Weekly Fintech Focus
- Congress Members Reintroduce Bill to Define Digital Assets
- President’s Working Group on Financial Markets Meets to
Discuss Stablecoins - Chairman Gensler Remarks Signal SEC Future Focus on Potential
Crypto Regulation Through Security-Based Swaps Authority - DraftKings Announces Launch NFT Digital Marketplace
- Mastercard Announces Enhancements to Digital Currency Card
Program - European Commission Proposes to Expand Regulations on
Cryptocurrency Service Providers - Russian Central Bank Urges Stock Exchanges to Avoid Listing
Crypto Companies
U.S. Developments
Legislation
Congress Members Reintroduce Bill to Define Digital
Assets
U.S. Representative Tom Emmer (MN-06) re-introduced legislation aimed at defining
how regulators should classify and treat cryptocurrencies. Emmer
originally 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 progress after being
referred to the Committee on Financial Services. Emmer has since
gained the support of Democratic Representatives Darren Soto
(D-Fla.) and Ro Khanna (D-Calif.), who are cosponsors to the bill.
As addressed in a previous
post, Representative Emmer also coauthored a letter to then SEC
Chairman Jay Clayton requesting that the SEC take action to provide
clarity regarding digital securities in the context of
broker-dealer custody.
The bill builds off the “investment contract”
definition in the Securities Act of 1933, with particular focus on
its application to token offerings and underlying assets of the
offerings (i.e., accompanying token or coin). Specifically, the
bill proposes a new definition for tokens—investment contract
assets—which would be treated as commodities, not 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 individuals who have complied with existing securities
registration requirements, or who have qualified for an exemption
but, after meeting these requirements, innovative entrepreneurs may
distribute their asset to the public without fear of additional
regulatory burdens. These assets are in fact, and always were,
commodities.”
You can find the text of the bill here.
Regulation
President’s Working Group on Financial Markets Meets
to Discuss Stablecoins
On July 19, 2021, the U.S. Department of the Treasury announced that Treasury Secretary Janet
Yellen convened the President’s Working Group on Financial
Markets (the PWG) to discuss stablecoins.
Federal Deposit Insurance Corp. Chairman Jelena McWilliams,
Acting Comptroller of the Currency Michael Hsu, Treasury Under
Secretary for Domestic Finance J. Nellie Liang and Federal Reserve
Vice Chair for Supervision Randal Quarles joined Treasury Secretary
Janet Yellen, Federal Reserve Chairman Jerome Powell, Securities
and Exchange Commission Chairman Gary Gensler, and Acting Commodity
Futures Trading Commission Chairman Rostin Behnam during the
meeting.
The meeting covered several topics: the rapid growth of
stablecoins, potential uses of stablecoins as a means of payment,
and 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 noted that the PWG expects to
issue recommendations in the coming months, it is unclear when,
specifically, the PWG will publish its recommendations.
The topic of stablecoins—and the best manner to address
stablecoin issuers and users—has spurred many proposals from
regulators and industry participants alike. While giving testimony
before Congress, Federal Reserve Chairman Jerome Powell noted that
Federal Reserve officials will be broadly examining the digital
payments universe—including the plausibility of a central
bank digital currency—in a discussion paper that could be
released in early September. The discussions regarding 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 professor of finance at Yale, Gary
Gorton, and U.S. Federal Reserve attorney Jeffery Zhang, argued in
support of supervision and regulation of stablecoin issuers in
a manner similar to banking regulation. The paper describes
stablecoins as privately produced money and compares the current
landscape to the 19th century’s Free Banking Era. Citing the
resulting consequences of privately issued money and “wildcat
banking” in the past, the authors suggest plausible means of
regulating the industry.
Chairman Gensler Remarks Signal SEC Future Focus on
Potential Crypto Regulation Through Security-Based Swaps
Authority
On July 21, 2021, SEC Chairman Gary Gensler gave remarks at the American Bar Association
Derivatives and Futures Law Committee Virtual Mid-Year Program that
outlined the SEC’s current agenda regarding security-based
swaps (SBS), including reporting, clearing, swap execution
facilities trading, and substituted compliance.
Among the areas discussed, Chairman Gensler addressed the “intersection of [SBS] and financial technology,”
including as to crypto-assets, therein explaining that “[t]here are initiatives by a number of platforms to offer
crypto tokens or other products that are priced off of the value of
securities and operate like derivatives.” Chairman Gensler
cautioned that any platform that provides exposure to a stock
token, a stable value token backed by securities, or any other
virtual product that provides synthetic exposure to underlying
securities is implicated by the securities regime, irrespective of
whether the platform is in the decentralized or centralized finance
space.
More importantly, Chairman Gensler suggested that these products
could fall within the definition of “security-based swap”
and, therefore, become subject to the security-based swap rule
regime, including offering registration requirements to retail
customers. Chairman Gensler noted that the SEC has already
initiated enforcement actions involving retail offerings of
security-based swaps and intends to continue to rely on its
regulatory and enforcement authority.
A page on the SEC site summarizes the
SEC’s actions to date.
Industry
DraftKings Announces Launch NFT Digital
Marketplace
On July 20, 2021, fantasy sports and sports wagering company
DraftKings announced plans to launch a non-fungible token (NFT)
marketplace featuring content that will be provided through new
partnerships with entertainment company Lionsgate and NFT platform
Autograph.
The marketplace will provide access to curated NFT releases in
the entertainment and sports realms and facilitate secondary market
transactions. Through its partnership with Lionsgate, the
marketplace will create digital-collectible content based on its
flagship entertainment properties such as action franchise John
Wick, the Hunger Games and Twilight Saga franchises, and TV series
Mad Men and Dirty Dancing.
Autograph, an NFT platform cofounded by Tom Brady, will provide
sports-related, officially licensed Autograph NFT exclusively on
the marketplace.
Mastercard Announces Enhancements to Digital Currency
Card Program
On July 20, 2021, Mastercard announced plans to enhance its card
program for cryptocurrency wallets and exchanges in order to better
facilitate conversions between traditional fiat currency 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 financial technology firm and the principal
operator of the USD Coin, a dollar digital currency or stablecoin.
The anticipated partnerships with Paxos and Circle will allow the
platforms to facilitate converting currencies through fiat-backed
stablecoins.
International Developments
European Commission Proposes to Expand Regulations on
Cryptocurrency Service Providers
On July 20, 2021, the European Commission announced a package of legislative
proposals to strengthen the European Union’s (EU) anti-money
laundering and countering terrorism financing (AML/CFT) rules,
which propose to extend EU regulations to the cryptocurrency
industry. 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 composed of four proposals, including
amendments to the 2015 Regulation on Transfers of Funds to trace
transfers of crypto-assets (Regulation 2015/847/EU). If adopted,
the EU AML/CFT rules—which currently apply to certain
categories of crypto-asset service providers only—will apply
to the entire cryptocurrency industry, thereby requiring all
cryptocurrency service providers to conduct due diligence on their
customers. The proposal also would extend the “travel
rule” to crypto, which the Financial Action Task Force already
applies to wire transfers. If adopted, the rule would require
cryptocurrency service providers to collect specific data to allow
for prevention and detection of the possible use of cryptocurrency
transfers in money laundering or terrorism financing. Extending
these requirements to cryptocurrency transfers would prohibit
anonymous crypto-asset wallets.
The legislative package is under review by the European
Parliament and Council.
You can find our September 21, 2020, post
here for additional background.
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 an information letter on July 19,
asking Russian stock exchanges to stay away from listings of
foreign and local companies involved in a broad range of crypto
services.
Explaining, in part, that digital assets are characterized by
high volatility, lack of transparency in pricing, low liquidity,
and technological, regulatory, and other specific risks, the Bank
of Russia recommended that Russian
exchanges not permit listings of companies (domestic or foreign)
whose business relies on crypto market prices, including digital
financial assets or crypto derivatives and crypto funds. The Bank
of Russia also recommended that asset managers exclude these
instruments in mutual funds.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
from WordPress https://ift.tt/3jh94iE
via IFTTT
No comments: