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Welcome to Crypto Bytes, a short briefing on some of the week’s developments in the world of crypto currencies world.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.  

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Claire Cummings

020 7585 1406
claire.cummings@cummingslaw.com
www.cummingslaw.com


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EU regulators studying crypto assets case by case
 

ESMA has announced that it will examine every ICO to see whether it should be regulated.  Steven Maijoor, chair of ESMA, told the European parliament’s economic affairs committee “[s]ome of these ICOs are like a financial instrument. Once it is a financial instrument it comes under a whole regulatory framework”. And, as for the ICO’s that fall outside of current regulations, Maijoor stated that they will assess that as a board and expect to report by the end of the year.  (Source: “EU regulators studying crypto assets case by case”, Reuters, 8 October 2018, available at https://www.reuters.com/article/us-eu-crypto-regulations/eu-regulators-studying-crypto-assets-case-by-case-idUSKCN1MI1VD). 


 

Cummings’ take on regulation of crypto assets in the UK

While crypto assets are not currently regulated in the UK, there are signs that this may change in the future.  The FCA has issued various warning about the risks of ICOs and cryptocurrencies and last month members of the UK treasury committee have called on regulators to police the ‘wild west’ cryptocurrency industry.  In addition, earlier this year Bank of England Governor, Mark Carney, revealed that targeted cryptocurrency regulations for the UK are on the horizon.  Further, the FCA is working with the BOE and the UK Treasury to develop a strategy for dealing with cryptocurrency risks – specifically focusing on AML/CFT, and financial stability. In addition, the FCA is anticipated to reveal new cryptocurrency guidelines in late 2018.  In order to maintain its status as a desirable market for cryptocurrency, UK regulators are likely to move forward with regulation of cryptocurrency to remain competitive with the US and EU.


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Crypto hedge fund launches are soaring to record levels this year

Despite regulatory uncertainty and the bear market in cryptocurrencies, crypto hedge fund launches are at an all-time high.  This is likely due to growing investor awareness of cryptocurrencies over the last two years, and the number of companies setting up to cater for their new interest. Around a half of the launches are based in the U.S. However, multiple launches have been seen in Australia, China, Malta, Switzerland, The Netherlands and the U.K. this year. (Source: “Crypto hedge fund launches are soaring to record levels this year”, CoinDesk, 10 October 2018, available at https://www.coindesk.com/crypto-hedge-fund-launches-are-soaring-to-record-levels-this-year/).


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SEC and FINRA digital asset enforcement proceedings

The SEC and FINRA announced three new enforcement actions addressing digital asset practices in September: In the Matter of Crypto Asset Management, LP and Timothy Enneking; In the Matter of TokenLot, LLC, Lenny Kugel, and Eli L. Lewitt; and Department of Enforcement v. Timothy Tilton Ayre. There are three key takeaways from these actions: (i) private funds investing in digital assets are not immune from SEC scrutiny; (ii) any token-trading platform or token trader that earns transaction-based compensation, which includes success fees, commissions or any fee contingent on the outcome, can be found to be a broker-dealer and thus must be registered with the SEC; and (iii) some digital tokens are “securities”.  (Source: “SEC and FINRA Target Cryptocurrency Hedge Fund Manager and Broker-Dealers in New Wave of Digital Asset Enforcement Proceedings”, 04 October 2018, available at https://www.perkinscoie.com/en/news-insights/sec-and-finra-target-cryptocurrency-hedge-fund-manager-and.html). 


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How blockchain technology could help to manage UK telephone numbers

Ofcom has received £700k from the Department of Business, Energy and Industrial Strategy to explore how blockchain technology could improve how UK landline telephone numbers are managed.  Between now and April 2020, Ofcom will be inviting industry participants to trial the porting and management of millions of telephone numbers using blockchain and ledger technology.  Ofcom hopes to use blockchain technology to bring a number of benefits to consumers, including: (i) improved customer experience when moving a number between providers; (ii) lower regulatory and business costs; (iii) increased industry agility, and (iv) more effective management of nuisance calls and fraud. (Source: “How blockchain technology could help to manage UK telephone numbers”, 09 October 2018, available at https://www.ofcom.org.uk/about-ofcom/latest/features-and-news/blockchain-technology-uk-telephone-numbers).


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Ripple’s xRapid goes live

Ripple’s xRapid was fully launched on 2nd October, ahead of expectations, and has been adopted by three major financial service providers – Mercury FX, Cuallix and Catalyst Corporate Federal Credit.  Asheesh Birla, the Senior Vice President of Product at Ripple stated that he is”… really excited to bring the product into the market at a time when there is a lot of scepticism about digital assets and their real use case. Here’s something where we’re finding a ton of value and providing a ton of value to our customers using digital assets to move money more efficiently.” And Birla is optimistic that Ripple’s new product will be adopted by established banks, stating “Banks worldwide are not first adopters of the xRapid product, but we are seeing a lot of financial institutions in general and payment providers moving forward with that product. We have a lot of business with payment providers. In certain markets I think banks will move faster towards leveraging digital assets, and so it really depends on the regulation and the local market.” (Source: “Ripple’s xRapid Goes Live, What Happens Now?”, 3 October 2018, available at https://cryptodaily.co.uk/2018/10/ripples-xrapid-goes-live-what-happens-now/). 


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Venezuelans Must Now Pay Passport Fees with the Government’s Petro Cryptocurrency 

The Venezuelan government plans to officially launch its cryptocurrency, the petro, in November.  The Petro was developed in response to use by Venezuelans of cryptocurrencies as a result of hyperinflation and devaluation of the bolivar.  The Venezuelan government has issued press releases stating that all passport fees must be paid with the petro and all oil purchases must now be made with the petro.  (Source: “Venezuelans Must Now Pay Passport Fees with the Government’s Petro Cryptocurrency?”, 10 October 2018, available at https://www.ccn.com/venezuelans-must-now-pay-passport-fees-with-petro-cryptocurrency//).


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Fieldfisher and TeamBlockchain launch Blockchain and Crypto Telephone Surgery to offer rapid bespoke legal advice to businesses in the cryptocurrency and digital payment platforms sector

International law firm Fieldfisher and consultancy TeamBlockchain have launched a Blockchain and Crypto Telephone Surgery for companies looking for expert professional guidance on cryptocurrency and digital payments.   Focusing primarily on issues affecting tokenisation and distributed ledger financial technologies (fintech), the surgery will also offer advice and insights on the wider fintech universe.  Fieldfisher partners and TeamBlockchain consultants will give advice on different regulatory and legal issues in the context of specific industries, supported by relevant, real life examples of how organisations are using blockchain and the increasing role of cryptocurrency in digital business.  Surgery sessions will last between 40 minutes, in the form of one-on-one appointments or small group discussions, as clients prefer. Sessions will be interactive, enabling participants to get a better understanding of the subjects under discussion.  Clients will be asked to provide some prior briefing on their sector of interest, objectives and concerns in order to maximise the benefits they receive from surgery appointments.  This type of consultative support has proved helpful for professional advisors and their clients, who want to be more active in the cryptocurrency and blockchain sectors but lack the in-house skills to realise their ambitions. 
 
Fieldfisher and TeamBlockchain's experts are independent advisors who provide clients with honest, pragmatic advice on a range of fintech issues day-to-day.   These surgeries are designed to provide, swift, tailored advice on an as-need, no obligation basis, with follow-up support available as required.  The cost of each surgery is £500 +VAT and includes a pre-briefing, phone consultation and follow-up materials. For more information, please contact one of the Surgery Team: claire.cummings@cummingslaw.com; tim.bird@fieldfisher.com; and jonny.fry@teamblockchain.net.


 
 

 


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Cummings

Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

www.cummingslaw.com

19 12 2018

 
 

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