN agreed with GAO’s recommendation.

Overall Clarity needed in US Regulatory Guidance

As reported earlier by Bloomberg Tax, while the IRS’ 2019 guidance answered some questions around the tax treatment of cryptocurrencies, they also raised new concerns among virtual asset stakeholders. Complying with tax requirements may be difficult, and the GAO report suspects that trading activity may be underreported due to a lack of clarity around what should be reported.

Prior to ending his presidential campaign, Democrat Andrew Yang had expressed his frustrations at the mixed communication from the main regulator bodies. He said “Right now we’re stuck with this hodgepodge of state-by-state treatments and it’s bad for everybody: it’s bad for innovators who want to invest in this space. So that would be my priority is clear and transparent rules so that everyone knows where they can head in the future and that we can maintain competitiveness.”

Perianne Boring, President and Founder of the Chamber of Digital Commerce has expressed similar regulatory frustrations as those presented by Yang.

In a recent interview with Blockhain.News, Boring commented, “In the United States, we have a very fragmented regulatory environment which has been an obstacle toward a framework that supports innovation—you have the SEC , that’s looking at digital tokens and classifying them as securities; the CFTC that’s also looking at digital tokens and classifying them as commodities; the IRS is taxing them as property, and FinCEN is regulating them as currency. There are just a lot of different regimes. And so, for the companies operating token platforms, there’s a lot of regulatory uncertainty.”

The reality is that until regulatory bodies are able to clarify and demystify how innovation and investment can work in the US, innovation will be tentative and investors will be apprehensive.

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Reserve Bank of India Says Banks Are Authorized to Provide Accounts to Cryptocurrency Traders

The Reserve Bank of India (RBI) has recently confirmed that there is no banking ban on the cryptocurrency industry. The banking regulator was responding to a Right to Information (RTI) query.

The co-founder of Unocoin cryptocurrency exchange, B.V. Harish filed the RTI query on April 25. He asked whether the Central Bank has prohibited local banks from providing the bank accounts for crypto traders, crypto exchanges, or cryptocurrency companies. On May 22, the banking regulator replied: “As on date, no such prohibition exists.”

Crypto Businesses May Still Face Regulatory Hurdles

In March, the Supreme Court of India overturned the Central Bank’s circular that banned banks from providing services to any business or anyone dealing with cryptocurrencies. In April 2018, India’s Central Bank directed all entities regulated under it not to deal with digital currencies or provide services to facilitate any entity or person from settling or dealing with the same. The Supreme Court termed such directive as illegal. After the Supreme Court ruling, crypto exchanges started bringing bank support after about two years without it.

However, several banks are reported to still refuse opening accounts for cryptocurrency exchanges. Banks claim that they are waiting for further instructions from the Central Bank regarding cryptocurrency. In the recent past, Harish said that banks have been claiming that they need RBI circulars specifying that there are no more restrictions for them to provide bank accounts for cryptocurrency businesses.

BV Harish filed an RTI query because of concerns faced by traders who claimed that banks continued imposing restrictions on cryptocurrency trade despite recent ruling made by the Supreme Court.

Harish said: “Bankers have been saying that they need new RBI circulars mentioning that there are no more restrictions for them to provide bank accounts for crypto businesses. Now, we have received a positive response from the RBI.”

After the Supreme Court lifted the bank restriction, many crypto exchanges started seeing 10x trading volumes and a significant rise in new users. Despite the extended countrywide lockdown, the crypto industry is booming. P2P (peer-to-peer) marketplaces for Bitcoin are growing in the country, new investments are flowing in, and new cryptocurrency exchanges are launching.

Meanwhile, India’s government is reported to still hold discussion on whether to regulate cryptocurrency. But the process has been delayed because of the COVID-19 pandemic and the countrywide lockdown. In March, reports indicated that India’s government was engaging in discussions of ways to regulate cryptocurrencies with the Central Bank.

Crypto Exchanges Seek Clarity on Legal Status and Taxability from The Central Bank

Earlier this month, cryptocurrency exchanges in India were seeking tax status and regulatory clarity from the Central Bank following the Supreme Court ruling that favored the crypto industry earlier this year. Crypto firms and exchanges were seeking clarification concerning the nature of their operations. Several cryptocurrency exchanges wrote to the Central Bank to need clarification concerning their status as banks continue to deny banking services to them due to a lack of clarity from the Central Bank. They claimed that the lack of clarity on taxation has allowed banks to continue delaying services to crypto exchanges.

Moreover, the cryptocurrency exchanges demanded clarification regarding whether they are being classified as goods, commodities, currency, or services as would impact the manner in which they get taxed under the Goods and Services Tax (GST) framework. Praveenkumar Vijayakumar, the chairman and CEO of cryptocurrency exchange Belfrics Global said that if India’s crypto exchanges would pay GST on the whole transaction, then most of these platforms would not be able to survive. However, it remains to see how things would unfold in the crypto industry.

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SEC Adopts Expedited Public Listing Review Process—Blockchain ETFs Could Qualify

The United States Securities and Exchange Commission has voted to adopt rule amendments to expedite the review procedure for companies applying for public listing.

The Securities and Exchange Commission (SEC) announced on July 6, that it had voted to adopt rule amendments to establish an expedited review procedure for investment companies under the Investment Company Act. The new process could potentially include streamlining crypto and blockchain exchange-traded fund (ETF) applications and should provide more “certainty and transparency regarding the process” for these firms.

The regulators declared that the expedited review process will be available for applications that are substantially identical to two other applications for which an order granting the relief has been issued within three years of the date of the application’s initial filing. Additionally, the SEC also referenced a new internal procedure for applications that did not qualify for the new expedited review process.

“The application process under the Investment Company Act is an important component of our regulatory structure. The process provides economic benefits to fund shareholders, expands investor choice, and facilitates innovation in the asset management industry, all with a steadfast commitment to transparency and investor protection,” said SEC Chairman Jay Clayton. “The changes approved today will modernize and streamline this process, resulting in improved transparency, reduced costs, and a more efficient use of our staff’s resources.”

The SEC said the changes would be in effect 270 days after being published in the Federal Register.

Months to Days For Crypto ETF Review

The SEC has been notoriously opposed to approving Bitcoin ETFs, which has drawn the ire of those within its ranks. Wilshire Phoenix recently sought approval for its Bitcoin Exchange-Trade Fund, an application that was rejected by SEC in February 2020. The Exchange-Traded Fund proposed to hedge Bitcoin against US Treasury bills.

The SEC’s newly adopted amendments that will come into effect—mean that crypto and blockchain ETFs that have required an exemption from the regulators for their operations in the past could qualify for the new review process. However, the fund would need to file a third application “substantially identical” to others that were granted exemption within three years of the date of the application’s initial filing.

While traditionally the review process for a typical IPO application with the SEC entails three rounds of inquiries and lasts between one and two months. In the case of the expedited review, the Commission would provide a notification to the applicants within 45 days of the date of filing provided the company responds within 30 days.

Nigerian Securities Commission to Release Official Guidelines on Crypto Regulations

Nigeria’s Securities and Exchange Commission has announced that it will create a clear regulatory framework for trade in digital currencies to protect investors’ interests and to ensure transparent transactions.

On Monday Sept.14, Nigeria’s capital market and investment regulator said that the cryptocurrency regulation’s aim is not to stifle innovation or hinder technology, but rather to create standards that promote ethical practices.

In the past, the authorities in Nigeria had refused to recognize cryptocurrencies as legal tender. In 2018, the Central Bank of Nigeria warned that cryptocurrencies, including Bitcoin, Onecoin, Litecoin, Ripple, Dogecoin, and Monero, were not regarded as money. The Nigerian Central Bank also stated that investors were unprotected.

The Commission Strengthens Crypto-Assets Regulations

In today’s announcement, the SEC said that it would consider crypto-coin or crypto-token investments as exchangeable securities. Every crypto asset in the country will be treated as securities unless the startup or company proves otherwise. If the regulator determines that a virtual asset is not a security, then it will not regulate it.

The agency will be taking a three-pronged approach to regulating innovation within the crypto sector. These include safety, market deepening, and offering solutions to problems.

As per the regulator, crypto sponsors or issuers will be required to register their virtual digital assets with the commission.

First, crypto sponsors or issuers are expected to make an initial assessment filing to the agency to prove that the assets they offer are securities. They will then be required to do a proper filling for registration purposes.

Those that have already engaged in ICOs or issued assets will be given three months to comply with the specified registration requirements.

Furthermore, every person or corporate organization engaging in any aspects of digital assets and blockchain-related services must register with the commission and follow its regulatory guidelines.

This appears to apply to crypto-based startups, crypto exchanges, and individuals operating their own exchange services in Nigeria. However, the agency mentioned that it would require non-resident or foreign companies or startups to establish a branch in the country.

Foreign firms will be recognized if they belong to a nation that either has a reciprocity agreement with Nigeria or is a member of the IOSCO (International Organization of Securities Commission).

Crypto Markets Thrive with Clear Regulation

The crypto scene is booming, but it needs a clearer regulatory framework for it to thrive. The world has witnessed a huge rise in blockchain and crypto investments. Lack of clear regulation is one of the main roadblocks that restrict the growth of the industry. Many countries across the world still don’t have a proper approach to regulating cryptocurrencies. Several crypto activities, including ICOs, are in a grey area because there is no actual regulation on cryptocurrency.

Regulators have a role to play in putting in place a clear policy to protect customers from financial fraud. Once regulators have a clear definition of what crypto assets are, then they can determine how to regulate ICOs and other crypto-related activities.

Russian Policy Boss Wants to Block Cryptocurrencies, Says They Are Difficult to Regulate

Following the recent proposal to extend regulations on digital currencies in Russia, the head of the State Duma Financial Market Committee made statements which further confused crypto advocates on whether there was a possibility for cryptocurrencies to thrive in the Kremlin.

Per reports from local news channel RBC, Anatoly Aksakov, the head of the Financial Market Committee, has suggested that in addition to the Ministry of Finance’s proposals for cryptocurrency regulation, the country can explore other options.

With about a month away from passing new amendments in relation to digital currencies, Anatoly has denounced cryptocurrencies, saying they are difficult and almost impossible to regulate.

“We have adopted the law on CFA, it creates an opportunity for active use, including crypto-instruments, stablecoins, smart contracts. At the same time, I would now limit everything related to cryptocurrencies. This market is hardly possible to regulate, in principle it is impossible,” Aksakov emphasized. According to him, everything related to cryptocurrencies should be “blocked”.

In his many attempts to clamp down on cryptocurrencies, Anatoly also added that the Kremlin was exploring regulatory options “that would imply a direct ban on any transactions with cryptocurrency, except for three cases: inheritance, bankruptcy and enforcement proceedings.”

Known to be anti-digital currencies, Anatoly’s stance about Bitcoin and altcoins remains unchanged, despite the State Duma passing the Digital Financial Assets (DFA) bill months ago. One major reason why Russia’s stance on digital assets appears confusing is its known embrace of stablecoins. As Blockchain.news reported, Anatoly confirmed that Russia will be able to use stablecoin tokens and exchange them for other assets, which include but are not restricted to digital assets that were issued abroad.

The regulatory stance on stablecoins clearly exposes the differences in policy across all regions. While Russia speaks positively of stablecoins, the proposed Facebook Libra, which comes off as a stablecoin, is still being rejected and mulled over by the United States and the European Union.

The 27-member EU body is however currently reconsidering providing the right legislations to let stablecoins thrive.