The white paper examines how generative AI might shape the global derivatives markets, including new opportunities for industry stakeholders.

ISDA Future Leaders in Derivatives (IFLD) is a cohort of emerging leaders in the derivatives space representing financial services institutions, buy- and sell-side firms, and law firms (including Latham & Watkins, represented by associate Naffie Lamin).

In the white paper, IFLD provides guidance to regulators, financial institutions, technology providers, and other industry stakeholders to understand and explore potential use cases for

Proposed rule would be implemented by statute and would give primacy to parties’ choice of governing law and jurisdiction.

By Stuart Davis, Nell Perks, and Matthew Unsworth

There is at least a tentative consensus in English law that cryptocurrencies and other digital assets are capable of giving rise to property rights.[1] However, there remains considerable uncertainty around which laws should govern proprietary disputes about digital assets and which courts should have jurisdiction over those disputes.

The Financial Markets Law Committee (FMLC) explained the crux of this problem in their initial report on digital assets in 2018.[2] Traditionally, a question as to rights or entitlement to personal property is governed by the law of the place where the property is situated (lex situs).  But this rule is ill-suited to digital assets which, by their nature, are intangible, digitised, and constituted on a decentralised ledger shared across a network of participants in potentially any number of jurisdictions.

The centralized repository would assist the CFPB and law enforcement in detecting patterns of misbehavior and recidivism adversely affecting consumers.

By Arthur S. Long, Barrie VanBrackle, and Deric Behar

On June 3, 2024, the Consumer Financial Protection Bureau (CFPB) finalized a rule (Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders) (the Rule) to track judicial and regulatory enforcement orders against nonbank financial firms, and to report on such orders in a publicly available registry.

FIT21 would provide regulatory certainty for the US digital asset ecosystem, balancing support for innovation with consumer protection.

By Yvette D. ValdezStephen P. WinkAdam Fovent, and Deric Behar

On May 22, 2024, the US House of Representatives (the House) passed H.R. 4763, the Financial Innovation and Technology for the 21st Century Act (FIT21), with a good measure of bipartisan support: 279 votes in favor (208 Republicans and 71 Democrats) and 136 votes opposing (three Republicans

Professional investors will benefit from increased exposure to cryptoassets via traditional financial instruments, though retail investors’ exposure remains limited.

By Stuart Davis, Gabriel Lakeman, and Ivan Pizeta*

In the fast-paced world of cryptocurrency, regulatory clarity is essential for both investors and market participants. In March this year, the Financial Conduct Authority (FCA) made a significant announcement regarding listing cryptoasset-backed Exchange Traded Notes (cETNs) in the UK. This decision marks an important step towards greater regulatory clarity in the crypto industry and presents new opportunities for professional investors.

What Is the FCA’s Updated Position?

Traditionally, cryptoassets have posed challenges for regulators due to their decentralised and often volatile nature. However, now that cryptoassets have a more established trading history, the FCA determined that exchanges and professional investors should be able to understand whether cETNs meet their specific risk appetite. Consequently, the FCA updated its position and allowed the Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cETNs. Notably, these products will be available exclusively to professional investors such as authorised investment firms and regulated credit institutions — the ban on the sale of cETNs to retail consumers remains in place.

Despite this approval, the FCA requires that stringent controls remain a prerequisite for exchanges seeking to list cETNs. These controls ensure cryptoasset trading remains orderly, that professional investors are adequately protected, and that the market segment is accessible to professional investors only. Additionally, cETNs must meet all requirements of the UK Listing Regime to maintain transparency and accountability, including provisions on prospectuses and ongoing disclosure.

What Does This Mean for Cryptoasset Regulation in the UK?

The FCA’s decision opens the door to further exploration of cryptoasset regulation. As RIEs consider creating new UK listed market segments, the FCA will assess applications on a case-by-case basis, ensuring adequate protection for professional investors. Moreover, RIEs must ensure that they fully understand the risks of admitting crypto-linked instruments to trading, and that their admission to trading criteria and trading controls will adequately mitigate those risks.

While the FCA is allowing exposure to cryptoassets through cETNs only to professional investors with certain protections in place, the regulator maintains that cETNs and cryptocurrency derivatives are unsuitable for retail consumers because of the potential harm they present. This stance introduces tension between limiting retail investors’ exposure to cETNs and crypto derivatives in order to protect those retail investors, and allowing those same retail investors exposure to cryptoassets via spot trades through cryptoasset businesses registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.

With the FCA catching up on global regulatory developments and introducing further regulatory clarity, it will be interesting to observe future progress on retail investors’ exposure to cryptoassets and the complete ban on sale of cETNs and crypto derivatives to retail investors.

Latham & Watkins will continue to monitor regulatory developments in the cryptoassets industry.

* Admitted to practice in New York only.

The bipartisan bill seeks to foster innovation and promote US dollar dominance while protecting consumers and mitigating illicit finance risks.

By Jenny Cieplak, Arthur LongYvette D. ValdezStephen P. WinkAdam Fovent, and Deric Behar

On April 17, 2024, US Senators Cynthia Lummis from the Senate Banking Committee and Kirsten Gillibrand from the Senate Agriculture Committee introduced proposed legislation to create a US regulatory framework for stablecoins. The bipartisan Lummis-Gillibrand Payment Stablecoin Act (the Bill) seeks to promote responsible innovation and preserve US dollar dominance, while protecting consumers and digital asset market participants.

The preliminary injunction was granted pursuant to Fifth Circuit precedent that the CFPB’s independent funding structure is unconstitutional.

By Barrie VanBrackle and Deric Behar

On May 10, 2024, the US District Court for the Northern District of Texas blocked the Consumer Financial Protection Bureau’s (CFPB) final rule (the Rule) amending Regulation Z to limit credit card late fees. The Rule was initially proposed in February 2023, finalized on March 5, 2024, and was set to go into effect on May 14, 2024.

The Rule aims to ensure that credit card late fees are “reasonable and proportional” to the costs that issuers incur in collecting late payments, as required by TILA. The Rule, however, faced immediate and intense criticism from market participants and trade groups representing banks and credit unions (for more information, see this Latham blog post).

The Legal Statement applies areas of insolvency law to digital assets, providing valuable guidance on the approach English courts will take.

By Bruce Bell, Stuart Davis, Gabriel Lakeman, Jessica Walker, and Tim Bennett

In October 2023, the UK’s Jurisdiction Taskforce (UKJT), which is made up of senior judges, lawyers, a law commissioner, and the Financial Conduct Authority as an observer, issued a consultation on the treatment of digital assets in an English insolvency. This has resulted

The decision, which addresses a broad range of market activity by Coinbase relating to 13 third-party tokens, could have significant implications for market participants.

By Latham & Watkins’ Litigation & Trial Practice

On March 27, 2024, Judge Katherine Failla of the US District Court for the Southern District of New York (SDNY) ruled[i] (the Ruling) in favor of the Securities and Exchange Commission (SEC) on all but one argument raised in Coinbase’s motion for judgment on the pleadings, finding that the Commission adequately alleged the tokens at issue and Coinbase’s staking services are securities and that Coinbase has been operating as an unregistered broker, exchange, and clearing agency.  

The Ruling followed significant recent decisions in two other high-profile SEC enforcement actions regarding cryptocurrencies: SEC v. Ripple Labs, Inc., No. 1:20-Civ-10832 (SDNY), and SEC v. Terraform Labs Pte. Ltd., No. 1:23-cv-01346 (SDNY). The Coinbase decision, however, may be the most significant among the three decisions because (1) it addresses a broader range of market activity by a token exchange (as opposed to an issuer) and 13 third-party tokens (as opposed to fewer tokens from a single issuer), and (2) Judge Failla’s Ruling addresses the prior decisions in Ripple and Terraform and thus serves as the latest, most comprehensive opinion to date in the canon of case law on the issues.

As federal regulation remains patchy, firms may want to consider a New York state charter as a potential avenue to expand digital asset offerings in a compliant manner.

By Arthur S. Long, Barrie VanBrackle, Stephen P. Wink, and Deric Behar

On March 22, 2024, WisdomTree, Inc., a global asset management firm, announced that the New York Department of Financial Services (NYDFS) granted a New York limited purpose trust company charter to its subsidiary WisdomTree Digital Trust Company