The week’s developments in the crypto currencies world including FCA scrutiny of cryptocurrency groups up by 47%

FCA scrutiny of cryptocurrency groups up by 47%

The FT has reported that the FCA has increased its inquiries of cryptocurrency businesses by 47% over last year. This increase is likely due to the FCA’s estimate that consumers have lost at least £27m in crypto and foreign exchange scams. While currently the transfer, purchase and sale of cryptocurrencies is not regulated in the UK, however, FCA regulation may be required of companies that sell regulated investments with an underlying cryptocurrency element and the FCA has announced its plans to ban derivatives on cryptocurrencies for retail investors. The FCA also voiced concerns about consumers being charged high fees by the cryptocurrency industry and financial crime.

Source: “Sharp rise in watchdog scrutiny of UK cryptocurrency groups”, available at https://www.ft.com/content/b8af083c-e6bd-11e9-9743-db5a370481bc

CME says bitcoin futures gaining interest from big investors

CME Group, the Chicago-based exchange operator, said its bitcoin futures contracts grew in popularity last quarter, with the number of open contracts up 61 percent from a year earlier because of growing demand from institutional investors.

Open interest, or the number of outstanding positions, rose to 4,629 contracts, up from 2,873 in the third quarter of 2018, CME said Monday in a statement. And despite the quarter’s 25 percent drop in bitcoin price, according to CoinDesk, the open interest in the CME’s contracts was down just 1 percent from second-quarter levels.

The average daily volume of contracts traded during the quarter was 5,534, up 10 percent from the year-earlier period. It was the equivalent of 27,670 bitcoin, or $289 million, according to the exchange.

But the CME faces new competition from Bakkt, a startup sponsored by Atlanta-based Intercontinental Exchange, which debuted a new bitcoin-futures contract in September, aiming to attract institutional investors who might want to make bets on the cryptocurrency.

(Source: “CME says bitcoin futures gaining interest from big investors”, available at https://www.coindesk.com/cme-says-bitcoin-futures-gaining-interest-from-big-investors

FINRA approves Grayscale’s public quote for crypto fund shares

Grayscale was approved by the United States Financial Industry Regulatory Authority (FINRA) to publicly quote its Grayscale Digital Large Cap Fund (GDLCF) on over-the-counter (OTC) markets, according to a press release on Oct. 14.

The recent approval purportedly enables the first publicly-quoted security based on a selection of digital currencies in the U.S., the firm stated. The shares will be available for purchase through investment accounts similar to other unregistered securities.

Grayscale is a subsidiary of major crypto venture capital company Digital Currency Group. Grayscale’s Bitcoin Investment Trust, allegedly the sole Bitcoin investment trust in the U.S., reportedly surged 300% this year as of July.

Source: “FINRA Approves Grayscale’s Public Quote for Crypto Fund Shares”, available at https://cointelegraph.com/news/finra-approves-grayscales-public-quote-for-crypto-fund-shares

Coinbase eyes European growth after winning Irish e-money license

Cryptocurrency exchange Coinbase has been granted an e-money license by the Central Bank of Ireland.

Writing in a company blog Saturday, Coinbase UK CEO Zeeshan Feroz said the exchange is one of the very first firms to receive the license from the central bank, following a Dublin office opening a year ago.

The license will also help open up EU and European Economic Area (EEA) markets for Coinbase customers, Feroz said.

Coinbase was granted a U.K. e-money license by the Financial Conduct Authority in March 2018, allowing the exchange to operate as a money service in the country.

While the U.K. is currently an EU member state, its government is currently attempting to leave the economic bloc via the so-called Brexit in coming weeks or months. If it goes ahead, the separation would render Coinbase’s local license of limited benefit.

Source: “Coinbase eyes European growth after winning Irish e-money license”, available at https://www.coindesk.com/coinbase-eyes-european-growth-after-winning-irish-e-money-license

 

G7 evaluates stablecoins as risk to global financial stability

In a letter to G20 finance ministers and central bank governors on Sunday, the FSB’s chair Randal Quarles said the G7 working group is delivering an assessment report on opportunities and challenges posed by global stablecoins.

While the G20 leaders previously admitted crypto assets do not pose a threat to global financial stability, the introduction of global stablecoins could pose “a host of challenges” to the regulatory community, the chair said in the letter.

The regulator presents a range of issues stemming from stablecoins, including data privacy and protection, AML/CFT and KYC compliance, tax evasion, fair competition and market integrity.

The FSB will later submit an official issues note on global stablecoins to the October 2019 G20 Finance Ministers and Central Bank Governors meeting this week. “The G7 working group will be handing off work on regulatory issues to the FSB, and we have already begun work in this area,” Quarles said.

The assessment came after the G20 Leaders asked the FSB to advise them on additional multilateral responses as needed, given recent developments in stablecoins.

Source: “G7 evaluates stablecoins as risk to global financial stability”, available at https://www.coindesk.com/g7-evaluates-stablecoins-as-risk-to-global-financial-stability/

US Treasury Secretary says firms left Libra due to compliance issues

United States Treasury Secretary Steven Mnuchin has attributed the recent spate of firms abandoning Facebook’s Libra stablecoin project to regulatory concerns.

On CNBC’s Squawk Box on Oct. 14, Mnuchin stated that companies are abandoning the Libra project because it is “not up to par” with American Anti-Money Laundering standards, saying: “If they don’t meet the standards of our money-laundering standards and the standards that we have at FinCEN, we would take enforcement actions against them. I think they realized that they are not ready, they are not up to par and I assume some of the partners got concerned and dropped out until they meet those standards.”

Mnuchin’s statement comes a few days after Visa, eBay, Stripe and Mastercard all announced that they are dropping out of the Libra Association, the stablecoin’s governing body, saying that they had chosen to redirect their focus for the time being.

Prior to that, major payment processor PayPal announced its withdrawal from Libra, as regulators continue to scrutinize the project.

Source: “US Treasury Secretary says firms left Libra due to compliance issues”, available at https://cointelegraph.com/news/us-treasury-secretary-says-firms-left-libra-due-to-compliance-issues

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
Email: claire.cummings@cummingsfisher.com

Previous

Next