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Bitcoin Wallet Provider Receives E-Money License From UK Regulator

Wirex, a London-based bitcoin wallet and payment card provider, announced on August 23 that it has become the third crypto-enabled company to receive an e-money license from U.K. financial regulators.

The license, which is granted by the U.K.’s Financial Conduct Authority (FCA), enables the company to issue electronic money and provide payment services throughout the European Union and European Free Trade Association, according to public records.

Commenting on the approval, Pavel Matveev, the co-founder of Wirex, said in the release that it was for an effort to “improve and refine its e-money services throughout the [European Economic Area].”

He added:

“Having our own principal license, instead of our existing FCA agency licence, means increased efficiency and lower costs.”

More specifically, according to Kelly Horn, a media representative for Wirex, the license will give Wirex ability to offer faster and more responsive service with lower rates to its customers.

Formerly known as E-coin, Wirex is a cryptocurrency service provider founded in 2014. The crypto startup announced in May that it had begun to offer its payment cards to EEA residents.

Matveev added that the company has also been seeking licenses in other markets, including in Singapore and Japan, as it continues working to expand its international business.

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Regulators Plan 'Global Sandbox' for Fintech Including Blockchain

A number of financial regulators from across the globe are forming a new alliance to facilitate the growth of financial technologies such as blockchain and distributed ledger technology (DLT).

The U.K.’s Financial Conduct Authority (FCA), which spearheaded one of the world’s first fintech sandbox programs, announced the Global Financial Innovation Network (GFIN) initiative on Tuesday, alongside 11 other member regulators from jurisdictions such as Hong Kong, the U.S., Australia and Abu Dhabi.

GFIN will primarily serve as a network of regulators to discuss policies regarding financial technologies, the statement indicates, as well as to develop a “global sandbox” that will give firms with “an environment in which to trial cross-border solutions.”

While the paper offers few details on how the regulators’ plan to create a supervised environment for blockchain startups, the FCA said the new alliance follows a consultation effort in February on the idea of an international sandbox.

Among the 50 responses it received at the time, the FCA said one key theme focused on how regulators around the world can work together to pilot cross-border payments based on DLT and how to regulate initial coin offerings, which often extend beyond borders.

In fact, several members of GFIN, including the Monetary Authority of Singapore, Hong Kong Monetary Authority and Abu Dhabi Global Market, are already working on cross-border payment corridors built with DLT.

Along with the announcement, the group jointly published a consultation paper seeking public feedback on the GFIN initiative by Oct. 14.

Just last month, the FCA also granted 11 blockchain crypto-related startups to the fourth cohort of its sandbox program – almost 40 percent of the 29 firms accepted – which can now trial their products in a regulated environment.

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UK Financial Regulators Are Preparing for a World of Crypto Assets

Blockchain crowdfunding ideas may be ten-a-penny these days, but seeing the concept tested out by a financial regulator and a major stock exchange is pretty unique.

Still, that’s what’s happening now in the U.K. where the London Stock Exchange Group (LSEG) and U.K. financial regulator, the Financial Conduct Authority (FCA), are working with distributed ledger technology startup Nivaura and 20|30, a UK company building a blockchain platform for corporate equity issuance.

One of the more exciting projects within the fourth cohort of the FCA’s regulatory sandbox (some 40 percent of the cohort use distributed ledgers), the project will target institutional as well as accredited investors using the LSEG’s Turquoise, the hybrid exchange platform for European equities that allows trading both on and off traditional exchanges.

The aim is to demonstrate for the first time in a live deal that equity in a U.K. company can be tokenized and issued within a fully compliant custody, clearing and settlement system.

As such, the first company to test out a primary issuance of tokenized stock will be 20|30 itself in September of this year, a launch to be followed by a one year lock-in period according to Tomer Sofinzon, co-founder of 20|30.

20|30 says that as soon as the first testing phase is complete, there exists a pipeline of dozens of young companies looking to try the tokenizing process out. These include medical device makers, firms in the pharmaceutical space, agricultural companies, and software providers.

Since the equity tokens being issued will be built on ethereum, trading of these will presumably start to happen, at least on an OTC basis, once the lock-in period has passed.

“That’s absolutely possible,” said Sofinzon. “After the lock-in period, we can begin the next phase, to really test the tradeability.”

The test follows a number of similar efforts to make more liquid markets for equity crowdfunding using blockchain tech, including the Korea Exchange which launched the Korea Startup Market for trading tokens on an over-the-counter (OTC) basis back in 2016.

The London Stock Exchange said in a statement to CoinDesk it is exploring blockchain as a way to help SMEs and to “innovate the issuance and tokenization of securities enabled for execution and settlement within the LSEG Conduct of Business framework.”

“This project with Nivaura is exploring tools to help companies raise capital in a more efficient and streamlined way,” said the LSEG.

Equity tokens

But while a big step for incumbents, the project is also a boon for the startups involved.

Taking a gradual step-by-step approach Nivaura has shown that debt securities can be tokenized in a regulatory compliant manner and cleared and settled on a public blockchain such as ethereum. Nivaura has, in fact, executed three issuances in the FCA sandbox as a participant in two previous cohorts.

The ramifications of tokenized equity being distributed via an exchange are weighty, but the initial problem the project set out to solve is the inefficiency of equity crowdfunding, which essentially operates a bilateral relationship between the share issuer and the investor.

But, institutional investors don’t work like that. They require a trusted market infrastructure, supplied in this case by Nivaura, leveraged by the LSEG’s network and ability to generate sell orders and buy orders on a grand scale.

Speaking exclusively to CoinDesk about the project, Dr. Avtar Sehra, CEO and chief product architect at Nivaura, said: “Someone can use our technology to do all the legal documentation, tokenize these assets and execute them. LSEG has then been forward-thinking enough to help get these orders out to the existing market”

That said, tokenized equity is a tough nut to crack. Oftentimes, people talk about equity tokenization that’s just tokenized digital certificates which are not transferable, explained Sehra.

Debt is more straightforward, he said, because the token is the bond. “Equity is driven by legislation and the legislation makes it very hard for the token to be equity itself.”

Looking ahead

Designing the legal structure around the equity token meant creating a legal markup language and ensuring compliance with Central Securities Depositories Regulation (CSDR), which Nivaura has been working on with law firms like Allen & Overy and, as part of the latest FCA cohort, Latham & Watkins.

Once there is a certain legal structure around the token, that gives the holder of that token the right to the equity and the right to all the beneficial interest in that equity, said Sehra, permitting a forward glance at the next possible phase of the project.

“If we can guarantee this is the most commercially viable way to do this, it will not only allow efficient primary distribution but it’s also going to potentially allow very simple secondary trading as well.”

“There is a possibility that we are going to be launching that next year.”

It’s worth mentioning that since the settlement layer is the ethereum public blockchain it would be bounded by a throughput limit of about 15 transactions per second, for the time being at least until the technology improves.

Sehra acknowledged that throughput and latency are huge issues for public blockchains, but said that for the purpose of this project over the next two to three years it’s sufficient.

He concluded:

“The industry is going to become a world of tokenized assets – that’s inevitable. We don’t really care if it’s ethereum or bitcoin, the underlying infrastructure isn’t that important. But it is going to be a blockchain.”

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UK Watchdog Welcomes First Crypto Startups to Regulatory Sandbox

For the first time, the U.K.’s financial regulator is directly recognizing the potential of blockchain-related startups.

For the latest and fourth cohort of startups for its regulatory “sandbox,” the country’s Financial Conduct Authority (FCA) has given access to 11 blockchain and distributed ledger technology-related companies – almost 40 percent of the 29 accepted.

The regulator received 69 applicants in total, of which 40 did not make the group, according to an FCA announcement last week.

The regulator said:

“We have accepted a number of firms that will be testing propositions relating to cryptoassets. We are keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks.”

Most notably perhaps, 20|30, one of the 11 blockchain firms, will be partnering with both the London Stock Exchange Group and Nivaura, a London-based financial service company, to build a DLT-based platform to allow “companies to raise capital in a more efficient and streamlined way,” according to its description in the FCA post.

The platform will reportedly facilitate the primary issuance of an equity token based on ethereum to investors.

“The next step will be to offer secondary transfers. Then we can work our way up the ‘capital stack’ to reinvent private equity and, public markets,” Tomer Sofinzon, co-founder of 20|30, told the Financial Times.

The FCA’s regulatory sandbox was launched in June 2016 with the goal of allowing businesses to test “innovative products, services, business models and delivery mechanisms” in the market with FCA’s temporary authorization.

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UK's Financial Watchdog Issues Letter to Banks on Crypto Risks

The U.K.’s Financial Conduct Authority (FCA) has written to bank CEOs over the potential risks they face when dealing with cryptocurrencies.

As the British regulator for around 58,000 financial services firms and financial markets in the U.K., the FCA has issued formal warnings before on the risks of investing in cryptocurrencies.

In this latest warning, the FCA addresses the banks specifically and urges greater scrutiny of client and customer activities if they are deemed to be dealing in what the agency calls “cryptoassets.”

For bank clients who offer services to consumers in cryptocurrencies, appropriate steps to lessen the risk of financial crime include, “carrying out due diligence on key individuals in the client business” and “ensuring that existing financial crime frameworks adequately reflect the crypto-related activities which the firm is involved in.”

While acknowledging that not all businesses and individuals holding or trading in cryptocurrencies would pose the same degree of risk, the FCA did flag a few “high-risk” indicators. These include a client using a state-sponsored cryptocurrency, “which is designed to evade international financial sanctions” – presumably a hint that trading Venezuela’s petro token will get your account closed.

Another red-flag cited includes retail customers seen to send large sums to token sales, or initial coin offerings (ICOs). According to the FCA letter, these customers are at a “heightened” risk of investment fraud.

Not all motives for using cryptocurrencies are criminal in nature, it continues, but given the “potential anonymity and the ability to move money between countries,” the FCA expects financial firms to exercise “particular care” when dealing with cases involving cryptocurrencies.

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UK Finance Watchdog Issues Warning on Crypto Derivatives

The U.K.’s financial watchdog has warned that companies offering services around cryptocurrency derivatives “likely” need to be authorized by the agency.

In a statement posted to its website Friday, the Financial Conduct Authority (FCA), said that although it doesn’t consider cryptocurrencies to be currencies or commodities for regulatory purposes, cryptocurrency derivatives may be financial instruments under current directives.

The statement said:

“Firms conducting regulated activities in cryptocurrency derivatives must, therefore, comply with all applicable rules in the FCA’s Handbook and any relevant provisions in directly applicable European Union regulations.”

The FCA continued to explain that it’s “likely” that companies seeking to offer derivatives linked to cryptocurrencies or tokens issued through ICOs will need to obtain authorization. The products mentioned include cryptocurrency futures, cryptocurrency contracts for differences (CFDs) and cryptocurrency options.

The agency added, however, that an ICO “may or may not fall within the FCA’s regulatory purview depending on the nature of the tokens issued.”

The FCA finished with a warning that states: “If your firm is not authorized by the FCA and is offering products or services requiring authorization it is a criminal offence. Authorized firms offering these products without the appropriate permission may be subject to enforcement action.”

While the FCA has been generally positive on blockchain technology, saying in 2016 that it does not plan to regulate the blockchain industry for now as it believes it needs “space” to grow, it has taken a sterner stance on cryptocurrency and ICOs.

In December 2017, the head of the authority, Andrew Bailey, warned bitcoin investors to be prepared to “lose all your money,” adding the risks are similar to gambling.

The same month, the FCA announced that it would gather evidence and conduct a deeper examination on ICOs. In a feedback statement, the regulator said it would carry out an analysis on the applicability of U.K. laws to the ICO funding model and assess if there is need for “further regulatory action.”

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UK Financial Watchdog Warns Over Unregistered Crypto Brokerage

The U.K.’s financial regulator has issued a warning to investors over an unregistered brokerage firm that appears to be offering cryptocurrency-related derivatives in the country.

In a statement Thursday, the Financial Conduct Authority took aim at a firm called Olsson Capital, which, according to the regulator, is based in Sofia, Bulgaria.

“This firm is not authorized by us and is targeting people in the U.K. Based upon information we hold, we believe it is carrying on regulated activities which require authorization,” the agency said.

While the firm’s website is currently not accessible, information from Scambroker, a website that scrutinizes securities brokers and dealers, shows that the firm has been handling cryptocurrency trading services and is not registered with the FCA as a licensed broker.

The website further indicates that services available on Olsson Capital include contract for difference (CFD) trading on a variety of cryptocurrencies, including bitcoin, XRP, dash, ethereum, monero and litecoin. Further, investors need to deposit at least around $250 in order to open an account on the platform, ScamBroker states.

While Olsson Capital has not responded to email enquires from CoinDesk, comments on Scambroker from several investors have claimed that requests for withdrawals have not been proceeded even days after requests.

The notice comes as a continuation of the FCA’s efforts to caution the public regarding trading in cryptocurrency-related derivatives, as such activities fall under the jurisdiction of the agency.

As reported by CoinDesk, the regulator issued a warning to the public in November 2017, specifically regarding the risk associated with cryptocurrency CFDs.

And, earlier last year, a high level official at the FCA also stated that the public must “exercise a degree of caution” with such products.

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Coinbase Receives E-Money License from UK Financial Regulator

Coinbase is officially expanding digital money services in the U.K. and EU.

The U.K.’s Financial Conduct Authority granted Coinbase an e-money license, the company announced Wednesday. The license now enables the company the ability to provide payment services and issue digital cash alternatives, which can then be used to make card, internet or phone payments.

A Coinbase spokesperson clarified that e-money is different from cryptocurrencies. As such, the license comes with stringent regulations designed to protect customers, according to the press release.

To that end, Coinbase explained:

“We are committed to making sure customer funds are always secure and this update means that our e-money operations have safeguards and operational standards at par with other regulated financial institutions. An example of this is segregation of client funds, where all customer fiat balances will be separated from Coinbase’s funds and kept in separate bank accounts.”

Notably, the FCA license allows Coinbase to operate in 23 EU member nations, though it is unclear whether the upcoming U.K. exit from the EU will affect that.

The spokesperson said that Coinbase can trade within the union until the so-called “Brexit.” If certain rules allowing the company to continue trading are not preserved, the company will have to suspend operations until a second license from a member state has been granted.

In addition to its new e-money license, Coinbase announced it was joining the U.K. Faster Payments Scheme, which aims to provide efficient bank transfers to residents. While Coinbase will launch a pilot to begin with, every U.K. customer should have access within the next few weeks, according to the release.

The push into the U.K. and EU are part of Coinbase’s efforts to meet increasing demand in the European market. To that end, the company also plans to multiply its London team by a factor of eight.

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UK Financial Watchdog to Further Scrutinize ICOs

The UK’s financial watchdog announced last Friday that it will carry out a deeper analysis on the applicability of national laws to the initial coin offering (ICOs) funding mechanism so as to determine the need for “further regulatory action.”

In a feedback statement issued Friday, and connected to its past publishings on blockchain broadly, the Financial Conduct Authority (FCA) writes that it intends to perform a “deeper examination” of developments by gathering more evidence and information.

The statement added:

“Its findings will help to determine whether or not there is need for further regulatory action in this area beyond the consumer warning issued in September.”

At the time, the FCA issued a warning to consumers about the risks of ICOs stating it as “very high-risk, speculative investments.” It further mentioned that ICOs are unregulated, and that as such, certain protections available for other assets don’t extend to the market.

Other possible risks mentioned included the price volatility of cryptocurrencies and the possibilities for fraud, among others.

Still, in the feedback statement, the FCA also outlined briefly how it believes ICO businesses need to conduct operations for the “consumer benefit,” while pushing back against the idea that its guidance doesn’t relate to public blockchains.

The FCA’s DLT discussion paper saw 47 responses from a various of market participants including regulated firms, trade associations and law firms.

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UK's FCA Chief Warns Bitcoin Investors: Be Prepared to Lose Your Money

The head of a British financial regulator has warned that people stand to lose their funds if they invest in bitcoin.

Andrew Bailey, chief executive of the UK’s Financial Conduct Authority (FCA), told the BBC’s Newsnight program that buying bitcoin poses similar risks to gambling and, since it is neither backed by central authorities nor regulated, the cryptocurrency is not a safe investment.

Talking to Newsnight, he continued:

“It is a very volatile commodity in terms of its pricing … If you want to invest in bitcoin be prepared to lose your money – that would be my serious warning.”

Bailey went on to say that “commodities” like bitcoin are not regulated by financial watchdogs in the U.K., and that it was up to parliament to decide on any changes in those rules. However, citing the recent U.S. launch of bitcoin futures contracts by CBOE, he said: “If you buy a future or if you buy an option then we do come into the picture.”

The FCA’s director of strategy and competition, Chris Woolard, addressed the same subject back in June, cautioning investors that, as cryptocurrencies are not regulated financial instruments, they do not have the consumer protections associated with traditional assets.

And, in September, the authority also issued a formal warning on initial coin offerings (ICOs) stating that they constitute “very high-risk, speculative investments.”

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