On September 15, 2020, the Securities and Exchange Commission issued a cease‑and‑desist order against Unikrn, Inc. concerning its 2017 initial coin offering of UnikoinGold . The SEC found that the Unikrn ICO violated the prohibition in Section 5 of the Securities Act of 1933 against the unregistered public offer or sale of securities. The SEC
Cleary FinTech Update
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AML Regulators Clarify Diligence Requirements for Politically Exposed Persons
On August 21, the Financial Crimes Enforcement Network, together with the federal banking agencies, released a statement to clarify banks’ customer due diligence obligations for politically exposed persons. The Statement affirms that (i) there is no regulatory requirement, and no supervisory expectation, for banks’ Bank Secrecy Act / anti-money laundering programs to include “unique, additional due…
OCC Imposes $80 Million Penalty in Connection with Bank Data Breach
In a landmark enforcement action related to a bank data breach, the Office of the Comptroller of the Currency (“OCC”) assessed an $80 million civil monetary penalty and entered into a cease and desist order with the bank subsidiaries of Capital One on August 6, 2020. The actions follow a 2019 cyber-attack against Capital One. …
OCC Interpretation Opens the Door for Banks to Enter the Crypto Custody Business
On July 22, 2020, the Office of the Comptroller of the Currency (“OCC”) published an interpretive letter clarifying that providing cryptocurrency custody services to customers is a permissible activity for national banks and federal savings associations. This letter marks an important milestone in the expansion of permissible banking activities related to digital assets. The letter concludes…
Federal Court Compels Production of Data Breach Forensic Investigation Report
On June 25, 2020, a federal district court in the Eastern District of Virginia held that a bank must produce in discovery a report generated by its cybersecurity forensic investigator following a 2019 data breach involving unauthorized access to personal information of customers and individuals who had applied for accounts.[1] Even though the report…
CFTC Issues Final Interpretive Guidance on Actual Delivery for Digital Assets
On March 24, the Commodity Futures Trading Commission (“CFTC”) released its Final Interpretive Guidance on Actual Delivery for Digital Assets (“Final Interpretation”), addressing longstanding questions regarding which digital asset transactions could be deemed “retail commodity transactions” under the Commodity Exchange Act (“CEA”). The Final Interpretation comes two years after the CFTC issued proposed interpretive guidance…
From the Expected to the Surprises: Highlights of SEC OCIE’s 2020 Priorities
On January 7, 2020, the U.S. Securities and Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) released its 2020 Examination Priorities (“2020 Priorities”). While at first blush the themes appear consistent with and predictable from their 2019 priorities, on closer read OCIE has provided some new insights and some unexpected focus areas. The…
Leaders of the SEC, CFTC, and FinCEN Issue Joint Statement Reminding Market Participants of Their AML/CFT Obligations for Digital Asset Activities
On October 11, 2019, the leaders of the Commodity Futures Trading Commission, Financial Crimes Enforcement Network, and Securities and Exchange Commission issued a joint statement to remind businesses that engage in digital asset activities of their anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) obligations under the Bank Secrecy Act (“BSA”).
As market…
SEC Files First Suit Against Alleged Unregistered Broker-Dealer Operating in Digital Asset Markets
On September 18, 2019, the Securities and Exchange Commission (“SEC”) filed its first civil suit alleging violations of broker-dealer registration requirements in U.S. digital asset markets. In a case filed in the U.S. District Court for the Central District of California, the SEC alleged that Defendants ICOBox and its founder, Nikolay Evdokimov, illegally conducted an…
SEC Provides Second No-Action Letter in the Digital Asset Space
On July 25, 2019, staff of the Securities and Exchange Commission (“SEC”) granted its second no-action letter in the digital asset space to Pocketful of Quarters, Inc. (“POQ”), permitting POQ to sell digital tokens (“Quarters”) recorded on the Ethereum blockchain without satisfying registration requirements under the Securities Act of 1933 and the Securities Exchange Act…
Are Cryptoassets Property Under English Law?
In May 2019, the UK Jurisdiction Taskforce (the “UKJT”) of the LawTech Delivery Panel published its public consultation paper on the status of cryptoassets and distributed ledger technology, as well as the enforceability of smart contracts, under English private law. While much of the literature around cryptoassets in the legal context has been centred on…
Federal District Court Rules OCC Lacks Authority to Issue FinTech Charters
On May 2, 2019, a court in the Southern District of New York (“SDNY”) held that the Office of the Comptroller of the Currency (“OCC”) lacked the statutory authority to charter nondepository special purpose national banks (the so-called “FinTech Charter”). In denying, with one exception, the OCC’s motions to dismiss claims by New York’s Department…
France’s Parliament Adopts an Innovative New Framework for Approving Initial Coin Offerings
On April 11, 2019, the French parliament adopted a law (the “Loi Pacte”or “Law”)[1] that establishes a new regulatory framework for initial coin offerings (“ICOs”) of blockchain based tokens by entities established or registered in France. At the heart of the Law’s ICO provisions is an innovative framework that will allow issuers to request…
SEC Expands on Its Digital Asset Guidance: At Inception, (Nearly) Every New Token Is a Security
On April 3, 2019, staff of the Securities and Exchange Commission released (1) a framework providing principles for analyzing whether a digital asset constitutes an investment contract, and thus a security, as defined in SEC v. W.J. Howey Co. and (2) a no-action letter permitting TurnKey Jet, Inc., without satisfying registration requirements under the Securities Act of…
The Conference of State Banking Supervisors Seeks to Improve Consistency of FinTech Regulation, but Questions Remain
The United States offers an innovative and diverse marketplace along with a sound infrastructure for new cryptocurrency and digital asset businesses. However, the U.S. regulatory framework for digital asset businesses creates significant barriers to innovation and risks frittering away the potential benefits of the U.S. markets’ creativity. One of the chief challenges for today’s cryptocurrency…
SEC Seeks Comments on Key Issues Around Custody of Digital Assets
On March 12, the SEC’s Division of Investment Management (“Division”) published a letter from Paul G. Cellupica, Deputy Director and Chief Counsel of the Division, to Karen Barr, President and CEO of the Investment Advisor Association, laying out a number of issues under Rule 206(4)-2 (the “Custody Rule”). The letter included a request for information…