FinTech Feed

CSBS Releases Recommendations for FinTech Regulators

By Camila A. Connolly

New-Update-IconOn February 12, the Conference of State Bank Supervisors (CSBS) released its Fintech Industry Advisory Panel Recommendations.  CSBS is a national organization of financial regulators from around the United States, Guam, Puerto Rico, American Samoa, and the US Virgin Islands.  The recommendations are designed to improve the use of regulatory technology and harmonize regulatory standards throughout the United States.  The recommendations include a plan to develop a model state law for MSBs and to standardize licensing requirements.  The panel also recommended a pilot program for building a uniform state licensing examination.  Overall, the recommendations seek to create uniformity in state FinTech licensing and regulation.  To aid in the harmonizing process, the panel recommends creating repositories of the different state laws and licensing requirements so that financial companies can access all necessary regulations at once.  CSBS includes these recommendations as part of a broader effort to streamline state FinTech regulation called Vision 2020.  Read the full list of recommendations here.


Crypto Winter Continues With Ongoing Enforcement

   

By Michael W. Ross, Andrew J. Lichtman and Emily A. Bruemmer

Crypto-winterSeveral recent “first of kind” enforcement proceedings continue the flurry of enforcement activity by regulators.  In two settled proceedings, the Securities and Exchange Commission (SEC) brought two cases for failure to register digital tokens as securities in connection with initial coin offerings (ICOs), without allegations of fraud.  With such enforcement actions now commonplace, a “crypto winter” has clearly set in.  In another development, a federal court recently issued the first opinion concluding that the SEC had failed to establish that a digital asset issued in connection with an ICO was a “security” under the federal securities laws, underscoring that digital assets will not be subject to a one-size-fits-all analysis.

As for the two settled charges, according to the SEC’s orders, Paragon Coin, Inc.[1] and AirFox[2] launched their ICOs in 2017.  Paragon is an online company that was established to implement blockchain technology in the cannabis industry, as well as to work towards legalization of cannabis.  Through its ICO, Paragon raised approximately $12 million in digital assets to develop and expand its business.  As for AirFox, it sells mobile technology intended to allow customers to earn free or discounted data by watching advertisements on their phones.  AirFox raised approximately $15 million in its ICO to help expand its business overseas.  Neither Paragon nor AirFox registered their ICOs.

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Blockchain, Antitrust and Standard Setting

BlockchainIn an article for Fintech Weekly, Partner Michael W. Ross explains that, as companies have experimented with blockchain and other distributed ledger technologies, commentators have highlighted antitrust concerns.  Mr. Ross suggests areas to watch as the technology expands, particularly at the International Standards Organization and the Federal Trade Commission.  The article also notes the possibility for developing blockchain standards that may foster efficiency, compatibility and interoperability of diverse technologies through the adoption of “FRAND licensing” concepts.

To read the full article, please click here.


Recent Activity Brings Further Clarity to Cryptocurrency Enforcement

 

By Michael W. Ross and Andrew J. Lichtman

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-09-26/d04d50c7-b740-45a9-b4a6-3b9e95def44d.pngSeptember saw a flurry of activity that will help further define the cryptocurrency regulatory landscape.  The Financial Industry Regulatory Authority (“FINRA”) brought its first-ever crypto-fraud case and a court ruling by the U.S. District Court for the Eastern District of New York gave backing to the view that digital assets will be viewed as securities.  And, in two enforcements actions, the U.S. Securities and Exchange Commission (“SEC”) branched out beyond actions against fraudulent crypto-schemes and went after crypto companies for failing to register with the SEC.  The latter two cases signal that the SEC is committed to enforcing applicable securities law requirements beyond those accused of fraud, and therefore SEC enforcement activity remains an area for legitimate businesses to watch.

A Federal Court Rules On Whether Digital Assets Are Securities

Last October, the U.S. Attorney’s Office in Brooklyn brought charges against Maksim Zaslavskiy alleging that Zaslavskiy made false representations in connection with two cryptocurrencies and their related initial coin offerings (“ICOs”) in violation of U.S. securities law.  According to the indictment, Zaslavskiy induced investors to purchase tokens in an ICO for “REcoin” by falsely claiming that REcoin was backed by real estate investments.  Similarly, the government alleged, Zaslavskiy falsely claimed that a second cryptocurrency, “Diamond,” was backed by actual diamonds when it was not.

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How Blockchain Use Can Block Competition

BlockchainIn an article for Law360, Partners Daniel T. Fenske and Justin C. Steffen examine anti-competition issues with blockchain.  The authors explain that anti-competition issues abound now that financial institutions, corporations and other industries are investing in blockchain technology.  The issues, they observe, can be mitigated through early planning.  The authors discuss the “basics” of blockchain and anti-competition risks.  “The antitrust risks of blockchain technology will be clarified as the technology develops and it is put to more uses,” they conclude.  “It is critical that you consult competent antitrust counsel when structuring blockchain technology and policies so as to best mitigate antitrust risk.”

To read the full article, please click here.


SEC Take on Tokens Clarifies Some Crypto Community Quandaries

   

By Jolene E. Negre, Michael W. Ross, Justin C. Steffen and Andrew J. Lichtman

CurrencyIn a June 14 speech William Hinman, the SEC’s Director of the Division of Corporate Finance, began to place additional definition around the raging debate over whether digital assets, including tokens, are securities.  Until that speech, much commentary had focused on the repeat statements by SEC officials that digital assets distributed in initial coin offerings (ICOs) are almost always securities in the SEC’s view, with the possible exception of widely disseminated cryptocurrencies like Bitcoin.  Hinman’s remarks set out the view that, in their initial phases, tokens are more likely to qualify as securities under the Supreme Court’s Howey test, but in limited circumstances may, over time, shed enough of the characteristics of securities to lose that designation.  Under the rubric Hinman laid out, the new hallmark of success for a token project may become the point at which a project’s tokens are so widely used that they function without any centralized efforts and lose their securities status.  This post lays out some of the background and considerations under this new framework.

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Jenner & Block Partners with Chicago-Kent College of Law and FinTEx for Blockchain and Cryptocurrency Conference

FinTech-Linkedin-1400x800Jenner & Block is partnering with Chicago-Kent College of Law and FinTEx, a non-profit, member-driven community of the leading organizations within FinTech and Financial Services, for a first-of-its kind conference focused on the evolving regulatory and legal issues in the blockchain and cryptocurrency space.  Co-organized by Partner Justin C. Steffen, the Block(Legal)Tech conference will take place on August 9 at The Law Lab at Illinois Tech Chicago-Kent College of Law.  The Block(Legal)Tech conference will feature presentations and panel discussions on the law of distributed ledger systems, tokenized assets and cryptoasset-based funding.  The day-long conference will include a number of discussions, interviews and debates, delving deep into the complicated issues that affect the crypto-landscape, such as the future of US regulation of cryptoassets and the government’s role in promoting blockchain adoption.  Topics discussed will include minimizing the risks of crypto-litigation, the role of lawyers, the evolution of smart contracts and their impact on the legal profession as well as other legal issues that stem from the use and implementation of blockchain technology.

To register for the event, please click here.