SWIFT Publishes Blockchain Pilot Findings; Firms Announce USDC Integrations
By Christopher Lamb
According to a recent press release, the Society for Worldwide Interbank Financial Telecommunication (Swift) recently published a report with results from a series of experiments that show that Swift’s infrastructure “can seamlessly facilitate the transfer of tokenised value across multiple public and private blockchains.” Swift collaborated with several major financial institutions on the experiments. According to the press release, “[i]n addition to demonstrating that existing Swift infrastructure can provide a secure, scalable way for financial institutions to connect to multiple types of blockchain[s],” the experiments also “advanced understanding around the technical and business requirements for interacting with business and public blockchains.”
According to another recent press release, a major U.S. financial services firm has “announced its next step in modernizing cross-border money movement” by “expanding its stablecoin settlement capabilities to the high-performing Solana blockchain.” According to the press release, the financial services firm is working with several merchant acquirers and has already “moved millions of USDC between its partners over the Solana and Ethereum blockchain networks to settle fiat-denominated payments” in live pilots.
A third press release announced that the U.S. fintech company that issues and manages USDC has teamed up with a major Latin American fintech company to “address [the] demand for trusted digital dollars to power transactions in Chile, enabling millions of users access to USDC.” According to the press release, the USDC integration “will allow Chilean users to leverage the benefits of a trusted, secure, and transparent digital dollar for near-instant transactions” and allow users to “have greater control over their finances.”
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APAC Crypto Exchanges and Banks Receive Licenses, Pursue Crypto Initiatives
By Robert A. Musiala Jr.
Recent press releases and reports provide details on new cryptocurrency initiatives by crypto exchanges and financial institutions in the Asia-Pacific region. According to a recent press release, OSL, a leading digital asset platform in Hong Kong, recently “received an uplift to its existing license from the Securities and Futures Commission (SFC) of Hong Kong” which allows OSL to “offer[] retail investors the ability to register on its platform and buy/sell digital asset products, starting with the popular cryptocurrencies Bitcoin and Ethereum.” In more news from Hong Kong, according to reports, Switzerland-based cryptocurrency bank SEBA recently received approval-in-principle from the Hong Kong SFC to deal in securities, cryptocurrencies and crypto-related products such as over-the-counter derivatives and structured products. And in a final notable development, according to reports, South Korea’s Hana Bank recently entered into an agreement with BitGo, a major U.S. cryptocurrency custody provider, to pursue joint collaboration initiatives.
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Court Overturns SEC’s Rejection of Bitcoin ETF Application
By Robert A. Musiala Jr.
In a recently issued opinion, the U.S. Court of Appeals for the District of Columbia Circuit overturned a previous rejection order by the U.S. Securities and Exchange Commission (SEC) denying an application by Grayscale Investments (Grayscale) to list a bitcoin exchange-traded fund (ETF). Grayscale filed an appeal of the SEC’s rejection order in June 2022. Among other things, Grayscale’s appeal countered the SEC’s argument that the bitcoin spot market is not sufficiently resistant to price manipulation by pointing to the fact that the SEC had approved a bitcoin futures ETF, and futures prices are based on spot market activity. In overturning the SEC’s rejection, among other things, the Court found that “The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP.” Based on the Court’s decision, the SEC is now required to review Grayscale’s Bitcoin ETF application in light of the analysis provided in the Court’s opinion. According to reports, two days after the Court issued its opinion, the SEC postponed its decisions on six other Bitcoin ETF applications.
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FASB Votes to Require Fair Market Value Accounting for Digital Assets
By Robert A. Musiala Jr.
According to reports, the Financial Accounting Standards Board (FASB) recently voted to finalize updates to FASB accounting standards related to reporting the value of digital assets. The current standards require companies to record the value of digital assets at their original cost and recognize when the value drops below the original cost, but prohibit recognition of price increases. In contrast, the new FASB standards will require companies to account for digital assets at fair market value on their balance sheets and record gains and losses on their income statements to account for price fluctuations. Notably, while the new FASB standards will apply to cryptocurrencies such as bitcoin and ether, and to stablecoins backed by fiat currencies, the standards will not apply to non-fungible tokens (NFTs) and so-called wrapped tokens that provide a claim on other digital assets. According to reports, the new FASB standards will take effect for fiscal years beginning after December 15, 2024.
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FSB and IMF Publish Joint Report on Digital Assets Policy and Regulation
By Robert A. Musiala Jr.
A recent press release by the Financial Stability Board (FSB) announced that the FSB and the International Monetary Fund (IMF) have published a joint report “outlining a comprehensive policy and regulatory response to crypto-asset activities.” According to the press release, among other things, the report synthesizes the IMF’s and FSB’s policy recommendations and standards; illustrates macroeconomic and financial stability implications of crypto-asset activities; encourages implementation of the Financial Action Task Force (FATF) anti-money laundering and counter-terrorist financing (AML/CFT) standards to address risks to financial integrity and mitigate criminal and terrorist misuse of the crypto-assets sector; and finds that a comprehensive policy and regulatory response for crypto-assets is necessary to address the risks of crypto-assets to macroeconomic and financial stability. The press release also notes that “Comprehensive regulatory and supervisory oversight of crypto-assets should be a baseline to address macroeconomic and financial stability risks.” Additionally, the report includes a “roadmap” designed “to ensure the effective implementation of the FSB’s and IMF’s recommendations and standards.”
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SEC Brings First Enforcement Action Alleging NFTs Are Securities
By Teresa Goody Guillén
Recently, the U.S. Securities and Exchange Commission (SEC) published the SEC’s first enforcement action alleging that non-fungible tokens (NFTs) are securities and specifically that a company’s public sales of approximately $30 million of NFTs violated the registration requirements of the federal securities laws. The SEC applied the investment contract analysis as articulated by the U.S. Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (Howey test), to the particular NFTs and highlighted public statements that the NFTs would increase in value and analogized them to investments. Without admitting or denying the SEC’s findings, the company agreed to a cease-and-desist order and the ordering of more than $6.1 million in disgorgement. The SEC considered the company’s remedial acts, including repurchase programs (similar to recission offers) in which it offered to buy back the NFTs. The order also requires the company to, among other things, destroy NFTs in its possession or control and revise smart contracts to eliminate any royalty it might receive. Two Commissioners dissented from the SEC action and issued a statement to guide the SEC to address critical issues regarding the application of the federal securities laws to NFTs prior to bringing additional NFT cases.
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