Regulatory

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Poised for a banner year, insurtech has drawn the attention of investors and regulators alike.

Insurtech has become a darling of both traditional players in the insurance market and disruptive fintech operations. The coming year looks to continue this trend, with companies looking to insurtech as a venue for penetrating new markets. Yet as insurtech’s attractiveness continues to grow, potential investors will need to navigate a highly regulated industry and new regulatory considerations on the horizon.

In this episode of…

Latham & Watkins provides an in-depth look at the intersection of CFTC and SEC regulatory jurisdiction in the crypto context.

By David L. Concannon, Yvette D. Valdez, and Stephen P. Wink, with Paul M. Dudek and Miles P. Jennings

With the rapid growth in the development of blockchain technology, virtual currencies, and token sales (sometimes referred to as initial coin offerings, or ICOs), token offerings came under increased regulatory scrutiny, particularly in the US. Since the US…

The regulators attempt to clarify their position on the possible custody of digital assets by broker-dealers, but questions remain.

By Stephen P. Wink, Cameron R. Kates, Shaun Musuka, and Deric Behar

The SEC and FINRA recently released a joint staff statement (Joint Statement) addressing the custody of digital asset securities by broker-dealers. For some time, registered broker-dealers and applicants have sought to facilitate digital asset transactions and the accompanying custody of such assets. However, their efforts have been stymied, in part due to a lack of interpretive guidance from the SEC and FINRA regarding how to custody digital assets in compliance with the relevant regulations. The Joint Statement is an initial step by the SEC and FINRA toward clarifying their positions on these issues. It makes clear that broker-dealers that do not seek to custody such assets but seek to otherwise engage in brokerage activities with digital assets (e.g., private placements or if the broker-dealer matches buyers and sellers who conduct settlement between themselves) should be permitted to do so. The bottom line, however, is that the regulators “are just not ready”[i] to approve broker-dealers to custody digital assets.

Federal legislators introduce two bills in an attempt to provide the blockchain economy with regulatory certainty.

By Stephen P. Wink, Morgan E. Brubaker, Cameron R. Kates, and Shaun Musuka

US regulators and federal legislators may be heeding the calls of crypto-enthusiasts for legal clarity regarding the status of digital assets and cryptocurrencies (collectively, Tokens). Two weeks ago, the Securities and Exchange Commission (SEC) released an analytical framework for determining when a Token constitutes a security. Last week, US federal legislators followed up by introducing two bills that are designed to “provide regulatory certainty for businesses, entrepreneurs, and regulators in the US’ blockchain economy,” the Token Taxonomy Act of 2019 (H.R. 2144) (TTA) and the Digital Taxonomy Act of 2019 (H.R. 2154) (DTA, and together with the TTA, the Bills).

The SEC provides additional guidance for analyzing whether a digital asset is a security.

By Stephen P. Wink, Cameron R. Kates, and Shaun Musuka

On April 3, 2019, the U.S. Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology (the SEC) released a framework (the Framework) for assessing whether a blockchain-issued token or digital asset (each, a Token) constitutes an investment contract. An investment contract is an enumerated type of security subject to US federal securities laws. The Framework does not have the force of law, but rather, provides additional guidance on the factors to consider when applying the Howey test to Tokens. For background regarding the Howey test, please see Latham’s Client Alert. Latham’s read of the Framework suggests two key takeaways. First, it provides added insight into how existing Tokens may be reevaluated over time and may cease to be subject to federal securities laws. Second, it offers the clearest guidance to date that Tokens that are designed and marketed as purely “virtual currency” should not be considered securities.