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SEC: Broker-Dealers With Custody Must Comply With Customer Protection Rule


Countless crypto firms have been waiting to snag operating licenses from the Securities Exchange Commission (SEC). The Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities is finally broaching the law as pertains to crypto. The July 8 statement is a collaborative effort between the SEC and the Financial Industry Regulatory Authority (FINRA).

The two bodies have been in
discussions with digital asset securities industry stakeholders seeking
broker-dealer certification.  Gemini the
crypto exchange is one of the most recent firms seeking said approval. The
joint statement has, as a result, outlined factors that the regulators will use
when granting or denying the permissions to crypto companies.

Similarly, the statement has addressed
the confusion on custody solutions for digital asset securities. Companies have
sought to market them to institutional investors who cannot directly purchase
or hold the assets themselves.

The SEC Clarification

Consequently, questions have arisen as
to whether digital assets should be treated as securities as per the law. The
Securities Investor Protection Act (SIPA) of 1970 was made before digital asset
era and was therefore incapacitated in its definition.

Of the matter, the regulators have defined a cryptocurrencies as assets issued and transferred on a blockchain or distributed ledger technology. For regulatory purposes, a digital asset that qualifies as security has to be referred to as “digital asset security” by registration.

Likewise, there has been a lot of confusion over the SEC‘s Customer Protection Rule. A broker-dealer in the US has to be legally registered to operate, to protect the customers. This license gives its operator the right to purchase and sell securities either for their clients or for themselves. 

The statement withheld the need for digital asset broker-dealers to comply with the security laws. The report also adds that:

” if the entity is a broker-dealer, it must comply with broker-dealer financial responsibility rules, including, as applicable, custodial requirements under Rule 15c3-3 under the Securities Exchange Act of 1934 (the “Exchange Act”), which is known as the Customer Protection Rule.”

Customer Protection Is Essential

The rule requires a broker-dealer to either physically hold their customer’s assets or maintain them at no charges in a control location.  However, broker-dealers in the digital assets market are at a higher risk of becoming victims or perpetrators of theft, fraud, or loss of private keys due to crypto nature. 

There is additional confusion as to who should maintain the asset’s private keys between the broker-dealer and third-party custodian. The statement, therefore, emphasizes the critical need for reporting and record keeping adding that:

 ” Financial responsibility rules also require that broker-dealers routinely prepare financial statements including various supporting schedules particular to broker-dealers, such as Computation of Net Capital under Rule 15c3-1 and Information Relating to the Possession or Control Requirements under Rule 15c3-3 under the Exchange Act”

Congress set the regulatory bodies on crypto assets in the wake of the 2017 BTC Bull Run and ICO hype fall out. Seeking to curb fraud and protect the consumers, the House came up with bills that were passed to the Commodity Futures Trading Commission (CFTC) for recommendations. The CFTC took on ETH and BTC and passed the rests of the responsibility to the SEC. The SEC since then has been cracking down on crypto over registrations, threatening progress.

The post SEC: Broker-Dealers With Custody Must Comply With Customer Protection Rule appeared first on Ethereum World News.

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Seychelles to Host First Regulated Tokenized Security on a National Stock Market

MERJ Exchange of the Seychelles to offer the first regulated security token on a national stock market, alongside its company stock.

Seychelles-based securities exchange MERJ will purportedly list the first regulated security token on a national stock market, according to a report by Bloomberg on June 25.

As per the report, these security tokens are digital asset shares that will trade alongside stock for MERJ Exchange Ltd, the company behind the MERJ exchange. The report notes that no specific date has been given for a planned listing, but the MERJ website says that it will add markets for security tokens, digital assets, and hybrid options in H1 2019.

According to its website, MERJ’s vision includes an issuing and distribution platform for global securities token offerings, cap tables and ownership registers maintained on the Ethereum blockchain, security tokens, digital assets, and settlements in stablecoins and major cryptocurrencies.

According to the Bloomberg report, MERJ lists approximately 31 securities and has a market cap of $325.9 million. Moreover, MERJ is the only registered exchange in the Seychelles islands, as per its website. 

As previously reported by Cointelegraph, Grayscale recently announced that its Ethereum-based security, Grayscale Ethereum Trust, was available to trade on the New York City-based OTC Markets. Grayscale also issues securities for many other tokens, including Bitcoin, Ripple, Bitcoin Cash, Ethereum Classic, and Litecoin.

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Blockchain-Based Alternative Investment Firm to Be Listed on Bloomberg Terminal

Cadence is believed to be the first digital asset to obtain a Financial Instrument Global Identifier, known as FIGI for short.

A blockchain-based alternative investment provider that tokenizes commercial debt is being listed on the Bloomberg Terminal, according to a news release published on June 4.

Cadence is believed to be the first digital asset to obtain a Financial Instrument Global Identifier (FIGI), enabling professionals who use the Bloomberg Terminal to research its offering and execute trades.

The company connects investors with businesses that need to borrow money in order to plug temporary gaps in their cash flow. On its website, Cadence says the minimum investment amount is $500, giving consumers “opportunities traditionally reserved for institutions.”

Currently in private beta, Cadence claims its platform allows investors to generate passive income and hedge against market volatility. Every deal matures within a year, and the company is aiming to deliver annualized returns of more than 10%.

In the news release, Bloomberg Head of Data Standards and Strategy Richard Robinson said:

“The assignment of a FIGI to digital assets is a natural and simple example of the standard’s native utility. It is proof that FIGI can easily extend to new, even esoteric financial instruments.”

Last June, the Bloomberg Terminal started listing Huobi’s Cryptocurrency Index, which tracks the performance of the top 10 traded assets on its exchange.

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BitMEX Ventures Invests in Crypto Exchange Licensed by Philippines Central Bank

BitMEX has invested in the Philippine Digital Asset Exchange, which is licensed by the country’s central bank.

BitMEX Ventures has invested in a crypto exchange licensed by the central bank of the Philippines, the company announced in a news release shared with Cointelegraph on June 3.

The release notes that the financial backing will help the Philippine Digital Asset Exchange (PDAX) develop a marketplace for digital assets beyond cryptocurrencies — including tokenized commodities, real estate equities and debt securities.

The co-founder and CEO of PDAX, Nichel Gaba, says a limited infrastructure in the country has left consumers struggling to access financial products and services. He added:

“Through digital assets and blockchain, we want to even the playing field to give every Filipino from all walks of life the ability to grow their hard-earned wealth.”

PDAX says it is working closely with regulators “to ensure the safe and secure buying and selling of cryptocurrencies and other digital assets at the best price on the market.”

Arthur Hayes, the co-founder and CEO of BitMEX, said his crypto exchange sees a large amount of trading volume from consumers in the Philippines — adding he was confident in PDAX’s ability to increase cryptocurrency adoption in the country while helping the public learn more about digital assets.

In April, payment services firm Bitspark announced plans to release a cryptocurrency pegged to the Philippine peso.

And earlier in the year, Western Union partnered with the Philippines-based to enable consumers to conduct cross-border money transfers and receive funds directly into their e-wallets.

On the day, BitMEX has seen trading volumes of $2.7 billion, according to CoinMarketCap.

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Australian Securities Regulator Releases Cryptocurrency, Mining, ICO Guidelines

The Australian Securities and Investment Commission published new initial coin offering and cryptocurrency guidelines.

The Australian Securities and Investment Commission (ASIC) published new initial coin offering (ICO) and cryptocurrency guidelines on its official website on May 30.

The regulator detailed the prerequisites that a cryptocurrency business needs to follow in order to comply with both the Australian Corporations and ASIC Acts, but did not cover regulations enforced by other national institutions. Notably, the guideline specified that if a crypto asset is a financial product, then the issuer and firms dealing with it are required to hold an Australian financial services license.

The report also notes that miners will be considered part of the clearing and settlement process in at least some instances:

“Where miners and transaction processors are part of the clearing and settlement (CS) process for tokens that are financial products Australian laws apply.”

The regulator also noted that “entities and their advisers need to consider all the rights and features of the ICO (regardless of how it is named and marketed) in determining whether the crypto asset is a financial product or involves a financial product.” The report further specifies that exchanges managing such assets will need to hold a license as well, since the guidelines notes:

“Businesses offering crypto-assets, or offering services in relation to crypto assets, need to undertake appropriate inquiries to satisfy themselves they are complying with all relevant Australian laws.”

Lastly, the ASIC also noted that Know Your Client and Anti-Money Laundering norms apply to crypto assets, as does the Australian Consumer Law, including cases when the assets are issued or managed from abroad.

As Cointelegraph reported earlier this week, the ASIC has warned the public that crypto project OneCoin “could be involved in a scam.”

At the end of April, Australia’s tax agency, the Australian Tax Office, confirmed that it will seek to contact cryptocurrency traders personally about tax issues as part of a new data collection scheme.

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Intercontinental Exchange Used ‘Crypto Winter’ to Scoop Up Digital Assets for Bakkt

ICE was reportedly using the “crypto winter” to purchase crypto assets at a discount for its institutional cryptocurrency trading platform Bakkt.

Intercontinental Exchange Inc (ICE) purportedly took advantage of the “crypto winter” to purchase crypto assets at a discount for its institutional cryptocurrency trading platform Bakkt, Reuters reported on May 2.

ICE’s chief executive officer Jeffrey Sprecher reportedly told Reuters that “It’s really been helpful that the cryptocurrency industry sort of went into what they call a winter.” 2018 was a bear year for digital currencies; in mid-November crypto markets suffered sharp double-digit losses, bringing bitcoin (BTC) below $5,600 for the first time that year.

Bakkt —  which was originally set to roll out in January 2019 —  subsequently delayed the launch due to the ongoing consultations with the United States Commodity Futures Trading Commission. In early February, Sprecher said that he expects Bakkt to launch later in 2019. In the recent interview with Reuters, Sprecher said that all that time ICE has been hiring on talent, including through acquisitions:

“We’ve actually looked at a number of different companies and acquired a company earlier this week that wouldn’t have been available to us if the market had been really hot.”

On Monday, Cointelegraph reported that Bakkt acquired cryptocurrency custodian service company Digital Asset Custody Company. The firm also revealed that it had filed an application with the New York Department of Financial Services to operate as a trust company, which will enable the firm to serve as a Qualified Custodian for digital assets.

In previous months, Bakkt saw an array of important hires, with former engineering executive at PayPal and Google Mike Blandina joining the company as its chief product officer; former cybersecurity expert at IBM, Cisco and Endgame Tom Noonan becoming the chairman of Bakkt’s board of directors; as well as Coinbase veteran Adam White being appointed as Bakkt’s COO and head of institutional custody and traded products.

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Malta: Financial Regulator Approves First 14 Crypto Assets Agents

The Malta Financial Services Authority approves the first 14 crypto assets agents, which filed applications last fall.

The Malta Financial Services Authority (MFSA) has approved its first 14 crypto assets agents that previously sought for a license, according to an official statement published today, April 2.

The approval comes five months after the Virtual Financial Assets Act (VFA), adopted by Maltese government last year, came into power. According to local newspaper the Times of Malta, over 250 applications were initially filed by lawyers, accounts and auditors. However, nearly two thirds of them failed to pass the official assessment process.

Only 28 of them finally succeeded to apply for a license, and 14 were approved with “minor details” to be fixed, the newspaper writes. The watchdog states that its representatives will now be assisting these crypto services providers under the VFA.

According to the MFSA, the agents are now obliged to evaluate their customers’ business plans and ensure they are properly prepared before submitting an application to the MFSA. Moreover, the agents have to perform due diligence with their clients, checking whether they comply with Anti-Money Laundering (AML) and counter-terrorism financing guidelines.

The regulator itself calls the decision an “important milestone in the MFSA’s effort at becoming a regulator of excellence” for the crypto industry. The officials believe that the decision will promote market integrity and public interest in crypto.

However, as Cointelegraph previously reported, Maltese banks are still cautious in opening banking accounts for local crypto companies. When the Times of Malta contacted a number of legal firms and financial companies earlier in March, they reportedly confirmed that banks were declining their applications to open accounts, saying that it was beyond their “risk appetite.”

Later, the country’s Parliamentary Secretary for Financial Services, Silvio Schembri, told the newspaper that the banks were eventually waiting for the agents to obtain MFSA approval before offering them services.

As Maltese officials have publicly committed to creating a “blockchain island” in the country, a number of high-profile blockchain and crypto business have moved to Malta in search of a more crypto-friendly jurisdiction. Lately, several major cryptocurrency exchanges, including OKEx, Binance and BitBay, set up their operations in Malta.

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Digital Asset Trader AlphaPoint Upgrades Security Token Services for Institutions

Digital asset exchange AlphaPoint has upgraded its security token service designed for institutional clients.

Digital asset exchange AlphaPoint has upgraded its security token service designed for institutional clients, according to a press release obtained by Cointelegraph Thursday, March 28.

The company that provides services to private equity, real estate, funds, and other institutional investors is now offering to issue asset-backed security tokens for its clients. AlphaPoint believes that tokenization will increase liquidity for high value asset classes.

As per the announcement, the updated service will allow institutions to create and trade tokens securely and privately.

AlphaPoint said that its new security token service is already used by a real-estate private equity firm Muirfield Investment Partners and an asset management firm Laureate Digital Securities Ltd. While the first is going to issue its own tokens to create a private equity investment structure, the second hopes to reduce the amount of time it takes to onboard customers.

AlphaPoint CEO Salil Donde claims that the service allows users to tokenize illiquid assets and then trade them on an exchange or licensed platform. Moreover, he believes that the service will drive institutional adoption of security tokens, as it purportedly helps to reduce costs and optimize contract execution.

Donde also stated that blockchain technology, which is underlying the tokenized assets, will improve transparency and facilitate trust between investors and issuers.

Earlier today, French hardware wallet producer Ledger partnered with Hong Kong custodian Legacy Trust to offer institutional cryptocurrency custody services. The new offering will be based on Ledger Vault, Ledger’s institutional wallet manager.

Yesterday, March 27, the United States-based operator of crypto exchange Huobi, Hbus, has formed a new team to launch institutional products and services. The company is now evaluating several potential services designed for institutional clients, including token lending and over-the-counter trading.

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Russia: Central Bank Suggests Limiting Sale of Crypto Assets for ‘Unqualified Investors’

The Central Bank of Russia has suggested that the parliament set a yearly limit of $9,100 for crypto assets transactions performed by “unqualified investors.”

The Central Bank of Russia wants to set an annual limit for so-called “unqualified investors” that want to purchase digital assets, local business media giant RBC reported on Tuesday, March 12.

According to the documents obtained by RBC, the bank wants to amend the current draft crypto bill, dubbed “On Digital Financial Assets,” which recently passed a second of three readings in Russia’s parliament, the State Duma.

The central bank’s paper recommends equating investor limits to the ones set in a draft bill on crowdfunding, which is also being reviewed by the Russian parliament. The head of the State Duma’s committee on financial markets Anatoly Aksakov told RBC that the threshold will likely be established at around 600,000 rubles (about $9,100) per year — the same as the yearly investment limit in crowdfunding projects.

If the parliament passes the bill with the central bank’s current recommendations, unqualified investors will still be able to purchase and digital assets that were issued within the country, the report notes. Moreover, investors will be allowed to sell or purchase such tokens without intermediaries.

The Central Bank of Russia considers an investor “unqualified” if they have less than a one year minimum of investment experience. In order to be considered a qualified investor, one needs to obtain a qualification certificate — given they meet the minimum individual investment time requirements — or have at least two years of work experience in a company that is considered a qualified investor by the state.

As per RBC, the government also wants to establish requirements for financial intermediaries involved in crypto asset trading. According to the current version of the draft, banks, depositories and stock exchanges will be obliged to track all crypto transactions and reveal the amounts traded by unqualified investors to other counterparties, institutions or government bodies, if necessary.

The bill “On Digital Financial Assets,” which was initially approved in a first reading by the State Duma back in May, has raised a major discussion within Russian legal discourse. Its second reading was repeatedly postponed by legislators.

In February, Russian President Vladimir Putin set a deadline for the government to adopt regulations for the digital assets industry, urging MPs to adopt the bill during the spring session of 2019.

More recently, Aksakov told Russian news agency RNS that the crypto bill reaching the final stages before being put into law. The chairman of the financial committee expects that the bill will be adopted by the end of March.