The week’s developments in the crypto currencies world including European Commission consultation on the EU regulatory framework for crypto assets

European Commission consultation on the EU regulatory framework for crypto assets

The European Commission (EC) has published a consultation paper. The paper discusses the importance of Europe grasping the potential of what it terms as the “digital age” within certain boundaries. It acknowledges that “[d]igitalisation and technology is significantly transforming the European financial system and the way it provides financial services to Europe’s businesses and citizens”. The European Commission is now working to prepare a Digital Finance Strategy for the European Union.

The questions asked in the consultation paper fall into four main areas, these being:

  1. general questions aimed at understanding the EU citizens’ views on their use or potential use of crypto-assets;
  2. questions aimed at producing a categorisation of crypto-assets, which the paper states is a key element to determine whether crypto-assets fall within current EU financial services legislation;
  3. questions which are intended to seek stakeholder views on the opportunities and challenges raised by crypto-assets that currently fall outside the scope of EU financial services legislation as well as the risks presented by some service providers related to crypto-assets and the best way to mitigate them. Such mitigation considerations look at market integrity, AML, the financing of terrorism, consumer/investor protection and the supervision and oversight of the crypto-asset sector; and
  4. general questions on security tokens and applicable legislation as well as legislation applying to e-money tokens.


Qatar Financial Centre ban on crypto

The Qatar Financial Centre Regulatory Authority (QFCRA) has announced that virtual asset services may not be conducted in or from the Qatar Financial Centre . It has been reported that the QFCRA made the announcement tweet on 26 December 2019, which stated that authorized firms would not be permitted to provide or facilitate the provision or exchange of crypto assets and related services until further notice.

The report giving details of the ban explains that the QFCRA defines virtual asset services as: (i) the exchange between crypto and fiat assets; (ii) crypto and crypto assets; (iii) the, transfer of crypto assets; (iv) the safekeeping or administration of virtual assets or tools for the management of crypto assets; and (v) the participation in or provision of financial services related to virtual assets. The action of QFCRA highlights the differences in actions and independence shown by various jurisdictions. While Switzerland is viewed as having opened up to the possibilities of digital assets, others see them as a threat to monetary sovereignty and have adopted a hard line.


Signature Bank and Prime Trust offer instant payments for institutions

Signature Bank announced on Monday 6 January 2020 that it would be linking its own Signet payments platform to Prime Trust’s multi-asset settlement platform, thereby creating a new service offering “real-time” settlements for digital asset trades. In a quote, the president and CEO of Signature Bank is reported as saying “Any Signature Bank commercial client participating on the Signet platform has the ability to make instantaneous payments in U.S. dollars, any time without transaction fees The relationship we have forged with Prime Trust will allow their clients to immediately settle their transactions through the revolutionary Signet platform”.

The service is intended top allow institutional clients from both companies to make payments directly to one another at any time, without third parties or transaction fees. However, compliance and risk concerns may mean that only a small number of specialized providers will be willing to provide services to cryptocurrency companies


US-based Signature Bank to offer services to crypto firms in Bermuda

Signature Bank of New York has announced that it is now offering bank accounts for businesses based in Bermuda that deal in digital assets. There are believed to be over 60 companies that initially this will be of great assistance to, as despite the Bermuda government changing its law, no locally-based bank offers accounts in the crypto sector. However Signature Bank claims that it is signing up companies which are also not involved with crypto.   The lack of banking facilities is a major hurdle facing businesses that deal in digital assets globally as it is extremely difficult to open a bank account in many jurisdictions around the world.  In the UK, Clearbank which is the first bank in over 250 years to be granted clearing bank status, is one of the few banks to offer bank accounts to firms engaged in digital assets, but the company needs to be FCA-regulated or in the process of applying to the FCA in order to be accepted by Clearbank.

(Source: “US-based Signature Bank to Offer Services to Crypto firms in Bermuda”, available at

People’s Bank of China and the digital Yuan

Reports say that the People’s Bank of China (PBoC) has said that it is “progressing smoothly” with its development of a government-backed digital currency. It is understood that China has spent in the region of five years conducting research and system development in relation to a central bank digital currency (CBDC), and conducted its first true pilot of the currency in December 2019. As a form of digital legal tender the CBDC is said to be be controlled by the PBoC and 100% backed by the reserves commercial institutions pay to the institution.


The SEC and Telegram

It is understood that the legal team acting for Telegram has taken further steps in the courts of the United States. In a letter to the New York court on 3 January 2020, it is believed that Skadden, Arps, Slate, Meagher & Flom LLP described a request from the SEC for bank accounts as an “unfounded fishing expedition”.

The SEC had requested Telegram provide details of how it spent the proceeds of its initial coin offering (ICO).

In the past, the SEC has investigated a number of ICOs for securities violations, while in December 2019 the SEC chairman Jay Clayton described the SEC’s approach to the cryptocurrency sphere as “measured.”


SEC considers the ‘Accredited Investor’

The SEC has voted to propose amendments to the definition of Accredited Investor, which is one of the main tests for who is eligible to participate in US private capital markets. The proposal is said to look at whether to update and improve the definition to more effectively identify institutional and individual investors who have the knowledge and expertise to participate (see

On 18 December, three of the five SEC commissioners voted to publish a proposal for updating the definition of “accredited investors”. The general public has 60 days from the proposal’s publication in the Federal Register (the official record for the U.S. government) to comment on whether the securities regulator should approve the expanded definition.

It is understood that a number of entities involved in cryptocurrencies has held the hope that the new definition would allow individuals to participate in unregistered token offerings based on how well they understand the products, rather than based solely on standards of wealth. However, although the proposal lists a number of criteria and consideration which the SEC is evaluating, US lawyers who specialise in the area have made clear that there can be no certainty that the final definition will widen the pool of new accredited investors all that much. Reference is made to the fact that while the text provides a tentative framework for which credentials from academic institutions may qualify, the full text of the proposal makes clear that the SEC would have to designate the specific certifications, designations or credentials that would qualify an investor.


Claire Cummings

Claire practises financial services law with a focus on regulatory issues, cryptocurrencies and tokens, trading and brokerage documentation and advising both existing and start-up funds and fund managers.

If you would like to discuss any of the points we raise, please contact me or one of our other lawyers.

Phone: 0207 585 1406