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Cryptocurrency falls into a legislative gray area in many jurisdictions, which is why governments should take a particularly nuanced approach to developing regulatory frameworks for crypto trading, the outgoing chairman of Hong Kong’s securities regulator said in a recent interview.
Key Challenge for Legislators
“We have to carefully consider the regulatory approach for these platforms because they are new technology and may not qualify as securities,” Carlson Tong Ka-Shing, the current chairman of the Hong Kong Securities and Futures Commission (SFC), told the South China Morning Post.
Tong, who will hand over the reins to incoming SFC Chairman Tim Lui Tim-Leung on Oct. 19, said cryptocurrencies pose a significant challenge to legislators.
“They do not fit in the custodian, audit or valuation requirements, for instance, normally expected under the Securities and Futures Ordinance,” he said. “No other international market currently has a comprehensive regulation (sic) framework for these cryptocurrency platforms.”
Trading Bans Are Not a Practical Solution
Tong rejected the notion of prohibiting cryptocurrency trading platforms as a viable regulatory strategy. Such moves would prove fruitless in the current world, where trading can be freely conducted without concern for national borders, he argued.
“We do not think imposing a total ban on these platforms is necessarily the right approach,” he said, noting the importance of protecting the interests of investors. “Even if we were to ban them, transactions can still be easily conducted via platforms in overseas markets … We need to see if and how these platforms can be regulated to a standard that is comparable to that of a licensed trading venue.”
Bitmex COO Looks to U.S. Crypto Rules
Angela Kwan, the recently hired chief operating officer of Hong Kong-based cryptocurrency derivatives trading platform Bitmex, said the SFC should follow the lead of the U.S. and other leading markets with regard to international crypto regulations.
“We hope the guidelines or regulations being considered will keep pace with market developments,” Kwan said.
She claimed that the futures products that are now being traded in the U.S., for example, illustrate how regulators can help to support the growth of the crypto industry. “We hope that sharing information about cryptocurrency markets and market developments in this space will help international regulators better understand cryptocurrency as an asset class,” Kwan concluded.
What is your response to the outgoing SFC chairman’s comments regarding the regulation of cryptocurrency trading platforms? Share your thoughts in the comments section below.
Images courtesy of Shutterstock, ugc.edu.hk
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Europe’s securities watchdog, ESMA, has decided to extend the restrictions applied to a number of financial derivatives, including contracts-for-differences (CFDs) based on cryptocurrencies. The limits that were introduced in August of this year will now remain in place until the end of January 2019.
ESMA Concerned About CFDs Offered to Retail Clients
The European Securities and Markets Authority (ESMA) has taken steps to renew the restrictive measures imposed on the marketing, distribution, and sale of contracts-for-differences (CFDs) to retail customers. The restrictions were enforced on August 1 and according to the regulator’s latest decision, will be extended for another three-month period, starting from November 1.
In a press release, ESMA says it has “carefully considered the need to extend the intervention measure currently in effect.” The Paris-headquartered agency believes that “a significant investor protection concern related to the offer of CFDs to retail clients continues to exist.” That’s why a renewal of the limitations has been agreed by its Board of Supervisors on Wednesday, September 26, the regulatory body said in the announcement posted on its website this Friday.
The restrictions include the obligation to maintain leverage limits on the opening of a position by a retail client. These vary depending on the volatility of the underlying assets: 30:1 for major currency pairs; 20:1 for non-major currency pairs, gold, and major indices; 10:1 for commodities other than gold and non-major equity indices, and 5:1 for individual equities and other reference values. For cryptocurrency-based products, the leverage is limited at 2:1. These restrictions will be valid until January of next year.
Other Applicable Limits Remain in Place
ESMA’s decision to limit the leverage offered on cryptocurrency CFDs to no more than 2:1 was agreed in March of this year, as news.Bitcoin.com reported. In its announcement back then, the EU institution referred to the restrictions as “temporary product intervention measures on the provision of CFDs and binary options to retail investors.” The ratio means that traders are obliged to provide an initial margin of “50% of the notional value of the CFD when the underlying asset is a cryptocurrency, which is more than the initial margin required of any other CFD.
The authority motivated its ruling with the relatively immature status of the asset class which, in its opinion, poses a major risk for investors. ESMA was worried about the integrity of the price formation process in the underlying cryptocurrency markets which “makes it inherently difficult for retail clients to value these products.” The regulatory body stated that financial instruments providing exposure to cryptocurrencies, CFDs in the case, needed to be closely monitored. It also promised to assess if stricter measures were required.
In its latest decision on the matter, the agency confirms the renewal of other relevant restrictions, including a negative balance protection on a per account basis, a measure providing a guaranteed limit on retail client losses. Other safety mechanisms that have been confirmed envisage the preserving of restrictions on the incentives offered to trade CFDs as well as the issuing of a standardized risk warning that is supposed to include the percentage of losses on a CFD provider’s retail investor accounts.
In its press release, ESMA notes that the renewed measures have to be published in the official languages of the EU and also in the Official Journal of the Union before they begin to apply on November 1, 2018.
What is your opinion on the EU restrictions imposed on crypto-based CFDs? Share your thoughts on the subject in the comments section below.
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United States Security and Exchange Commission (SEC) is reportedly seeking further sanction against alleged crypto scammers Dominic Lacroix and Sabrina Paradis-Royer of Plexcoin fame. According to Maria Nikolova of Financefeeds, the two continue to defy court orders.
SEC to Further Sanction Alleged Crypto Scammers
Financefeeds is reporting the US SEC seeks sanctions against individuals behind alleged cryptocurrency scam Plexcoin, Dominic Lacroix and Sabrina Paradis-Royer. It is claimed the two, who have been the subject of the regulator’s ire for nearly two years, continue to disobey court orders.
Almost a year ago, these pages documented the then new Cyber Unit division of the SEC. Less than three months later, the division filed its first charges against what it alleged was an initial coin offering (ICO) scam. “Release 2017-219, SEC Emergency Action Halts ICO Scam,” we wrote, “termed Canadian Dominic Lacroix ‘a recidivist Quebec securities law violator.’ Mr. Lacroix and his company, Plex Corps, are accused of offering a token capable of yielding ‘a 1,354 percent profit in less than 29 days.’”
It also appears “Mr. Lacroix was found in contempt of court in October of this year, ‘following an application filed by the Autorité des marchés financiers,’ the Quebec-based regulator noted. This came after a Tribunal over the summer found Mr. Lacroix guilty of violating securities law,” we documented, showing the current SEC action wasn’t the first time he has been accused of skirting court orders.
The ongoing case by the SEC against the pair seems to have no end in sight. The case “continues at the New York Eastern District Court, with the US regulator having hard time to make the defendants co-operate, or, at the very least, comply with Court orders,” Financefeeds notes. This week the SEC asked the court to to compel and sanction the two, as “defendants continue to ignore court orders concerning discovery, accounting of assets and repatriation of assets.”
The court has had an ongoing issue as far back as last year, when it demanded accounting for the money taken by the various alleged schemes. Deadlines were extended. But still, according to reports, nothing. No bank statements. No sworn documentation. “Furthermore,” Ms. Nikolova insists, “in August this year, the Court ordered that, by September 18, 2018, the Individual Defendants are to submit to the Commission all items ordered produced by the December Order, including, but not limited to, the accounting of investor funds and the list of Individual Defendants’ accounts and assets. Nevertheless, the defendants have neither produced the ordered accounting and list of assets nor repatriated any funds.”
The SEC action in the first place was to get a handle what regulators saw as a hemorrhaging of money from unsuspecting investors. There is now the worry a court dragging its feet on formal sanctions and motions could potentially push effective regulating of the ICO pair into impotence. “The regulator warns that,” Financefeeds continues, “absent the sanction it requests, the defendants could employ this strategy indefinitely, including potentially after the entry of a preliminary injunction. Delaying the inevitable final judgment only increases the likelihood that Dominic Lacroix and Sabrina Paradis-Royer will continue to dissipate investor assets in violation of this Court’s orders, the SEC says.”
Do you think the SEC will succeed in their battle with the alleged scammers? Let us know in the comments below.
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AMF, France’s financial regulator, has expanded its list of entities involved in fraudulent activities often related to cryptocurrency investments. The agency has added 21 new websites most of which have been luring French investors with offers to participate in token sales and digital assets trading.
France Updates Crypto Scams List
L’Autorité des Marchés Financiers (AMF), the French financial markets authority, has updated its blacklist of businesses providing services that entangle investors in fraudulent schemes. Most of the 21 new names belong to the grey segment of the crypto industry and offer investment opportunities in initial coin offerings (ICOs), cryptocurrency trading or mining projects. What’s common between these entities is that neither of them is authorized to operate in the sector. In its official announcement, the AMF notes that the list is updated regularly but warns that new actors appear all the time.
The move comes after in March French authorities blacklisted 15 online platforms suspected of similar offenses. Later, in July AMF stated that digital asset investments pose a risk to French citizens as they could be offered by scammers. The regulatory body included the warning in its annual financial industry risk assessment report. Despite being categorical about the threats, the agency admitted that the lack of reliable data hampers its efforts to single out and estimate the risks associated with this type of financial activities.
The task of the French regulators is further complicated by the fact that cryptocurrencies and crypto-related products are not yet fully covered by the current legal definitions in the country’s legislation. Under French law, they are neither considered currencies nor regarded as financial instruments. Besides, it’s unclear which particular state institution bears responsibility and is competent to perform control and oversight functions.
Nevertheless, the AMF concluded earlier this year that crypto derivatives should be subject to the rules applicable to financial instruments under the Monetary and Financial Code of France. The same law is in full force in regards to the acts of approval of entities that are selling these products, as well as the regulations governing their operations.
Efforts to Make ICOs Safer for Investors
French authorities defined digital tokens as rights to the future use of services offered by the issuer noting that investors are actually betting on the success of the respective projects. However, tokens were not recognized as financial instruments. Despite these clarifications, crowdfunding through ICOs remained generally outside the scope of the French regulatory framework at the time.
This month, lawmakers in Paris adopted new legislation introducing guidelines as part of a legal framework designed to regulate token sales in the crypto space. The law grants the AMF powers to license entities planning to conduct ICOs under certain conditions such as providing specific guarantees to participants. Token issuers will also be required to disclose any relevant information that would allow investors to make informed decisions about their projects.
The French financial markets authority considered the lack of dedicated regulations an inherent risk of ICOs. The new rules which are part of president Emmanuel Macron’s plan to improve the business climate in the country, along with the decision to significantly cut taxes on crypto profits, can potentially turn France into another European jurisdiction with crypto-friendly characteristics.
Do you think the measures taken by the AMF will limit the number of fraudulent schemes related to cryptocurrencies? Share your opinions on the subject in the comments section below.
Images courtesy of Shutterstock, AMF.
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The state’s top financial regulator launched an investigation Wednesday of high-cost consumer lenders after the failure of several bills in the Legislature that would have tightened oversight of the industry.
The Department of Business Oversight sent letters to 20 high-interest lenders, asking…
Japan’s financial regulator has recently unveiled the current state of the crypto regulations in the country. Three crypto operators are currently being reviewed. With 160 companies wanting to enter the space, the regulator plans to add more personnel to help review new applicants. In addition, a self-regulatory plan for crypto exchanges has also been submitted to the regulator.
Current State of Crypto Regulations
Japan’s top financial regulator, the Financial Services Agency (FSA), published several documents from its fifth crypto study group meeting on Wednesday, September 12. The current state of crypto regulations and exchange registrations were discussed.
The agency confirmed that out of the 16 companies that have been allowed to operate crypto exchanges while their applications are being reviewed, only three have survived the agency’s recent inspections. Coincheck, Lastroots, and Everybody’s Bitcoin are currently being reviewed. The FSA reiterated that it is “currently reviewing the work improvement report” of Coincheck and, going forward, it will periodically conduct on-site inspections of registered exchanges.
Out of the 16 companies, one was rejected by the agency and 12 others have withdrawn their applications. In addition, approximately 160 companies have expressed their intention to register crypto exchanges, as previously reported by news.Bitcoin.com.
FSA Expanding Crypto Team
The FSA’s vice commissioner for policy coordination, Kiyotaka Sasaki, said at the meeting that “The biggest problem is how to deal with new operators,” Reuters reported on Wednesday.
He noted that the agency currently has 30 personnel whose jobs include monitoring crypto exchanges and traders, supervising unregistered operators, and reviewing registration applications.
However, with over 160 companies wanting to enter the market, the FSA is seeking additional workforce to help with reviewing applicants. The agency is requesting 12 more personnel in the financial year 2019 to swiftly respond to crypto exchange operators, the publication conveyed.
Plan for Self-Regulation
Also discussed at the meeting are self-regulatory rules established by the Japan Virtual Currency Exchange Association (Jvcea).
Currently, the members of the association are the 16 government-approved crypto exchanges: Money Partners, Quoine, Bitflyer, Bitbank, SBI Virtual Currency, GMO Coin, Bittrade, Btcbox, Bitpoint Japan, DMM Bitcoin, Bitarg Exchange Tokyo, Bitgate, Bitocean, Fisco Virtual Currency, Tech Bureau, and Xtheta.
The president of both the association and Money Partners, Yasunori Okuyama, explained to the meeting attendees the long list of self-regulatory rules, Impress Corporation reported. One of the rules relates to the handling of cryptocurrencies at exchanges, which states:
When handling a new virtual currency, after conducting an internal review by the member, it is necessary to notify the association beforehand, and if the association gives an objection, it will not be handled.
Another rule concerns the management of customer assets. The association explained that extra restrictions have been added such as “measures concerning margin trading using virtual currency” in compliance with the fund settlement law and the administrative guidelines.
The leverage limit designated by the association is four times but members can choose their own limit under certain circumstances. The margin trading rule aims to “suppress the risk of loss of users and excessive speculative transactions in leverage transactions using virtual currency,” the association explained.
Furthermore, exchanges must have anti-money laundering (AML) and combating the financing of terrorism (CFT) measures as well as rules regarding anti-social forces. Among other rules are ones covering basic transactions, dispute resolution, solicitation and advertising, trading guidelines, ethics and how to handle initial coin offerings (ICOs).
While the association says that “the self-regulatory rules will generally be enforced “at an early stage in order to acquire the accreditation of our association,” it acknowledges that some rules may take longer to comply.
What do you think of the Japanese crypto regulation and self-regulation? Let us know in the comments section below.
Images courtesy of Shutterstock and the FSA.
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Australia’s antitrust regulator won’t stand in the way of a multibillion-dollar takeover of one of the country’s main gas-pipeline operators, putting the deal by Hong Kong’s CK Infrastructure Holdings in the hands of foreign investment authorities.
WSJ.com: What’s News Asia
Ever since fears arose around Tether (USDT), it seems like a new stablecoin is released every week to try and take its place. Today two new stablecoins have been revealed, with the distinction of being approved by the financial regulator known for the New York Bitlicense.
The New York State Department of Financial Services (DFS) has announced today that it authorized Gemini Trust and Paxos Trust to each offer its own stablecoin pegged to the US dollar. Both the Gemini Dollar (GUSD) and the Paxos Standard (PAX) are said to be ERC20 tokens backed one to one by fiat US dollars held at US-located and FDIC-insured banks.
DFS Superintendent Maria T. Vullo said, “As the financial technology marketplace continues to evolve, New York is committed to fostering innovation while ensuring responsible growth. These approvals demonstrate that companies can create change and strong standards of compliance within a strong state regulatory framework that safeguards regulated entities and protects consumers.”
Tokens Subject to Forfeiture and Seizure
As part of the approval process, the regulator ensured that each company complies with requirements regarding anti-money laundering, anti-terror financing, anti-fraud, and consumer protection measures. The companies also must post terms and conditions on both Gemini’s and Paxos’s websites warning consumers that: Any stablecoin and the fiat currency available upon redemption may be forfeited if it has been used for illegal activity; any stablecoin may be subject to forfeiture to, or seizure by, a law enforcement agency in the event that there is a legal order or other legal process; and any stablecoin or fiat currency available upon exchange that has been subject to freezing, forfeiture or seizure may be wholly and permanently unusable and may be destroyed.
“This is a very exciting time and we thank the DFS and Superintendent Vullo,” said Charles Cascarilla, CEO and co-founder of Paxos. “With Paxos Standard, we hope to enable a truly frictionless, global economy by offering a token that is stable, fast, redeemable, audited, and most importantly, approved and regulated. This is a digital asset that can be trusted.”
Is there a place for regulator-approved stablecoins in the crypto ecosystem? Share your thoughts in the comments section below.
Images courtesy of Shutterstock.
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Japan’s top financial regulator has revealed exclusively to news.Bitcoin.com the number of crypto exchanges seeking to enter the Japanese market. The agency also confirms the number of existing exchanges that have exited the industry, leaving only three applications currently being reviewed.
Three Quasi-Operators Are Left
Cryptocurrency exchanges in Japan are licensed by the country’s top financial regulator, the Financial Services Agency (FSA).
The FSA has licensed 16 crypto exchanges so far. In addition, it has allowed 16 more companies, including Coincheck, to operate crypto exchanges while their applications are being reviewed. These companies are sometimes referred to as “quasi-operators” of crypto exchanges.
However, since the hack of Coincheck in January, the FSA has stepped up its oversight of crypto exchanges. It has issued many business improvement orders and temporary shut down some exchanges. With stricter rules to comply, a number of quasi-operators began to withdraw their applications and exit the industry.
An FSA representative told news.Bitcoin.com that, out of the original 16 quasi-operators:
There are three quasi-virtual currency broker dealers still being reviewed: Coincheck, Everybody’s Bitcoin Inc. [Minnano Bitcoin], and Lastroots.
Coincheck was acquired by Monex Group after the hack. While the FSA declined to comment on Coincheck’s specific application, Monex is hopeful that the exchange will be approved in September. Once approved, Coincheck will resume normal operations, including registering new members, Monex previously said.
FSA Never Stopped Reviewing Applications
Since the hack of Coincheck, the FSA began rigorously inspecting all crypto exchanges, 23 of which received an on-site inspection. The agency recently released a report detailing its findings.
No new companies have been approved this year, drawing speculation that the agency may have halted reviewing exchange operators.
However, the FSA confirmed to news.Bitcoin.com:
There is no such fact that we stopped reviewing process.
160 Interested Companies
The FSA revealed in July that about 100 companies were interested in applying for a license to operate a crypto exchange. Among them are Line Corp and Yahoo! Japan. Line recently launched an exchange, Bitbox, that serves customers globally except those in Japan and the U.S. The company is waiting for the FSA’s approval before beginning operations in Japan.
On Wednesday, the agency disclosed to news.Bitcoin.com the updated number of interested operators, stating:
Including preliminary consultation/inquiries regarding registration, around 160 operators are expressing their intention of market entry.
What do you think of 160 exchange operators wanting to enter the crypto space in Japan while most of the quasi-operators have exited the market? Let us know in the comments section below.
Images courtesy of Shutterstock and the FSA.
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The SEC began investigating last year whether Tesla misled investors about its Model 3 car production problems and subpoenaed a parts supplier.
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