There have been many developments around the world in relation to digital currencies. Broadly, regulators have started moving beyond identifying their stance on digital currencies to enforcement. Generally, it is our view that regulating the digital currency ecosystem according to the standards held by the wider financial system will promote market integrity and further legitimise initial coin offerings (ICOs) or, at the very least, the underlying payment technology as an opportunity for the existing financial system.
- Australia: In Listed@ASX’s Update no 01/18, the Australian Securities Exchange (ASX) has reinforced the notion that parties interested in cryptocurrency-related businesses remain subject to the relevant Listing Rules and Guidance Notes. Broadly, for applicants wishing to list a cryptocurrency-related business, ASX will need to be satisfied as to the structure and operations of the entity, that the business is bona fide, that the entity will comply with all applicable legal requirements in Australia and overseas, and that the appropriate disclosure regarding risks has been made to investors.
- Hong Kong: The SFC has halted an ICO by Black Cell Technology after determining the company had engaged in potential unauthorised promotional activities and unlicensed regulated activities. The ICO involved the sale of ‘KROP’ tokens on a public website, where token holders were eligible to redeem the tokens for equity shares in Black Cell technology. As such, the SFC found that the arrangement could constitute a collective investment scheme, which if offered to the Hong Kong public, requires compliance with certain licensing and authorisation requirements. Black Cell Technology has agreed to unwind the sale by returning funds to Hong Kong investors.
- United States: The Securities and Exchange Commission (SEC) has warned that online platforms trading digital assets may be unlawful where the assets fall within the scope of US securities law. Notably, the SEC has asserted that the use of the word ‘exchange’ may be misleading when used to reference a trading platform that has not been registered as a national securities exchange with the SEC. The warning reflects the findings in the SEC’s report into the DAO (discussed earlier here).
- United Kingdom: The Governor of the Bank of England, Mark Carney, spoke at the Scottish Economics Conference on the future of money, addressing the opportunities and risks posed by new payment technology and digital currency. Similarly to Yves Mersch’s speech last month, Carney asserted that digital currencies were “failing” in acting as “money” but that the underlying technology could improve financial stability and support more efficient payment services. Carney suggested that virtual currencies do not appear to pose material risks to financial stability just yet but the risks could rise if retail participation significantly increased or links with the financial sector strengthened without proportional improvements in market integrity, AML/CTF strategies and cyber defences. More broadly, Carney proposed that authorities “need to decide whether to isolate, regulate or integrate” digital currencies.
- Financial Action Task Force (FATF): The FATF has released the outcomes of its February Plenary meeting. Notably, the FATF considered a report on the AML/CTF risks linked to virtual currencies and the various regulatory regimes being implemented around the world to address this. More broadly, the FATF has stated its dedication to improving its understanding of the misuse and potential risks associated with virtual currencies.
- Social media: Google and Twitter have both updated their advertising requirements in relation to ICOs. Google has released a blog post updating its financial services policy, restricting, among other things, advertising in relation to cryptocurrencies and related content such as ICOs, cryptocurrency exchanges and cryptocurrency wallets. Twitter has announced an outright ban on cryptocurrency advertisements in relation to ICOs, exchanges and wallet services. There have also been reports that Snapchat has also banned advertisements for ICOs on its platform however this ban has not yet extended to all cryptocurrency-related content. This comes after Facebook announced a ban on advertisements relating to cryptocurrency and ICOs last month.