CryptoLaw Newsletter #17
US SEC's first DeFi investigation; WEF on crypto regulation; El Salvador’s controversial BitcoinLaw enters into force; UK FCA head not a fan of Kardashian's crypto ad; crypto exchanges under fire.
A slightly condensed 2-week overview. We’ll be back with our weekly editions next week!
Singapore – The Monetary Authority of Singapore (MAS) warned that Binance’s activities in the country may violate the Payment Services Act. A few days later, Binance announced it will cease any trading pairs and payment options involving the Singapore dollar. (Bloomberg, Reuters) Last month, Binance hired Richard Teng as CEO of its Singapore operations. Teng worked at MAS for over a decade and subsequently became head of Abu Dhabi’s financial regulator.
Thailand - More regulatory enforcement measures against a crypto exchange in Thailand. The Securities and Exchange Commission (SEC) of Thailand temporarily suspended the activities of crypto-exchange Huobi in the country. The regulator wants Huobi’s domestic digital asset trading license to be revoked, saying the exchange failed to remedy problems after several months and repeated extensions. (Coindesk)
Former regulators hired by crypto-companies have often “struggled to figure out where they fit in” to the more “freewheeling” crypto environment, according to an FT article. Sources quoted said crypto regulation is similar to the regulation of the derivatives industry after the financial crisis “with many who worked on new rules a decade ago now moving into the new market.” (FT)
El Salvador - The crypto community looks more excited about the entry into force of the country’s controversial BitcoinLaw than Salvadorans. Today, Sept. 7, El Salvador became the first country to consider bitcoin as legal tender. The same day, an estimated 1,000 protesters took to the streets opposing the law. (Reuters) A recent survey suggested more than two thirds of participants disapproved of the new law. (BBC)
Panama may follow suit: pro-crypto parliamentarian Gabriel Silva submitted a draft Crypto Law (Ley de Cripto) on 6 September. The bill wants to offer legal clarity to crypto-users and entrepreneurs. It stipulates that the use of crypto-assets is a matter of contractual freedom between parties, who can agree to use any crypto-assets (including bitcoin and ether) as a payment tool. This differs from the Salvadoran approach, which was criticized as a heavy-handed obligation for companies to accept bitcoin payments, even if they preferred not to. A copy of the Panamanian bill is available here.
Russia, on the other hand, still has no plans to accept bitcoin as legal tender. Kremlin representative Dmitry Peskov pointed to the risks that cryptocurrencies would pose to the country’s financial system, confirming long-standing crypto-scepticism in government and parliamentary circles. (Cointelegraph)
EU - US SEC Chair Gary Gensler addressed the EU Parliament Committee on Economic and Monetary Affairs, answering questions on crypto-asset regulation.
Kazakhstan – After gaining some the crypto-mining business that left China, Kazakhstan is now adding a new Security Token Offering (STO) exchange to its ranks. Bitfinex is offering new, licensed STO platform in the country. The new platform is located in a special economic zone and forms part of the regulatory sandbox AIFC Fintech Lab. (Cointelegraph)
India - A former Deputy Governor of the Reserve Bank of India (RBI) suggested a central depository of all crypto transactions to help keep track. To tax crypto transactions, the former official suggested the tax treatment should depend on how the crypto is acquired: crypto should be bought through normal payment channels and, if not, should be subject to capital gains tax. (Coindesk)
Hong Kong – A Securities and Futures Commission official called for greater crypto regulation and licensing. The city’s government planned to introduce a crypto bill that would give the SFC greater powers over virtual assets and impose licensing obligations, but has yet to do so. (Coindesk)
South Africa – Who’s in charge? Binance appeared to criticize the Financial Sector Conduct Authority for overstepping its authority. The FSCA had issued a warning against Binance on 3 Sept., saying the group was “not authorised to give any financial advice or render any intermediary services in terms of the Financial Advisory and Intermediary Services Act, 2002”.In response, Binance tweeted it “does not provide financial advice or render any intermediary services. Also, we do not have an entity called “Binance Group” in Seychelles.” The FCSA warning had referred to the Binance Group as “an international company situated in the Seychelles”. Binance’s corporate structure was described as highly opaque by a London High Court. Binance allegedly suggested the FCSA has no authority over crypto-related investments. Instead, Binance referred to the Financial Intelligence Centre as the “major regulator” with which it had been in contact. (Cointelegraph)
Nigeria - The Securities and Exchange Commission (SEC) reportedly established a dedicated fintech unit to study crypto-assets and investments. Its findings will inform a potential legal framework on crypto-assets. (Nasdaq, Reuters)
UK – The head of the Financial Conduct Authority (FCA) called for greater powers to supervise digital assets. Charles Randell spoke about the risk to ordinary investors of crypto-influencers promoting dubious tokens to their followers. Kim Kardashian’s promotion of a little known token “may have been the financial promotion with the single biggest audience reach in history,” he said. The FCA is right to protect retail investors from unscrupulous promotors riding the crypto boom. Its own crypto survey shows users who bought tokens after seeing ads are most likely to regret their crypto purchases. However, not all crypto-assets are the same and the FCA should distinguish between different types of tokens. A little known token promoted by Kim Kardashian on Twitter is not comparable to bitcoin, ether, DOT or other tokens. Randell also repeated the criticism that crypto-asses are not backed by anything: “There are no assets or real world cashflows underpinning the price of speculative digital tokens, even the better known ones like Bitcoin, and many cannot even boast a scarcity value”. He also seemed to conflate truly decentralized tokens with crypto-assets in general: “[B]ecause of the decentralised way that these speculative tokens are created, any effective system of regulation would require a business seeking registration or authorisation with the FCA to bring itself firmly within our reach, with people and resources that we could access in order to supervise and enforce our requirements. We are not going to award FCA registration or authorisation to businesses which won’t explain basic issues, such as who is responsible for key functions or how they are organised. That would be token regulation in the worst sense.” (Reuters, FCA)
Global – The World Economic Forum (WEF) released its paper Navigating Cryptocurrency Regulation. One of the lessons: governments should focus more on the actual drivers of crypto-assets rather than (only) on risk-based reporting and containment strategies. A summary can be found here.
Is knowledge more important than legal rules to protect crypto-users? Nir Kaissar made the argument in an opinion piece. The line between creators and users of investment products is blurring: “[a]nyone will soon be able to turn anything into an investment that can be bought and sold anywhere in the world without intermediaries.” We can continue trying to squeeze NFTs and other crypto-assets into existing rules. “But good luck enforcing those rules,” Kaissar wrote. Regulators do not need to cease regulating, but they should focus more efforts on educating investors and equipping them with basic principles to assess their investment decisions, according to the author. (Bloomberg)
The US SEC is investigating Uniswap Labs, the company behind the Uniswap app and contributor to the Uniswap decentralized exchange protocol. This is the first genuine DeFi investigation by the US regulator. Critics commented that there are many more pressing issues for the SEC to deal with in crypto than Uniswap. The SEC allegedly wants more information from Uniswap Labs on how investors use the exchange and how it is marketed. (WSJ)
The NYT ran a long article on crypto-assets and DeFi, although it did not distinguish between the two sufficiently. The article, Crypto’s Rapid Move into Banking Elicits Alarm in Washington, discussed BlockFi’s recent regulatory woes and the similarity between crypto-services and traditional financial services. It then brought in DeFi and also touched on the risks of stablecoins. These are all very different crypto-applications and, although there certainly are links (such as the heavy reliance on stablecoins Tether and USDC in DeFi), we need to keep in mind that the crypto space is composed of very different types of projects and applications, each raising their own challenges and opportunities.
Nigeria – The Bank of Nigeria plans to roll out pilot testing of its CBDC, the digital naira, on 1 October. (Cointelegraph)
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