stablecoin arrangements

The US agency has used a no-action letter to enable a sandbox-like approach to blockchain-based trade settlements.

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

In what may be the first regulator-approved application of blockchain technology for the settlement of US equities trades, the Division of Trading and Markets of the US Securities and Exchange Commission (SEC) recently granted no-action relief to Paxos Trust Company (Paxos) to conduct a two-year “feasibility study” of a securities settlement service using distributed ledger technology. During this period, Paxos will be permitted to operate as a clearing agency under Section 3(a)(23) of the Securities Exchange Act without needing to register as a clearing agency under Section 17A(b)(1) of the Act. The no-action relief for the Paxos Settlement Service (PSS) is limited to clearing a volume-restricted number of trades per day of highly liquid publicly traded equities, for at most seven eligible broker-dealers.

Latham FinTech partners discuss the evolving stablecoin landscape on the New Territories Podcast.

By Christian F. McDermott, Yvette D. Valdez, and Stephen P. Wink

New York partners Yvette Valdez and Stephen Wink and London partner Christian McDermott recently discussed the evolving stablecoin landscape on new episodes of The Brooklyn Project’s New Territories Podcast.

The partners, who are members of Latham & Watkins FinTech Industry Group, spoke with host Joyce Lai about a number of trends and regulatory issues impacting digital assets and blockchain technology, including:

  • Macro trends and geopolitical shifts
  • State-sponsored digital assets and payment systems
  • Status of digital assets under US securities laws
  • Stablecoin considerations (and complications) under US commodities laws
  • Decentralized finance
  • Global privacy considerations for potential issuers and other participants when designing and operating a stablecoin ecosystem

SFC outlines new regulatory framework for virtual asset trading platforms, HKMA highlights recent FinTech initiatives, and PBOC discusses China’s forthcoming central bank digital currency.

By Simon Hawkins and Kenneth Y.F. Hui

The fourth annual Hong Kong FinTech Week conference kicked off with a major announcement from Mr. Ashley Alder, Chief Executive Officer of the Securities and Futures Commission (SFC), who introduced a new, formalized regulatory framework for virtual asset trading platforms (VATPs). A panel of central bankers also discussed stablecoins and central bank digital currencies, including the People’s Bank of China’s (PBoC) forthcoming central bank digital currency, referred to as the digital currency / electronic payment (DCEP) coin.

Global monetary authorities and financial regulators have responded forcefully to the advent of privately developed global stablecoins.

By Todd Beauchamp, David L. Concannon, Stephen P. Wink, Simon Hawkins, Stuart Davis, and Deric Behar

A new report highlights the risks of global stablecoins and enumerates the legal, regulatory, and oversight hurdles a global stablecoin must clear before launching. The Group of Seven Working Group on Stablecoins released the report, titled Investigating the Impact of Global Stablecoins (G7 Report), at the October 2019 International Monetary Fund annual meeting. The G7 Report was published in tandem with a report by the Financial Stability Board (FSB) on the Regulatory Issues of Stablecoins (FSB Report). Taken together, the two reports provide insight into how some of the world’s most advanced economies (the US, the UK, Canada, France, Germany, Italy, and Japan) view digital assets and stablecoins, particularly those with the potential to launch and quickly scale on an established private-sector global network.

By Brian Meenagh, and Khaled Alhuneidi.

In June 2018, the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA) unveiled a dedicated cryptoasset regulatory framework by way of various amendments to the FSRA’s core regulations – the Financial Services and Markets Regulation (FSMR) as well as supplementary guidance thereto.

In May 2019, the FSRA issued updated and greatly expanded guidance (FSRA Guidance) that includes a more granular level of detail and addresses a range of topics not covered in the initial guidance. We consider some of these topics below.

FCA finalises guidance on cryptoassets and consults on product intervention measures.

By Stuart Davis and Charlotte Collins

FCA guidance on the regulation of cryptoassets

As previously reported in this blog, the FCA consulted on guidance on cryptoassets in January 2019. This guidance is designed to help market participants understand how to classify different types of cryptoassets, within the existing regulatory framework. Although the guidance is not able to give definitive answers, and every cryptoasset must be assessed against the guidance based on its own particular features, this publication helps to create a much greater degree of clarity as to how the assessment ought to be performed, and which features are determinative for these purposes.

The FCA published its final guidance in PS19/22 on 31 July 2019. The guidance is substantially the same as that consulted on, save that the FCA has sought to reframe its taxonomy of cryptoassets to help market participants better understand which types of token are regulated. The FCA has included a new category of regulated tokens that constitute e-money, “e-money tokens”, rather than including e-money tokens within the utility tokens category. This provides a clearer distinction between regulated security tokens and e-money tokens on the one hand, and unregulated tokens (utility tokens and exchange tokens that do not fall within the above categories) on the other. However, the final guidance as to whether a token will constitute an e-money token has not changed from the draft version. The FCA has also provided further guidance on so-called “stablecoins”, and on when particular types of token might constitute e-money or securities. The FCA confirms that this determination will depend on the design and rights associated with a specific stablecoin and, therefore, requires a case-by-case assessment.

The SEC issues second no-action letter for a digital token, but will “utility” token offerings reach the next level?

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

Gamers, rejoice! In only its second no-action letter to date for digital tokens, the SEC cleared the way for Pocketful of Quarters, Inc. (PoQ) to issue “Quarters,” one of two digital tokens issued by PoQ on the Ethereum blockchain.[i] PoQ, which was co-founded by a 12-year-old entrepreneur and his father, sought guidance from the SEC as to whether its offering of the stablecoin would require registration under Section 5 of the Securities Act and Section 12(g) of the Exchange Act. PoQ explained that Quarters are intended to be a “universal gaming token” that buyers can use across games deployed on PoQ’s platform. The benefit to gamers, PoQ asserts, is more efficient usage of value across participating online games rather than “siloed video game economies [that] result in large unspent balances of in-game currencies.”

The Abu Dhabi Global Market’s Guidance clarifies and expands FSRA expectations for OCAB Framework license holders.

By Brian A. Meenagh

In June 2018, the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA) unveiled a dedicated cryptoasset regulatory framework by way of various amendments to the FSRA’s core regulations — the Financial Services and Markets Regulation (FSMR), as well as supplementary guidance thereto.

In May 2019, the FSRA issued updated and greatly expanded guidance (FSRA Guidance) that includes a more granular level of detail and addresses a range of topics not covered in the initial guidance. This blog will consider some of these topics in more detail.

UK regulators are addressing regulatory uncertainty through a number of regulatory initiatives due for implementation in 2019.

By Stuart Davis

Background

Following the FCA’s consultation paper that offers guidance on the regulatory status of cryptoassets published in January 2019, the regulator is now engaging with the industry and other stakeholders such as law firms to finalise its guidance.