Solidus Digital Asset Trade Surveillance and Regulation News Briefing | January
Everything you need to know from the past few weeks: In the US, the SEC announces digital assets will be the focus of its compliance inspections in 2019. The EU Banking Authority calls for regulatory consistency across the Union. And in Asia — a domino effect of licensing for cryptoasset exchanges.
January 14, 2019
The SEC’s Office of Compliance Inspections and Examinations released its priorities report for 2019, noting digital assets as one of the agency’s key focuses for inspection and enforcement. As a reminder, digital assets enforcement actions starred in the regulator’s 2018 enforcement report. The securities agency is still investigating around 200 digital assetbusinesses for suspected fraud, manipulation and other forms of non-compliance.
Bitwise joined companies applying to the SEC in order to trade an ETF-Bitcoin. The company is trying to address custody challenges by offering physical custody through a third party. The SEC formerly stressed surveillance and custody as to keys to getting a crypto ETF approved.
On the state level, Colorado is considering a bill that would provide limited exemptions from securities law for digital token traders. Ohio offers a lax digital asset policy, while New York and its BitLicense place more limits as part of a controlled digital asset policy. This article compares the two state’s approaches.
Finally, a couple of anecdotal stories: A lawyer dives into CoinAlpha’s indictment last month, demonstrating how a minor compliance oversight can lead to major fines and cease and desist orders; A Michigan owner of a digital asset business raided by federal agents for fraud talks about his experience.
Our take: The past few months have seen a gradual escalation of regulatory enforcement actions, and now, by making digital assets a focus for 2019, the SEC is officially making it a cleanup year for the space. Legislation is simultaneously evolving on the national and state level to accommodate and guide intensifying enforcement.
Japanese authorities officially granted Coincheck permission to operate
Thailand’s Ministry of Finance issued for the first time licenses to three digital asset exchanges and one broker-dealer firm while denying two other applicants for lacking compliance infrastructure.
In Korea, the government approved of security measures instituted by seven cryptoasset exchanges, based on 85 examined security aspects. 14 other exchanges failed the inspection and will need to improve their infrastructure.
Japan’s Financial Services Agency (FSA) officially granted crypto exchange Coincheck “full permission” to work in the island nation. Also in Japan, conflicting reports whether the FSA is considering the approval of a bitcoin ETF or not. The agency is denying the reports.
In Hong Kong, regulators announced they will tighten requirementssurrounding the operation of digital asset businesses, and set up a “voluntary scheme” that will include a sandbox to test and license exchanges.
Starting January 15, 2019, Malasia will recognize digital assets under its securities law. The country plans to establish “the relevant regulatory requirements for the issuance of ICOs and the trading of digital assets” during the first quarter of the year.
Our take: With this domino effect of licensing and comprehensive security checks, Asia continues to be a leader in digital asset regulation. Once operational and security standards are established, a likely next step will be addressing market manipulation and integrity concerns.
The EU’s European Banking Authority released a study of digital assets, asserting that while they don’t post a financial stability risk, “crypto-assets/activities do not appear to fall within the scope of current EU financial services law and are highly risky with regard to consumer protection, operational resilience, and market integrity.” The EBA, calls the European Commission to promote an EU-wide legal framework that would provide consistent policy among its member states.
On the contrary, a Swiss government report last month provided a legal framework for addressing blockchain regulation, noting that with few amendments Switzerland’s existing law is well-suited to address challenges for financial regulation created by the new tech.
DX Exchange, based in Estonia and Israel, is now offering investors digital tokens based on shares of 10 Nasdaq-listed companies. According to Bloomberg, Tesla and Apple stock on the blockchain could hint of where crypto is headed.
In various European countries, policy frameworks to accommodate digital assets are in the works. This Medium post provides a helpful summary of developments in the UK, Malta, Finland, France, Germany, Switzerland and Estonia.
Vontobel, the major Swiss investment bank is launching what it calls the first full custodian service for digital assets. Effective custody, together with trade surveillance, is deemed a critical element in a fully regulated digital asset space in the future.
The Bulgarian National Revenue Service announced it will look into digital asset businesses, to ensure compliance with the country’s law.
Our take: European bureaucracy is waking up, clarifying that digital assets do not pose a risk but rather an opportunity for finance, and calls for a continental effort to accommodate with consistent regulation.
Solidus Labs uses 20 years of Wall Street FinTech experience to provide machine learning-powered trade surveillance tailored for cryptoassets. Our products help exchanges, broker-dealers, market makers and other financial service providers detect and combat manipulation in digital asset trading, and streamline reg-reporting.