Blockchain Week in Review - November 2018

Perkins Coie
Contact

U.S. Developments

Regulation

Upcoming Bitcoin exchange-traded funds (“ETF”) Decisions

On January 4, 2018, NYSE Arca filed a proposed rule change to list 9 Bitcoin ETFs. Subsequently, the time for the Security Exchange Commission (“SEC”) to approve or disapprove was pushed back in March, April, July, and September. On August 22, 2018, the SEC disapproved the listings and the rule change. The following day, the SEC notified NYSE that it would be reviewing the ETFs pursuant to Rule 431 and staying the August 22 order. The ETF applications came from ProShares, Direxion, and GraniteShares.

On October 4, the SEC issued a corrected order saying that the window for filing statements of support or opposition to the disapproval of the Bitcoin ETFs would close on November 5. A final decision has not been made, but now that the November 5 deadline has passed, a decision could come at any time.

This set of applications is separate from the listing application for the VanEck SolidX Bitcoin Trust, which has been under scrutiny since the SEC originally rejected its listing in March 2017. A proposed rule change by Cboe BZX Exchange, Inc. in June 2018 to list and trade shares of SolidX Bitcoin Shares is currently under SEC consideration.

Please click here for the August 23 order. Please click here for the October 4 order.

Upcoming Plain English initial coin offering (“ICO”) Guidance

On November 5, SEC director William Hinman spoke to the D.C. Fintech Week conference about upcoming SEC “plain English” guidance on planning an ICO. The goal will be to allow token developers to determine on their own whether a potential token offering will be classified as a security. Hinman noted that this was a starting place, and that more rigorous guidance would be forthcoming. Additionally, the SEC’s new FinHub portal will continue to provide a deeper dive into SEC FinTech regulations and guidance.

Speaking to whether or not tokens will be classified as securities, Hinman noted that, based on one of the Howe factors, “If someone’s offering an instrument for money or other consideration to a third party, and that third party expects the offeror to generate a return or … something that will increase the value of the coin or token or whatever they want to call it, and there’s that expectation of return, we’re generally going to see that as a securities offering.” This could signal that the SEC will be taking a broad view of what makes certain tokens “securities,” if indeed investor expectation of a return will weigh heavily in the analysis.

CFTC Chairman Address at FinTech Conference

On November 7, CFTC Chairman J. Christopher Giancarlo spoke at George Washington University Law School during FinTech Week. He spoke about the need for the CFTC to be more agile in utilizing quantitative data analysis to pioneer what he called “quantitative regulation.”

More advanced trading markets can mean more efficiency and lower costs. Chairman Giancarlo noted that, “when paired with systems inspired by [distributed ledger technology] that standardize and distribute data to market actors—and even regulators—we begin to see a world where the majority of standard tasks are managed by machines.”

Distributed ledgers and smart contracts also have a home with regulators. “We can also envision the day where rulebooks are digitized, compliance is increasingly automated or built into business operations through smart contracts, and regulatory reporting is satisfied through real-time [distributed ledger technology] networks.”

With respect to usable “big data,” Chairman Giancarlo added: “Indeed, the forced standardization of data formats and fields and collective use of the system by multiple actors may prove to be some of the most compelling aspects of [distributed ledger technology]. . . . In many ways, [distributed ledger technology] and blockchain-inspired database systems may help move us to a 2.0 version of back-office computing infrastructure that paves the way for advances in automation and machine learning.”

Please click here for the transcript of the speech.

Litigation

SEC Charges EtherDelta with Operating Unregistered Exchange

On November 8, the SEC announced an enforcement action charging Zachary Coburn, founder of EtherDelta, for operating an unregistered national securities exchange. The SEC has previously brought enforcement actions against unregistered ICOs and unregistered broker-dealers.

EtherDelta is an online platform for secondary market trading of ERC20 tokens, which are tokens designed for the Ethereum platform. EtherDelta used a smart contract system to validate order messages, confirm terms, execute orders, and direct the distributed ledger to be updated. From July 2016 to December 2017, EtherDelta handled 3.6 million orders.

The SEC explained that Coburn caused EtherDelta to violate Section 5 of the Exchange Act because he “[1] wrote and deployed the EtherDelta smart contract to the Ethereum Blockchain, and [2] exercised complete and sole control over EtherDelta’s operations, including over the operations constituting the violations described [in the order].” The EtherDelta website “had features similar to online securities trading platforms” and provided a marketplace “for bringing together the orders of multiple buyers and sellers in tokens that included securities.”

Importantly, Zachary Coburn was charged under Section 21C(a) of the Exchange Act for causing EtherDelta to violate Section 5 of the Exchange Act by not registering as a national securities exchange. Charging under Section 21C(a) carries a lower burden of proof than, for example, aiding and abetting under Section 10(b), which generally requires proof of intent.

Please click here to read the order. Further analysis can be found here.

International Developments

UK Cryptoassets Taskforce: Final Report

The UK’s Cryptoassets Taskforce was formed in May 2018 with the goal of exploring the impact of cryptoassets, potential benefits and challenges of applying distributed ledger technology to financial services and assessing the need for regulatory responses. The Taskforce includes members from HM Treasury, the Financial Conduct Authority (“FCA”), and the Bank of England. They will be convening every 6 months to continue considering developments and review the UK’s approach to cryptoassets.

The Taskforce broke down its, and the UK government’s, response to cryptoassets into several categories:

  • To help prevent financial crime, the UK government intends to broaden its application of the EU Fifth Anti-Money Laundering Directive (“5MLD”) so that cryptoasset-to-cryptoasset exchanges, peer-to-peer exchanges, cryptoasset ATMs, and wallet providers fall within Anti-Money Laundering/combating the financing of terrorism (“AML/CTF”) regulations. The UK government is also considering requiring firms outside of the UK to comply with these regulations when providing services to UK customers.
  • With respect to cryptoasset derivatives, the FCA will consider prohibiting the sale to retail consumers of all derivatives referencing exchange tokens such as Bitcoin, including contract for differences (“CFD”), futures, options and transferable securities. However, this prohibition would not cover cryptoassets that are considered securities. The FCA also plans to not authorize or approve the listing of a transferrable security or fund that references exchange tokens unless the FCA is confident in the integrity of the underlying market.
  • With respect to security tokens (or utility tokens), the FCA plans to consult on new guidance by the end of 2018. And with respect to Initial Coin Offerings (“ICOs”), the UK government will issue a consultation in early 2019, and it stands ready to draft legislation to put ICOs within FCA regulations.
  • In early 2019, the UK government will issue a consultation about exchange tokens (e.g., Bitcoin) and related service providers (e.g., exchanges and wallets). Furthermore, the Taskforce emphasizes that it wants to take an international approach and coordinate with other jurisdictions.
  • Finally, the Bank of England will continue to monitor linkages between cryptoassets and systematically important financial institutions in the UK, so that it can identify implications for financial stability in the future. Importantly, the Bank of England is working with HM Treasury to the widen regulatory reach of non-interbank payment systems (e.g., distributed ledger payment systems).

Please click here to read the report.

Swiss Risk Weighting for Bank Crypto Trading

A confidential letter from the Swiss Financial Market Supervisory Authority (“FINMA”) to EXPERTsuisse, a specialist association for Swiss trustees and accountants, has revealed the regulator’s internal view on cryptoassets risk. Although FINMA has not yet taken a public view on merging cryptoassets into Basel III capital requirements, they suggested in the October letter that financial institutions assign a flat risk weight of 800% to cryptoassets to cover risks. FINMA also wants a cap on crypto trading activities of 4% of total capital.

Although it makes clear that FINMA is wary of the stability of cryptoassets, it also means that Swiss banks are starting to broaden client services to include cryptoassets. In February, FINMA published guidance on ICOs. The Basel Committee met in September and discussed, among other things, banks’ exposures to cryptoassets and the risks such assets may pose. As the next Basel Committee meeting is scheduled for November 26 and 27, there may be more concrete guidance at that point.

Taiwan Amends Anti-Money Laundering Act to Regulate Virtual Currencies

On November 2, Taiwan’s Legislative Yuan passed an amendment to the country’s Money Laundering Control Act and the Terrorism Financing Prevention Act, giving Taiwan’s Financial Supervisory Commission (“FSC”) the power to require operators of virtual currency platforms to implement a “real-name system” requiring users to register their real names. Banks will also be required to report suspicious anonymous transactions to regulators. These rules are similar to those implemented earlier this year in South Korea and they follow the trend of weaving cryptocurrencies into regular financial regulations. In October, the chairman of the FSC announced the intention to draft regulations by mid-2019 to simplify the initial coin offering process.

Implementation of a real-name system has already happened at Bitoex, a crypto exchange that claims to control the lion’s share of the Taiwanese market. Importantly, the real-name requirements only apply when fiat currency is part of a transaction. Crypto-to-crypto transactions do not fall under the new rules.

Further amendments may come after evaluation by the Asia/Pacific Group on Money Laundering, which is reviewing Taiwan’s laws through November 16.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Perkins Coie | Attorney Advertising

Written by:

Perkins Coie
Contact
more
less

Perkins Coie on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.