We are pleased to highlight below some key regulatory developments related to the regulation of cryptocurrencies and cryptoassets in various jurisdictions from the recent weeks.

INTERNATIONAL

AML The Financial Action Task Force (FATF) has published a draft updated guidance on Virtual Assets (19 March 2021). Among other things, the guidance (i) clarifies that entities involved in decentralized exchanges (e.g., owners of operators) are likely to be considered Virtual Asset Service Providers (“VASPs“); (ii) clarifies that FATF standards apply to stablecoins and their service providers; (iii) provides guidance on the licensing and registration requirements applying to VASPs, as well as on the implementation of the travel rule; (iv) provides additional guidance on the risks of peer-to-peer transactions; (v) includes Principles of Information-Sharing and Co-operation Amongst VASP Supervisors. Comments are due by 20 April 2021.

US – FEDERAL

Securities Token Taxonomy Act re-introduced to Congress (8 March 2021). The Act is being introduced for the third time, and seeks to amend federal securities laws to exempt certain virtual currencies, as well as to amend certain laws related to taxation of virtual currencies.
Securities and Exchange Commission (“SEC”) files a lawsuit against digital content platform LBRY for unregistered offering of securities in the form of a digital asset, called LBRY Credits (29 March 2021). According to the SEC’s complaint, LBRY, which presents its platform as “decentralized and distributed“, communicated to investors that the funds raised from the sale of LBRY Credits were supposed to be used to fund LBRY’s business and build its product.
A judge grants XRP token holders with the right to file a motion to intervene in the SEC lawsuit (29 March 2021). A group of XRP holders, led by an attorney John Deaton, claimed that their interests aren’t being represented in the ongoing SEC lawsuit against Ripple Labs and thus requested to insert themselves as third-party defendants. The court approved their request and said token holders now have until April 19 to file their motion.
Commodities Coinbase pays $6.5M to settle trading investigation with the Commodity Futures Trading Commission (“CFTC”) (19 March 2021). Coinbase has paid $6.5M to settle the CFTC’s claims that it reported misleading transaction data. According to the CFTC, between January 2015 and September 2018, Coinbase delivered false, misleading or inaccurate reports concerning transactions in digital assets. The CFTC alleges that two trading programs operated by Coinbase generated orders that traded with each other, which could have misled traders about the trading volume. In addition, Coinbase was fined for “wash trading” Litecoin and Bitcoin transactions conducted by a former employee of Coinbase. Coinbase settled the allegations without admitting the claims.
Securities & Commodities Eliminate Barriers to Innovation Act of 2021 has been introduced to Congress (9 March 2021). The goal of the proposed Act is to clarify in which cases the jurisdiction over a certain token belongs to SEC and in which to CFTC. To this end, the Act seeks to create a working group comprising of industry experts, as well representatives of the SEC and the CFTC.
Tax A Federal Court in Massachusetts has authorized the Internal Revenue Service (IRS) to obtain the records of Circle and Poloniex customers, who conducted at least the equivalent of $20,000 in transactions in cryptocurrency (1 April 2021). The IRS is seeking the records of U.S. taxpayers who engaged in business with or through US-headquartered cryptocurrency payment company Circle, or its predecessors, subsidiaries, divisions, and affiliates, including cryptocurrency exchange Poloniex. “The Department of Justice will continue to work with the IRS to ensure that cryptocurrency owners are paying their fair share of taxes”, said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division.

US – STATES

Securities (Texas) Texas securities regulator issues emergency cease and desist order against UK-based Delta Crypt Limited (15 March 2021). The firm was promoting a short-term, high yield cryptocurrency investment scheme through a website, guaranteeing profits and fixed rates of return, and stating that there are no risks associated with the cryptocurrency investment plans. Texas State Securities Board concluded that Delta Crypt offering investments in the aforementioned cryptocurrency investment scheme constitutes an unregistered offering of securities for sale. The order accuses Delta Crypt of misleading or otherwise deceiving the public, inter alia, by concealing important information about its principals, about the past warning from the Philippines government of illegally offering securities paying “ridiculous” returns, and about the risks associated with cryptocurrencies.
Proposed law (Wyoming) Wyoming’s senate passed a bill entitled Decentralized Autonomous Organizations (“DAO”) (17 March 2021). The bill seeks to clarify the legal status of DAOs and to enable them to be registered as limited liability companies (LLCs), under certain circumstances.
Mining

(Kentucky)

Kentucky Governor Signs into Law Two Bills Which Grant Tax Benefits to Cryptocurrency Miners (25 March 2021). The first bill provides sales and use tax exemptions on the tangible personal property directly used and the electricity used in commercial mining of cryptocurrency. The second bill adds “cryptocurrency facilities” with a minimum capital investment of one million dollars to the list of entities eligible for certain tax incentives.
New bill (Iowa) Iowa House of Representatives approves new bill that legally recognizes distributed ledger technology systems and smart contracts (29 March 2021). The bill was passed following Senate’s approval earlier in March 2021. Among other things, the bill introduces parity of legal status for smart contracts as other forms of secure records and expands the state’s definition of a “contract” to include smart contracts and other agreements secured through distributed ledger technology. This means that, according to the bill, no contract would be considered to have no legal effect by virtue of being a smart contract.

EU-LEVEL

Proposed amendments to MiCA Regulation and the DLT regime The Committee on Economic and Monetary Affairs published a draft report on the proposed Markets in Crypto-Assets (“MiCA”) regulation (9 March 2021). The report generally supports the proposal, but includes a number of proposed amendments. Those include, among others: (i) amending the definition of “utility tokens” to include only fungible tokens; (ii) giving a binding status to the opinions of European Central Bank (“ECB“) and of Member States’ central banks on a prospective “asset-reference token” (i.e., stablecoins) issuer’s application, when these opinions are based on monetary policy considerations and ensuring the secure handling of payments; (iii) giving the ECB the responsibility for authorizing e-money tokens; and (iv) requiring crypto-asset service providers transferring crypto-assets for payment purposes to have internal control mechanisms for full traceability of all crypto-asset transfers within the EEA, as well as of transfers to or from the EEA, in accordance with the provisions of the revised Wire Transfer Regulation (Regulation (EU) 2015/847).
The Committee on Economic and Monetary Affairs published a draft report on a pilot regime for market infrastructures based on Distributed Ledger Technology (DLT) (9 March 2021). The report generally supports the pilot regime, but includes a number of proposed amendments. These include, among others, (i) lowering the financial threshold under which DLT transferable securities can be accepted to the pilot regime from EUR 200M to EUR 50M; (ii) expanding the scope of the pilot regime through the inclusion of Exchange Traded Funds (ETFs) and DLT-based recording or trading of sovereign bonds; (iii) implementing technology neutral wording with regard to use of DLT; (iv) and adding “DLT trade and settlement system” as a complete novel type of “market infrastructure” under the proposed Regulation.

EU STATE-LEVEL

5AMLD Transposition

(Ireland)

Ireland has enacted an Act which transposes the EU Fifth Anti-Money Laundering Directive (5AMLD) into its domestic law (18 March 2021). The recently enacted Money Laundering and Terrorist Financing (Amendment) Act 2021, imposes various anti-money laundering duties as well as registration requirements on various virtual asset service providers.
Amendments

(Malta)

Malta Financial Services Authority has enacted a set of amendments to the Virtual Financial Assets (VFA) Act (24 March 2021). The amendments (i) change the definition of VFA exchange to clarify that all VFA-to-VFA and fiat-to-VFA exchanges fall within the scope of the VFA Act; and (ii) add the transfer of VFAs to the list of services covered by the VFA Act.

CANADA

Securities A Guidance on the Regulatory Requirements for Crypto-Asset Trading Platforms (CTPs) has been issued by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) (29 March 2021). The guidance aims to clarify how securities legislation applies to platforms that facilitate or propose to facilitate the trading of: (i) crypto assets that are securities, or (ii) instruments or contracts involving crypto asset (crypto contracts). The document provides, where appropriate, a guidance on “how the existing requirements of securities legislation may be tailored through terms and conditions on the registration or recognition of CTPs and through discretionary exemptive relief with appropriate conditions”, allowing CTPs to operate with appropriate regulatory oversight.

UK

Advertisement The Advertising Standards Authority (ASA) ordered a UK-based cryptocurrency exchange Coinfloor Ltd. to remove Bitcoin Ad (17 March 2021). The headline statement of the ad was “There is no point in keeping your money in the bank”, followed by a Coinfloor customer’s (described as aged 63) photograph and testimony. ASA found this ad to be socially irresponsible because it suggested that purchasing Bitcoin through Coinfloor was a secure way to invest one’s savings or pension, particularly given that the audience it addressed were likely to be inexperienced in their understanding of cryptocurrencies, and therefore was in breach of the CAP Code. Furthermore, ASA considered the ad to be misleading as because it had not made sufficiently clear that the value of Bitcoin could go down as well as up, or that the Bitcoin market was unregulated in the UK. Although the ad included a small print at the bottom of the ad, which stated “Investing in cryptocurrencies involves significant risk and can result in the loss of your invested capital. You should not invest more than you can afford to lose”, the ASA has found this disclaimer insufficient to counteract the overall message of the ad in the present circumstances.
Tax The UK Government has updated a guidance on crypto taxation and it now recognizes income from staking in proof-of-stake networks (30 March 2021). The guidance was published by Her Majesty’s Revenue and Customs (HMRC).
AML FCA has imposed Annual Financial Crime Reporting Obligations on Cryptoasset Businesses, all Electronic Money Institutions, Payments Institutions (subject to exceptions), and additional categories of financial institutions (31 March 2021). According to the recent FCA’s policy statement, the aforementioned entities will be required to provide FCA with annual financial crime reports (REP-CRIM). According to the statement, cryptoasset businesses will not be required to submit sanctions-specific information, however they may choose to do so voluntarily. The new rules will come into force on 30 March 2022.

ASIA

AML

(South Korea)

New Anti-Money Laundering (AML) requirements for virtual asset service providers (VASPs) have entered into force (25 March 2021). An amendment to the Act on the Reporting and Use of Specific Financial Transaction Information and the revised Enforcement Decree of the Act have entered into force on 25 March 2021 and now impose on VASPs various AML requirements, such as, inter alia: (i) registration with the Korean Financial Intelligence Unit (FIU); (ii) requirement to set-up a real-name verification accounts with an approved financial institution, as well as to report these accounts to the local FIU; (iii) requirement to obtain Information Security Management System Certification; (iv) other requirements, such as file reports on suspicious transactions, keeping separate transaction details for users, etc. Under the new regulatory framework, if crypto-asset business operators fails to report to the Korean FIU or is deemed as high-risk for money laundering, financial institutions are obliged to refuse (or terminate) the related transactions.
AML

(Japan)

Japanese regulator has stated that it will implement the FATF travel rule (31 March 2021). Japan’s Financial Services Agency (“FSA”) has announced that it aims to adopt the FATF travel rule by April 2022. Practically, this means that virtual asset service providers, such as crypto exchanges, will be required to collect and disclose transactions data of the senders and recipients.
New Crypto Disclosure Rules

(India)

Newly adopted rules have come into effect and now require companies to disclose crypto currency or virtual currency holdings in their financial statements (1 April 2021). Amendments to Schedule III of the Companies Act 2013 require Indian companies to disclose the (i) profits or losses from transactions involving crypto currency or virtual currency; (ii) amount of currency held as at the time of the reporting; (iii) deposits received from any person for the purpose of trading or investing in crypto currency / virtual currency.

AFRICA

Clarification on Crypto Ban

(Nigeria)

The Governor of the Central Bank of Nigeria has, reportedly, clarified that Nigerian citizens can use bitcoin and other cryptocurrencies (21 March 2021). Amid the letter issued by the Central Bank of Nigeria in February 2021, which has been perceived as imposing a ban on the use of cryptocurrencies in the country, the Governor has clarified that the Central Bank of Nigeria has only prohibited “transactions on cryptocurrencies in the banking sector”.