Category: Regulation

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Banking Crime Payments Regulation

Brazil Legalises Crypto as a Payment Method

The Brazilian Chamber of Deputies, the equivalent of Australia’s House of Representatives, has approved legislation to legalise the use of cryptocurrencies as a payment method throughout the South American nation. Before the legislation becomes law, however, it must be approved by the executive branch of the Brazilian government. 

The new law will not recognise Bitcoin or any other cryptocurrency as legal tender, as was done in El Salvador last year. Instead, it adds cryptocurrencies to the definition of legal payment methods within the country, along with air mileage rewards programs.

Details of the New Legislation

The bill containing the new legislation, which was authored by Aureo Ribeiro, was passed by Brazil’s senate in April of this year but has been stuck in the nation’s lower house for several months.

In addition to recognising crypto as a legal payment method, the new law will allow for the creation of licenses for cryptocurrency exchanges, crypto custody providers and virtual asset managers. 

The law will also require that exchanges avoid the commingling of company assets and their customer’s assets, in what appears to be an attempt to avoid a repeat of the FTX collapse.

Legislation Creates New Crime

The bill also establishes the new crime of fraud involving virtual assets with a minimum penalty of two years in prison and a maximum of six years, plus a monetary fine.

It also adds to Brazil’s regulatory framework around crypto, declaring that any virtual assets defined as securities will be regulated by the nation’s securities watchdog, the CMV. Assets not defined as securities will be regulated by a body yet to be determined by the executive branch but expected to be the central bank.

Companies will have 180 days to comply with the new legislation after it passes into law.

What it Means for Crypto’s Growth

Once the new legislation is signed off by the executive branch, banks in Brazil could start allowing customers to pay for goods and services using crypto as an alternative to credit and debit cards, which may lead to significant growth in the use of cryptocurrencies.

Already, some banks in Brazil have begun offering crypto-based services — in October, the Warren Buffet-backed neobank, Nubank, announced its plan to launch its own cryptocurrency in the first half of 2023. 

Categories
Australia DeFi Illegal Regulation

ASIC Sues Aussie Fintech Company Block Earner Alleging Unlicensed Services

Australia’s financial markets watchdog is taking Aussie crypto platform Block Earner to court for allegedly providing unlicensed financial services and running an unregistered managed investment scheme. 

The Australian Securities and Investments Commission (ASIC) announced Wednesday November 23 that it had commenced civil penalty proceedings against Block Earner — the trading name for Web3 Ventures — in the Federal Court.

“We are concerned that Block Earner offered financial products without appropriate registration or an Australian Financial Services licence, leaving consumers without important protections. Simply because a product hinges on a crypto-asset, does not mean it falls outside financial services law.”

ASIC Deputy Chair Sarah Court

ASIC has been active when it comes to enforcement in the crypto space of late, taking legal action against the company being the Qoin token in October this year.  

Block Earner CEO Cites Lack of Regulatory Clarity

Bringing decentralised finance to the masses has been the catch-cry of Block Earner, which offers a range of fixed annual yield products backed by crypto, USD reserves and physical gold. ASIC said Block Earner’s crypto-asset-related offerings were financial products, which comes with a requirement to hold an AFS licence — which Block Earner does not have.

Speaking to Business News Australia, Block Earner co-founder and CEO Charlie Karaboga described the legal action as a “disappointing outcome”. He said the startup had invested in infrastructure to be able to operate compliantly and protect its customers against crypto market volatility. 

“Needless to say, lack of clarity around regulation in Australia for cryptocurrency-related products creates friction between regulators and innovators like Block Earner in our industry. In an ideal world, we would build these products in a regulatory sandbox with more clarity around licensing regimes. In the future, we look forward to working with ASIC and other regulators in this space to make Australia an innovative space for the crypto industry.”

Block Earner co-founder and CEO Charlie Karaboga

ASIC Supports Regulation to Protect Consumers

ASIC said it supports the development of an effective regulatory framework covering crypto assets in order to protect Australian investors — who have demonstrated a strong interest in crypto. 

Research released by ASIC in August 2022 found many new, young investors had become active in financial markets and 44 percent reported holding crypto. Just 20 percent of crypto owners considered their investment approach to be ‘risk-taking’, and many said they sourced information from social media, podcasts and financial influencers.

In its statement about legal proceedings against Block Earner, ASIC highlighted its concerns about consumers’ vulnerability in their rush to embrace crypto:

“Crypto-assets are risky, inherently volatile and complex and ASIC remains concerned that potential investors in crypto-assets may not fully appreciate the risks involved. ASIC supports the development of an effective regulatory framework covering crypto-assets to protect consumers and investors.” 

ASIC Deputy Chair Sarah Court
Categories
Crypto Exchange Crypto News FTX Regulation

Top Crypto Data Platform CoinMarketCap Launches Proof of Reserve Tracker

A new feature released by leading crypto price-tracking site CoinMarketCap reveals more data about crypto exchanges’ reserves — the assets that enable a company to cover potential withdrawals by customers.

With the contagion of FTX’s highly damaging collapse continuing to spread, and Proof-of-Reserves being touted as a needed failsafe against future incidents, the website’s move to give people information about crypto exchanges has been welcomed by many. 

According to CoinMarketCap, its new ‘Proof of Reserves’ feature “provides transparency to cryptocurrency reserves through a verifiable auditing practice.” The data seems to be drawn from audited proof of reserves information that the exchanges themselves have made public — with these sources aggregated by CoinMarketCap for the convenience of its visitors. For instance, it lists as a source this tweet from Crypto.com:

“More and more cryptocurrency exchanges have begun revealing their proof-of-reserves in the wake of the recent industry disquiet, and we believe in the importance of giving CMC users all of the information possible about each exchange, project and token.”

CoinMarketCap statement about its Proof of Reserves data

What information can you now get?

By exploring the web pages dedicated to each exchange featured on CoinMarketCap, users can now view details including:

  • The total assets held by the exchange
  • Public wallet address ownership
  • The balance, price and value of the public wallets.

A true sense of a company’s solvency is typically derived from the difference between its total assets and its total liabilities. Obviously, CoinMarketCap doesn’t have access to every company’s full balance sheet, and this feature at least gives investors some indication of an exchange’s ability to meet its financial obligations. 

Capital Adequacy and Audits on the Agenda for Australian Regulators

Safe-keeping crypto investor funds by licensing exchanges and custody arrangements are being considered by the Australian Government, which recently hinted it would prioritise legislation in 2023 in response to the FTX collapse.

The recently finalised Senate Select Committee report into digital asset regulation recommended establishing a market licensing regime for exchanges, and stressed: “The key requirements of a new DCE Market Licence category should include, at a minimum, requirements relating to capital adequacy, auditing and responsible person tests.” 

CEO of digital asset mining company Mawson Infrastructure Group, James Manning is quoted in the report airing his concerns about the current lack of compliance standards: “There’s no audit obligation. As you pointed out, there’s no capital adequacy obligation. There’s no one verifying this, yet some of these exchanges are holding billions of dollars of assets.”

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ASX Australia Blockchain Crypto News Regulation

ASX Scraps $250 Million Blockchain-Based CHESS Project

The Australian Securities Exchange (ASX) announced Thursday morning that it would scrap the blockchain-based replacement for its ageing Clearing House Electronic Subregister System (CHESS) settlement and clearing system. The blockchain-based system had been in development for seven years and had already cost ASX in the order of A$250 million.

The new system had originally been scheduled to launch in 2021 but was delayed several times due to ongoing issues throughout its development.

ASX’s use of blockchain had been seen globally as a significant milestone in the adoption of the emerging technology, however, today’s announcement now marks a further blow to mainstream confidence in blockchain, coming on hot on the heels of the calamitous collapse of FTX last week.

Blockchain-based Replacement Abandoned After Scathing Report

The decision to scrap the blockchain-based system comes after a scathing report from Accenture found it wouldn’t be up to the task of replacing the existing CHESS.

The report, which was commissioned in August of this year, found that the software to run the new system was only 63 percent complete, despite having been in development since 2015. 

Commenting on the findings of the report, ASX Chairman Damian Roche told the Australian Financial Review: 

“The path we were on will not meet ASX’s and the market’s high standards. There are significant technology, governance and delivery challenges that must be addressed…On behalf of ASX, I apologise for the disruption experienced in relation to the CHESS replacement project over a number of years.”

Damian Roche, ASX Chairman

Setback for Australian Financial Infrastructure

The new blockchain-based system was to form a crucial part of Australia’s financial infrastructure. Its abandonment is a significant setback, and means Australian investors will be relying on the now 25-year old CHESS system for the foreseeable future.

Speaking on the abandonment of the new system, Governor of the RBA, Phillip Lowe said:

“The announcement by ASX after many years of investment by both ASX and industry is very disappointing. ASX needs to prioritise developing a new plan to deliver safe and reliable clearing and settlement infrastructure.”  

Philip Lowe, RBA Governor

Back to Square One

ASX will now start over again looking for solutions to replace the CHESS system. ASX CEO, Helen Lofthouse said the search for new solutions will be conducted with an open mind, insisting it’s possible the new system may utilise some elements of the abandoned system, including using blockchain or some other distributed ledger technology (DLT):

“To be clear, the derecognition charge reflects the uncertainty of the future value of the current solution design. It does not prevent us from using parts of what we have already built if we determine there are adjustments we could make to our current design, which will enable it to meet ASX’s and the market’s high standards.”

Helen Lofthouse, ASX CEO

Former Westpac executive, Tim Whiteley, has been appointed by ASX to oversee the new search for a replacement for its CHESS system.

ASX says that until a suitable replacement is developed and rolled out it will continue to invest in and maintain the existing CHESS system.

Categories
Crypto News Illegal Markets Regulation

SEC Wins Case Against LBRY – LBC Tokens Ruled as Securities

Gavel with a bookshelf background

A court ruling in favour of the US Securities and Exchange Commission (SEC) that upholds allegations that LBC tokens were illegally sold as securities has caused the token’s value to plummet by over 36 percent.

US District Judge Paul J. Barbadoro said in his ruling that the evidence shows “LBRY promoted LBC as an investment that would grow in value over time through the company’s development of the LBRY network.”

Following its loss, LBRY tweeted it would not give up, and warned that the ruling had set “an extraordinarily dangerous precedent that makes every cryptocurrency in the US a security, including Ethereum.”

Upon news that LBRY had been found to have violated the law by offering its LBC tokens as unregistered securities, LBC’s value dropped sharply and was trading at just US$0.012636 at the time of writing. 

LBC token price plunges. Source: CoinMarketCap

Precedent Applied Could Cripple US Crypto

Founder and CEO of the LBRY network, Jeremy Kauffman vented his frustration on Twitter: 

Kauffman also tweeted his belief that the ruling “threatens the entire US cryptocurrency industry.” 

The blockchain-based LBRY network is a protocol for building apps that enable creators and users to publish and purchase digital content including videos, music and ebooks.

Judge Barbadoro said he was not persuaded by LBRY’s argument that it hadn’t received fair notice that its offering was subject to securities laws, particularly given the network did not issue an Initial Coin Offering (ICO).

He said the SEC’s case was backed by a Supreme Court precedent that had been applied in hundreds of cases for more than 70 years. “While this may be the first time it has been used against an issuer of digital tokens that did not conduct an ICO, LBRY is in no position to claim that it did not receive fair notice that its conduct was unlawful,” Barbadoro said.

“Because no reasonable trier of fact could reject the SEC’s contention that LBRY offered LBC as a security, and LBRY does not have a triable defense that it lacked notice, the SEC is entitled to judgment.” 

US District Judge Paul J. Barbadoro
Categories
Coinbase Crypto News Regulation Ripple

Coinbase Seeks to Support Ripple Against SEC

The US’ largest crypto exchange, Coinbase, has weighed in on the high-profile lawsuit brought against Ripple by the US Securities and Exchange Commission (SEC) by filing legal documents in support of Ripple.  

The amicus curiae brief submitted to the court by Coinbase argues that de-listing XRP from crypto exchanges in the wake of SEC’s legal action caused its market value to decline by US$15 billion, “resulting in significant losses to Coinbase’s customers.”

Coinbase’s brief pointed out it had previously urged the SEC to provide direction for the digital asset industry to provide certainty, and defended Ripple’s legal position:

“In the absence of a regulatory framework governing digital assets, Coinbase believes that parties like Ripple must be permitted to pursue fair notice defenses in matters where they are facing surprise enforcement actions like this one.”

Coinbase amicus brief in support of Ripple

Coinbase Support Strengthens XRP Position

Crypto payments network, Ripple, which has its own token called XRP, has been battling the SEC lawsuit since 2020 — disputing the regulator’s findings that Ripple conducted an illegal securities offering by selling XRP, which is the sixth largest crypto by market share. 

Amicus briefs offer information or insights relevant to a case from an organisation not involved in the legal proceedings and are accepted at the discretion of the court. 

In a Twitter thread about filing the brief, Coinbase Chief Legal Officer Paul Grewal said: 

“One of the fundamental due process protections guaranteed by our Constitution is that government agencies cannot condemn conduct as a violation of law without providing fair notice that the conduct is illegal. By suing sellers of XRP tokens after making public statements signaling that those transactions were lawful, the SEC has lost sight of this bedrock principle.”

Coinbase Chief Legal Officer Paul Grewal

The lengthy legal battle has been closely watched due to its ramifications for the crypto industry. Ripple’s CEO has denounced the SEC for its “shameful” behaviour and at one point, Ripple accused the SEC of deleting material relevant to the case.

Support for Ripple by Coinbase and others including the Blockchain Association further strengthens the crypto firm’s position, and a number of legal experts have also speculated that the SEC is likely to lose.

Some in the crypto community called on Coinbase to go one step further in their support by re-listing XRP on the exchange:

Categories
Australia Cryptocurrency Tax Investing Regulation

Australia 2022 Budget Continues Capital Gains Tax on Crypto Assets

Capital gains tax will continue to apply to Aussie’s crypto investments, as confirmed by an explicit mention of digital currencies in the federal budget released on Tuesday October 25.

The budget papers 2022-23 state that legislation will be introduced to clarify that crypto won’t be treated as foreign currency for tax purposes. The incoming legislation will be backdated to income years that include 1 July 2021.

It confirms the continuation of current practices whereby investors must track, calculate and declare any capital gain or loss made on digital assets in their tax returns.

However, the budget specified the rules are different for government-issued digital currencies: “The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.” 

Certainty for Investors, No Impact on Coffers

Although the mention of digital currency taxation is just one small section in a document of more than 200 pages — with no expected impact on government coffers — calling out crypto in the budget signifies the rising relevance of digital assets in financial markets. 

It reinforces a statement issued in June, not long after the Albanese Government took power, that said cryptocurrencies held as investments would be excluded from foreign currency tax arrangements — to reduce uncertainty in the wake of a decision by El Salvador to allow Bitcoin as legal tender.

In that earlier statement, Assistant Treasurer Stephen Jones said maintaining a capital gains tax approach to crypto investments, “…gives certainty and clarity at a time of volatility for crypto currencies.”

“The Government will continue to take a pragmatic and timely approach to its role in the rapidly-evolving digital currency landscape.”

Assistant Treasurer Stephen Jones

Understanding Your Crypto Tax Obligations

Most Australians who treat crypto as a personal investment, with the hope of making long-term gains, are considered investors and therefore subject to capital gains tax on the gains or losses they make on their digital assets. 

It’s important for investors to be able to assess all of their trades throughout the year so they can stay on the right side of the tax collector. Fortunately, there are some great free guides and calculators to help you manage your tax return. 

Categories
Australia Crypto News Illegal Regulation

ASIC Sues Financial Firm Over Aussie Crypto Token ‘Qoin’

The Aussie company behind the controversial crypto token Qoin is being sued by the Australian Securities and Investments Commission (ASIC), alleging its marketing included false, misleading and deceptive claims about how investors could use the tokens.

ASIC’s civil court legal action against BPS Financial Limited — the company that launched Qoin in late 2019 — also alleges unlicensed conduct and that BPS falsely conveyed that the company and its wallet app were regulated and legally compliant.

In a statement issued on Tuesday October 25, ASIC Deputy Chair Sarah Court said:

“ASIC is particularly concerned about the alleged misrepresentation that the Qoin Facility is regulated in Australia, as we believe the more than 79,000 individuals and entities who have been issued with the Qoin Facility may have believed that it was compliant with financial services laws, when ASIC considers it was not.”

ASIC Deputy Chair Sarah Court

An announcement on the Qoin website states that BPS is reviewing the allegations, does not agree with ASIC’s position, and will be defending the matter. 

Limits on Exchanging Tokens Raises Concern for Consumers

The idea behind Qoin tokens is that they can be used by consumers as a digital currency within a large ecosystem of participating businesses, to enable secure and contactless payments — upon its launch, BPS claimed to have more than 35,000 merchants signed up. 

BPS also marketed that Qoin tokens could be swapped for crypto and Australian dollars, via Block Trade Exchange Limited, aka the BTX Exchange, which is linked to BPS and has the same directors.

Early critics argued this closed system reduced the token’s utility and created a potential conflict of interest. Frustrated investors have long been complaining about difficulties in selling Qoin.

Core allegations being made by ASIC related to the current civil court action include that BPS falsely assured investors that they could exchange their Qoin tokens for other crypto assets or fiat currency, and that they could use Qoin tokens to purchase goods and services from a growing number of merchants. 

“We allege that, despite what BPS represented in its marketing, Qoin merchant numbers have been declining, and that there have been periods of time where it was not possible to exchange Qoin tokens through independent exchanges.”

ASIC Deputy Chair Sarah Court

ASIC is seeking declarations, pecuniary penalties, injunctions and adverse publicity orders from the Court.

Coin’s Chequered Crypto Journey

In its short history, the Qoin token has been embroiled in controversies including: 

Categories
Crypto News Hong Kong Investing Regulation

Hong Kong Looks to Legalize Retail Crypto Investing

The Hong Kong government has introduced a bill to allow retail investors to directly invest in digital assets, marking a stark departure from mainland China’s blanket ban on crypto. 

The move was confirmed in a speech by Hong Kong’s Secretary for Financial Services and the Treasury (SFST), Christopher Hui, at the SFST’s Executive Roundtable on October 21.

Hong Kong Looks to Embrace Web3

Hui’s confirmation follows comments reported earlier in the week from the head of Hong Kong’s Securities and Futures Commission (SFC), Elizabeth Wong, who said the Special Administrative Region was looking to introduce a bill which would allow retail investors to “directly invest into virtual assets.” 

Wong’s comments came during a panel discussion held by InvestHK on October 17, during which she highlighted how important the ‘one country, two systems’ approach to the regulation of Hong Kong’s financial sector had been in the past, saying it “forms the basic foundation to Hong Kong financial markets.”

Wong added that the SFC was also actively considering tabling a bill allowing retail investors to invest directly into digital assets.

Hui’s speech has since confirmed the introduction of this bill, with the Secretary stating:

“On virtual assets, we have introduced a bill to propose establishing a regulatory regime for virtual asset service providers.”

Secretary for Financial Services and the Treasury (SFST), Christopher Hui

Hui spoke more broadly about fintech, revealing that the theme of this year’s Hong Kong Fintech Week, which runs from October 21 to November 4, will be “Pushing Boundaries, Reaping Benefits”, and will focus on emerging Web3 technologies such as metaverse. For the first time, the event will also issue NFTs, in what Hui describes as an effort to “test their ability to engage participants.”

In a further sign of Hong Kong’s enthusiasm for crypto, Hui said that during Hong Kong Fintech Week the government plans to issue a policy statement outlining their plans for the development of virtual assets which he says is intended to demonstrate to the global virtual assets community the government’s “…vision of developing Hong Kong into an international virtual assets centre.” 

Significant Change From Past Stance

This new proposed framework in Hong Kong differs considerably from the government’s previous approach to crypto. For the past four years the SFC has restricted crypto trading using centralised exchanges to professional investors, which means only individuals with portfolio’s valued at over US$1 million could invest in crypto using centralised exchanges.

According to Wong, over the past few years crypto markets have become more compliant and generally safer for average investors to participate in and should therefore be made accessible to all retail investors, explaining:

“We think that this may be actually a good time to really think carefully about whether we will continue with this professional investor-only requirement.”

Head of Hong Kong’s Securities and Futures Commission (SFC), Elizabeth Wong

Hong Kong’s new approach follows the launch of a US$3.8 billion fund designed to attract business and investment back to the Special Administrative Region after something of an exodus following several years of political turbulence and strict COVID-19 lockdowns.

Categories
Crypto News Investing Regulation South Africa

South Africa Classifies Crypto Assets as Financial Products

Bitcoin infront of South African Flag

In a milestone decision for crypto regulation, South Africa declared on October 19 that all crypto assets are, in fact, financial products. 

This declaration from South Africa’s Financial Sector Conduct Authority (FSCA), the nation’s financial services regulator, means that all crypto assets are now governed by the Financial Advisory and Intermediary Services Act, 2002 and will be subject to the same regulation as other financial products.

The declaration was signed by South Africa’s Commissioner of the FSCA, Unathi Kamlana, and came into effect immediately.

What Now Qualifies as a Crypto Asset in SA?

The declaration includes a definition of what qualifies as a crypto asset. The definition used is quite broad, defining a crypto asset as a ‘digital representation of value’ that meets the following three criteria:

  1. It’s not issued by a central bank but it is able to be traded, transferred or stored, allowing it to be used for payment, investment or other uses;
  2. It applies cryptographic techniques; 
  3. It uses distributed ledger technology (such as blockchain).

What Does it Means for Crypto Investors in South Africa?

For the first time, cryptocurrencies will be regulated in South Africa, which stands to bring significant benefits to investors and consumers — such as improved legal protections for victims of scams and improved anti-money laundering (AML) and know your customer (KYC) compliance. 

Regulation will also lead to more clarity around the legal status of cryptocurrencies that may encourage more commercial and enterprise use cases, such as real-world asset tokenisation and partnerships between traditional financial institutions and crypto-based businesses.

Despite the benefits of regulating crypto, there are fears that increased regulation and KYC requirements may lead to marginalised people losing access to crypto services on which they rely, with some suggesting people who earn under a certain threshold should be exempt from KYC requirements.

According to Finder’s Cryptocurrency Adoption Report, released in August 2022, 4.2 million South Africans own crypto, that’s 10 percent of the population, slightly lower than the global average of 15 percent.