CryptoLaw Newsletter #34
Tougher crypto ad rules; EU should ban PoW crypto mining says ESMA VC; UK report sees CBDC as solution in search of problem, tech advisor recommends plugging legal gaps to boost competitiveness.
Hello everyone,
Lots of legal warning shots on crypto ads the past few days.
Kim Kardashian was put on notice about influencers' crypto-ads in a Bank of England speech. She, together with Floyd Mayweather and others, was sued last week in a class action lawsuit in California for "false and misleading" statements about EthereumMax. The little-known coin saw stellar price increases after celebrity endorsements. And then crashed.
Crypto ads, especially influencer endorsements, have been a source of concern for regulators. Consumer protection has been high on the agenda since the ICO boom & bust. Spain became the first country in the EU to impose explicit rules on influencers promoting crypto-assets. The country's securities regulator has been given the power to regulate crypto advertisements; "The measures take effect next month and require influencers and their sponsors to pre-notify authorities of some posts and to warn of crypto’s risks or face fines." (FT)
Now UK lawmakers are planning to bring certain crypto-ads under the same obligations as financial promotions on, for example, shares. The Financial Conduct Authority already published draft rules, proposing that only sophisticated investors, high net worth individuals or other restricted investors can respond to crypto financial promotions.
In Singapore, the Monetary Authority of Signapore published guidelines warning that crypto firms"should not promote their [cryptocurrency] services to the general public".
Digital assets
EU – The European Union should ban crypto mining based on energy-intensive Proof of Work (PoW), said the vice-chair of the bloc's securities regulator ESMA. While he does not favour a crypto ban as such, he wants to push for less energy consuming Proof-of-Stake mining. Institutional investors with crypto exposure should consider their ESG score, he warned. Using renewable energy for crypto mining isn't a solution either: in his view, renewables should instead be used to shift traditional sectors away from coal and non-renewable energy sources. (FT)
India – PM Modi calls for greater global cooperation on cryptoassets at Davos (Coindesk)
Pakistan – The country's Federal Investigation Agency said it will ask Pakistan Telecommunication Authority to block cryptocurrency websites. (Coindesk) There were rumours that Pakistan wanted to ban crypto entirely: (Cointelegraph)
China- Police in the province of Anhui froze RMB 6 million and arrest 8 after alleged rug pull affects hundreds. (Coindesk)
US - "Frankly, it's a bit confusing about who actually regulates digital assets and especially crypto … and of course exactly what you can or cannot do," said Bank of New York Mellon's CFO. (Reuters) Former Comptroller of the Currency's Brian Brooks and Cornell professor Ari Juels are among the witnesses for a Congressional hearing on Thursday on crypto mining's environmental impact.
Brazil – Rio de Janeiro wants to invest 1% of its treasury into cryptoassets. (Decrypt)
UK – A top tech advisor to the judiciary wants a new institute to promote English law to global companies as the law of choice to govern transactions in new areas such as blockchain. The new institute should identify gaps in the laws of England & Wales to deal with digital assets and blockchain, among other things. (FT)
Thailand – The former head of the Securities and Exchange Commission laid out three concerns with current plans to impose a crypto tax in the country. She called plans to impose a capital gains tax unfair and impractible, instead recommending a VAT exemption for crypto in Singapore style. (Cointelegraph)
Spain – Influencers promoting cryptoassets will be subject to new rules from next month onwards. They will need to disclose if they are paid for their endorsement and, if so, must give a "clear, balanced, impartial and non-misleading” warning about the risks of crypto investments in their posts. An influencer with more than 100,000 followers will also need to notify the regulator in advance or risk a fine of up to €300,000. (FT)
UK lawmakers are also planning to impose stricter rules on crypto ads, which will subject these ads to the same rules as financial promotions for, say, shares. Security tokens already fall under existing financial promotion rules and e-money tokens are subject to a separate set of rules. The aim of the new legislation is to bring most unregulated tokens under the financial promotion rules. Legislation to this effect will be introduced to amend the Financial Promotion Order. Under the current rules (Financial Services and Markets Act 2000), a business cannot promote a financial product unless they are authorised by the FCA or the PRA, or the content of the promotion is approved by a firm which is. Firms that wish to promote such investments and activities must comply with binding rules that financial promotions must be fair, clear, and not misleading. The Treasury previously held a public consultation on the topic and published its consultation response a few days ago. Some crypto news outlets also picked up on the proposed definitional change of cryptoassets in the Treasury report: the government "proposes to remove the referene to DLT from the definition" of cryptoassets under the new rules, to future-proof them. A day after the new legislation plans were announced, the Financial Conduct Authority (FCA) proposed a number of implementing measures on its website. The FCA wants to ban incentives to invest, for example new joiner or refer-a-friend bonuses. It also plans to categorise qualifying cryptoassets as ‘Restricted Mass Market Investments’, meaning consumers would only be able to respond to cryptoasset financial promotions if they are classed as restricted, high net worth or sophisticated investors. The FCA is inviting public feedback on its proposed rules by 23 March.
Singapore – New guidelines ask crypto companies not market their crypto services to the public, but limit advertisement to their own website and apps. The Monetary Authority of Singapore warned that crypto firms "should not promote their [cryptocurrency] services to the general public." Soon after, crypto ATMs started to shut down. (Bloomberg)
Stablecoins
US - OCC head Michael Hsu thinks bank regulation can put the "stable" back into "stablecoin". (Decrypt)
Academic corner: stablecoins should be regulated as deposits in the US and require their issuers to be FDIC-insured banks, writes em. Prof. Wilmarth from George Washington University Law School. (CLS Blue Sky Blog)
Blockchain/Distributed ledger technology
Academic corner: The Ecuadorian Parliament enacted the Corporate Modernization Act, allowing the use of blockchain technology to create and maintain corporate records. Shareholders of an Ecuadorian company may deploy smart contracts to execute shareholders’ agreements automatically, writes Paúl Noboa-Velasco of San Francisco de Quito University. (Oxford Business Law Blog)
DeFi (Decentralized Finance)
BIS – DeFi's decentralization is an illusion, according to the head of the Bank for International Settlements. There's "a lot of centralization in decentralized finance” in practice, he said, and so far DeFi has mainly been used for speculation. (Bloomberg)
NFTs (Non-Fungible Tokens)
US – Tax authorities are trying to collect taxes from NFT holders but unclear tax rules don't help. (Bloomberg)
Academic corner: Does the First Sale doctrine in the US apply to NFTs? Likely not, according to this post. (CLS Blue Sky Blog)
CBDCs (Central Bank Digital Currencies)
UK - Is a CBDC a solution in search of a problem? The title of the latest report from a UK parliamentary committee suggests so. "We have yet to hear a convincing case for why the UK needs a retail CBDC", according to the report of the Economics Committee of the House of Lords. It acknowledged the concern over Big Tech companies issuing private money. However, a "CBDC may not be a necessary or complete response": regulating these private entities is a better option. The authors expressed concern over privacy of CBDCs, unanticipated risks of disintermediaties to financial stability and the risk that CBDCs offer a single point of failure vulnerable to attack. The report also mentions the risks of quickly evolving quantum computing capabilities to the security of a CBDC system.
Malaysia – The central bank is evaluating the need for a digital currency. (Bloomberg)
Jamaica will roll out its digital currency in the coming weeks. The Prime Minister expects that "most" Jamaicans will be using digital currency by 2027. (Bloomberg)
Thanks for reading!