Insights

12/09/18

Digital currency and DLT developments – September 2018

There has been a range of developments in Australia and overseas in relation to digital currencies and distributed ledger technology (DLT). There has been increased regulatory enforcement activity – for example, the North American Securities Administrators Association, which includes securities regulators from countries such as the United States (US) and Canada, announced that there are over 200 active investigations into initial coin offerings and other cryptocurrency-related investment products with 43 enforcement actions undertaken. Fintechs wishing to create cryptocurrency-related products are reminded to seek legal advice and carefully consider the economics, circumstances and purpose of their tokens.

Key developments around the world:

  • US: Kingdom Trust, a qualified custodian of digital asset investments in cryptocurrency, announced it had secured insurance from Lloyd’s of London with respect to the digital assets held on its platform. Insurance is particularly significant for custodians like Kingdom Trust that provide clients with security, accounting and reporting services. The decision by Lloyd’s to insure Kingdom Trust suggests an increasing willingness of insurers to recognise cryptocurrencies as a legitimate asset class and to respond with tailored policies providing the appropriate coverage.

Coinbase has filed for a patent on a new payment system that provides an additional layer of security for user private keys. Encrypting passphrases with a master key, the new system would add another buffer against theft.

  • Thailand: The Bank of Thailand (BoT) and its eight partner banks have announced that they expect the completion of the first phase of a proof-of-concept trial for wholesale central bank issued digital currency by March 2019. Phase one is aiming to successfully execute domestic wholesale funds transfer using the central bank issued digital currency as well as the development and testing of key payment functionalities such as a liquidity saving mechanism and risk management frameworks.
  • People’s Republic of China (China): Five regulatory agencies in China have jointly issued a warning against cryptocurrency-related fundraising targeting Chinese residents through mobile payment applications. Payment giants Ant Financial, WeChat Pay and Tencent have all indicated that they will co-operate with Chinese officials with respect to shutting down accounts suspected to be involved with cryptocurrency trading.
  • Venezuela: The Venezuelan government has reportedly ordered all public and private Venezuelan banks to report financial information in both the bolivar and the government’s cryptocurrency, the petro.

The Australian Securities Exchange (ASX) released CHESS Replacement: New Scope and Implementation Plan in response to its consultation earlier this year (see past insight here). The ASX announced that it will defer the commencement date for the new system to March-April 2021, provide an additional six months for user development and testing and defer industry-wide testing by six months. The ASX indicated that these changes are a result of serious concern from consultation respondents that the proposed implementation window was not achievable and would result in unacceptable “increased complexity and risk.” Ensuring the successful implementation of the new system has been a high priority for the ASX. At the presentation of the ASX’s financial results, Dominic Stevens, the Managing Director and CEO of the ASX, and Peter Hion, the deputy CEO, noted that using DLT would significantly reduce costs associated with clearing and settling – something that currently costs approximately A$23 billion.

The Organisation for Economic Co-Operation and Development hosted a blockchain conference for decision-makers in public and private sectors this month to examine the impact of blockchain technology on government activities and the opportunities blockchain presents in relation to enhancing global inclusiveness.

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