Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.
U.S. Developments
Basel Committee Issues Fintech Recommendations
This week, a task force within the Basel Committee on Banking Supervision (BCBS) released a consultation paper addressing Fintech developments and implications for the banking industry. The paper makes 10 primary observations and recommendations for banks with respect to regulation and business practices. The recommendations include balancing the integrity of the banking system and consumer protection while fostering innovation in Fintech; maintaining strong governance structures; establishing due diligence and monitoring procedures for operations outsourced to third parties, including fintech firms; and cooperating with public authorities charged with overseeing regulation. The paper also emphasized the need for banks to have solid risk management processes and IT protocols to combat money laundering and activities linked to terrorism, in addition to breaches in cyber-security. Basel Committee Paper – August 2017; ABA Banking Journal article 8.31.17
New Hampshire Law Exempting State Money Transmitters Takes Effect
On August 1, New Hampshire’s money transmitter law (House Bill 436) took effect. The new law, which was signed into law in June, exempts digital currency platforms from registering with the state as money transmitters. New Hampshire HB 436 (Regular Session 2017); Virtual Currency Report (6/16/17)
SEC Suspends Trading of Four Bitcoin Firms and Warns About ICOs
The U.S. Securities and Exchange Commission (SEC) issued a press release this week warning investors about potential ICO scams, including ‘pump-and-dump’ and market manipulation schemes. This warning follows the SEC’s recent temporary trading suspensions of four publicly-listed technology companies. In its press release, the SEC identified certain circumstances that could lead to a suspension of trading, including lack of information resulting from a company’s failure to file periodic reports; doubts about the accuracy of public information including operational and financial information in a company’s press releases or reports; and questions about trading, including trading by insiders and potential market manipulation. SEC Press Release 8.28.17; Coindesk 8.24.17
International Developments
Israel Regulators Form Committee to Study Token Sales
On August 30, the Israeli Securities Authority (ISA) announced the formation of a task force to research and make recommendations for potential regulation of ICOs. The committee identified several issues that it will focus on, including: the overlap of token offerings and other activities subject to securities law; examine applicability and enforceability of securities law with respect to token sales; recommendations for regulation that strikes a balance between encouraging innovation and protecting investors and the public; and potential collaboration with other regulators and the blockchain industry in Israel. ISA Release; ETHNews article 8.30.17
ICOs in Canada Could Be Subject to Securities Regulation
The Canadian Securities Administration (CSA) issued a notice on August 24 in which it indicated that many initial coin offerings (ICOs) and initial token offerings (ITOs) could be subject to Canadian securities or derivatives law. The notice made recommendations for companies planning ICOs, which included creating a prospectus for the ICO and limiting the sale to accredited investors. Notice 8.24.2017; Fortune 8.28.17
Chinese Regulators Discuss the Future of ICO’s
Chinese regulators reportedly discussed a plan to suspend all initial coin offerings within China, at a meeting on August 18 hosted by the People’s Bank of China (PBoC). Discussions at the meeting including placing limits on the size of ICOs and imposing stricter rules for information disclosure, token supervision, and publishing risk alerts to investors. However, reports have indicated that regulators could ban ICOs outright amid concerns about market risks. 1998 Order; Coindesk 8.29.17
For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.