Welcome to Shearman & Sterling’s FinTech Blog, where we provide you with insight on key trends in the FinTech ecosystem. Here you can find relevant information with the latest on digital banking, FinTech regulation, digital assets, blockchain, AI, and more.
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CFTC Requests Feedback on Ether and the Potential Introduction of Ether Derivatives Contracts
12/13/2018In order to further its understanding of Ether and its use on the Ethereum Network, the Commodity Futures Trading Commission (CFTC) earlier this week issued a request for input (RFI) on several topics related to the virtual currency. The RFI poses a number of questions in respect of Ether, including its functionality, underlying technology, governance, markets, cybersecurity and custody, among other things. In addition, the CFTC asks several questions regarding Ether’s susceptibility to market manipulation and the potential introduction of Ether derivatives contracts.
The CFTC said the requested feedback will inform the work of the CFTC and its LabCFTC initiative to enhance the agency’s oversight of virtual currency markets and develop regulatory policy. The CFTC also noted that it hopes to gain a greater understanding of the similarities and differences between Ether and bitcoin, along with potential risks and opportunities uniquely posed by Ether.
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LabCFTC Publishes Smart Contract Primer
11/29/2018LabCFTC, the Commodity Futures Trading Commission’s (CFTC’s) FinTech initiative, earlier this week published a primer on smart contracts. The primer defines smart contracts and explains some of their key attributes, discusses the CFTC’s role in regulating smart contracts, outlines some potential benefits and use cases and warns market participants of potential associated risks.
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CFTC Commissioner Quintenz Speaks on Smart Contract Regulation
10/19/2018On October 16, 2018, Commodity Futures Trading Commission (CFTC) Commissioner Brian Quintenz gave a wide-ranging speech at the GITEX Technology Week Conference in Dubai addressing a number of key issues faced by the CFTC in considering how to regulate smart contracts. While he acknowledged that there are still many questions to be answered in respect of smart contract regulation, Commissioner Quintenz expressed a number of important views that should make market participants pause before assuming that activity in smart contracts will avoid CFTC scrutiny.
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SEC Halts Fraudulent ICO that Claimed Regulatory Approval
10/17/2018On Oct 11, 2018, the Securities and Exchange Commission (SEC) announced that it halted a planned initial coin offering (ICO) and related pre-ICO sales by Blockvest LLC and its founder, Reginald Buddy Ringgold, III. In seeking an emergency court order, the SEC alleged that Blockvest had falsely claimed that it and its affiliates received regulatory approval from various agencies, including the SEC and a fake agency called the “Blockchain Exchange Commission.” Blockvest and Ringgold also allegedly used the National Futures Association (NFA) seal in making false claims about their regulated status, even after the NFA sent them a cease-and-desist letter for doing so.
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CFTC and ASIC Agree to FinTech Information Sharing Arrangement
10/09/2018The Commodity Futures Trading Commission (CFTC) and the Australian Securities and Investments Commission (ASIC) last week signed an arrangement designed to support cross-border FinTech innovation through their respective FinTech initiatives, LabCFTC and the ASIC Innovation Hub. The arrangement will facilitate information sharing between the two regulators in respect of emerging trends and developments, regulatory issues pertaining to FinTech innovations and best practices, among other things. It also includes a referral mechanism that will allow the CFTC and ASIC to refer to one another innovators that wish to operate or have questions about operating in the other’s jurisdiction. The arrangement further calls for joint proofs of concept, trials and innovation competitions, where permitted, as well as periodic meetings to update each other on FinTech and RegTech trends and developments of common interest.
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Federal Judge Affirms CFTC’s Authority to Police Virtual Currency Fraud
10/03/2018On September 26, 2018, the U.S. District Court for the District of Massachusetts issued an order confirming that the Commodity Futures Trading Commission (CFTC) maintains the authority to police virtual currency fraud. The order was issued in response to a motion to dismiss charges against My Big Coin Pay, Inc. and several individuals for operating a fraudulent virtual currency scheme through which they solicited customers to purchase a virtual currency known as My Big Coin (MBC).
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CFTC and Monetary Authority of Singapore Sign FinTech Collaboration Agreement
09/13/2018The U.S. Commodity Futures Trading Commission (CFTC) and the Monetary Authority of Singapore (MAS) today signed a cooperation arrangement on FinTech innovation, which is to be supported by the agencies’ respective FinTech initiatives, LabCFTC and the MAS Financial Technology & Innovation Group. The arrangement will facilitate inter-agency cooperation on FinTech innovation and referrals for innovators that wish to enter the other regulator’s market. In addition, it will provide an information sharing framework between the agencies focused on FinTech market trends and developments, innovations and best practices within their respective jurisdictions. The arrangement also calls for joint events, proofs of concept, trials and innovation competitions where permitted, along with periodic meetings to discuss FinTech issues of common interest.
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NFA Proposes Disclosure Requirements for Members Engaging in Virtual Currency Activities
07/27/2018The National Futures Association last week proposed an interpretive notice that would require its members to disclose the potential risks involved when dealing with virtual currencies and virtual currency derivatives. The notice, titled “Disclosure Requirements for NFA Members Engaging in Virtual Currency Activities,” reflects the NFA’s concern that customers may not fully understand the nature of these products, the potentially significant losses that could be sustained or the limitations of the NFA’s oversight of virtual currency activities.
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CFTC Issues Customer Advisory on Purchasing Digital Assets
07/19/2018On July 16, 2018, the Commodity Futures Trading Commission issued a customer advisory on the risks of purchasing digital assets. The advisory, titled “Use Caution When Buying Digital Coins or Tokens,” recommends that customers thoroughly research any potential purchases of digital assets without regard to how those digital assets are described (e.g., utility tokens or consumption coins).
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CFTC Publishes Guidance on Listing Virtual Currency Derivative Products
06/01/2018On May 21, 2018, the Commodity Futures Trading Commission published guidance signaling how CFTC-registered trading platforms can enhance surveillance practices, reporting, risk management and self-certification in respect of virtual currency derivative products, among other things. The guidance also summarizes the CFTC’s priorities and expectations in its review of these products.
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NASAA Cracks Down on Fraudulent ICOs and Enters into Information Sharing Agreement with the CFTC
5/30/2018At the North American Securities Administrators Association Conference on May 21, 2018, NASAA, an association of state and provincial securities administrators in the United States, Canada and Mexico, announced a joint effort among its members to halt fraudulent initial coin offerings and virtual currency-related investment products. The so-called “Operation Cryptosweep,” which was launched this past April, consists of NASAA members from 44 jurisdictions in the United States and Canada and has to this point led to nearly 70 inquiries and 35 pending and completed enforcement actions, with more expected in the coming months.
Read MoreCategories : CFTC, Cryptocurrencies/Virtual Currencies, Enforcement, ICOs, SEC, State Regulation, US Federal Regulation -
Ether and XRP Face Heightened Regulatory Scrutiny
05/22/2018Over the past several months, rapid growth of market interest in digital assets has invited significant regulatory attention. While much of the focus to this point has been on initial coin offerings, questions have recently been raised as to whether the issuance of some of the most popular virtual currencies, including ether and XRP, constituted illegal securities offerings.
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Senior SEC and CFTC Officials Support Balanced Approach to Token Regulation
04/26/2018
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LabCFTC Requests Input on RegTech Innovation Prize Competitions
04/24/2018On April 24, 2018, LabCFTC, the Commodity Futures Trading Commission’s FinTech initiative, requested public input for topics and ideas for forthcoming innovation competitions. The CFTC intends to use the prize competitions as an incentive to spur industry innovation in the RegTech space that can help solve public policy challenges and enhance derivatives markets. The CFTC is looking for suggestions on potential focus areas for the competitions and how the competitions could best be structured and administered.
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CFTC Halts Fraudulent Binary Options Scheme Involving Virtual Currency
04/16/2018On April 16, 2018, the Commodity Futures Trading Commission (CFTC) filed a complaint charging two individuals and several companies with operating a fraudulent binary options scheme involving virtual currency and accepting customer funds without registering as a futures commission merchant.
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Gemini Co-Founders Cameron and Tyler Winklevoss Propose Virtual Commodity Self-Regulatory Organization
03/13/2018On March 13, 2018, virtual currency exchange Gemini released a proposal to create the first SRO for U.S. virtual commodity exchanges. The so-called Virtual Commodity Association (VCA), as envisioned, would be a non-profit, independent regulatory organization that would operate to foster responsible virtual commodity markets by requiring members to implement specified sound practices and supervising members’ implementation of such practices. The VCA would also encourage greater cooperation with relevant regulators in an effort to assist with the maturation of the virtual commodity industry.
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Federal Court Upholds That Virtual Currencies Are Commodities
03/06/2018On March 6, 2018, the United States District Court for the Eastern District of New York confirmed that virtual currencies are commodities within the anti-fraud jurisdiction of the Commodity Futures Trading Commission (CFTC). The order, which came in the form of a preliminary injunction, follows the CFTC’s January 18, 2018 civil enforcement action against Patrick K. McDonnell and his company CabbageTech, doing business as Coin Drop Markets (CDM), alleging that McDonnell had induced customers to send money and virtual currencies to CDM in exchange for virtual currency trading advice and purchasing on customers’ behalf. The CFTC also alleged that McDonnell and CDM misappropriated investors’ funds.
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CFTC and FCA Agree to Collaborate on Regulating FinTech Innovation
02/19/2018The Commodity Futures Trading Commission and the Financial Conduct Authority have signed a Cooperation Arrangement on Financial Technology Innovation, an arrangement that commits both regulators to collaborating and fostering innovation through their respective FinTech initiatives, LabCFTC and FCA Innovate. This is the CFTC's first agreement of its kind with a non-U.S. counterpart and the FCA's first such agreement with a U.S. regulator. The arrangement will focus on information-sharing based on FinTech market trends and developments in each jurisdiction, simplify the referral process for FinTech companies interested in entering the other's market and facilitate sharing insight gained from each regulator's relevant sandbox, proof of concept or innovation competitions.
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CFTC Issues First Customer Advisory on Virtual Currency Pump-and-Dump Schemes
02/15/2018The Commodity Futures Trading Commission has issued its first customer advisory regarding pump-and-dump schemes in virtual currency markets. The CFTC warned customers to exercise extreme caution when investing in virtual currency listings promoted on social media, reportedly backed by famous high-tech business leaders and investors or accompanied by posts creating false urgency or telling investors to purchase right away.
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Top Federal Securities and Commodities Regulators Testify on Virtual Currency Regulation Before Senate Committee
02/07/2018A cross-functional team of partners including Jay Baris and Nathan Greene of the Investment Funds group, Donna Parisi and Geoffrey Goldman of the Derivatives group, Lona Nallengara of the Capital Markets group, and Reena Sahni of the Financial Institutions Advisory and Financial Regulatory group authored an article entitled, “Top Federal Securities and Commodities Regulators Testify on Virtual Currency Regulation Before Senate Committee.” The article highlights the February 6 SEC and CFTC discussion with a Senate committee regarding the role of their respective agencies in regulating virtual currencies and virtual currency-related activities.
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Cryptocurrencies: A Big Week for U.S. Regulatory Attention
01/25/2018Jay Baris and Nathan Greene, partners in the Investment Funds group, authored an article entitled “Cryptocurrencies: A Big Week for U.S. Regulatory Attention,” summarizing a seemingly sudden burst of regulatory actions taken by the U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission and a state regulator over the span of just a few days in January.
Read MoreCategories : CFTC, Cryptocurrencies/Virtual Currencies, Enforcement, Federal Regulation, SEC, State Regulation -
CFTC Discusses Approach to Virtual Currency Futures Markets
01/04/2018The Commodity Futures Trading Commission has released a backgrounder on the federal oversight of virtual currencies and its approach to regulating the virtual currency derivatives markets. Because virtual currencies have been deemed a commodity, certain derivative and other transactions in virtual currencies may be subject to CFTC oversight under the Commodity Exchange Act.
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