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Understand Cryptocurrency Risks: BCSC Advises Investment Caution with Cryp Trade

Last month, the British Columbia Securities Commission (the “BCSC” or the “Commission”) published an investment caution for Cryp Trade Holdings SL (“Cryp Trade”). Cryp Trade claims to be located in Spain and also offers an online cryptocurrency platform and cryptocurrency investment portfolios.

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SEC Releases Public Statement on Registration of Cryptocurrency Exchanges

On March 7, 2018, the U.S. Securities and Exchange Commission (the “SEC”) issued a public statement addressing the fact that many online trading platforms for cryptocurrencies and other digital assets are “potentially unlawful” and should be registered with the SEC.

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Swiss Regulators Set Precedent with Groundbreaking ICO Guidelines

On February 16, 2018, the Swiss Financial Market Supervisory Authority (FINMA) released a set of guidelines (the Guidelines) that sets out how it will handle inquiries from organizers of initial coin offerings (ICOs). Building on the principles outlined in FINMA’s guidance released in September, 2017, the Guidelines separate tokens into three categories: (i) payment tokens; (ii) utility tokens; and (iii) asset tokens, all as further described below. Tokens classified into a category will be subject to varying laws and regulations, and as such, FINMA will be taking a holistic approach, on a case by case basis, when assessing the characteristics of a proposed ICO and the associated token. FINMA’s landmark guidance represents a monumental development in the cryptocurrency space.

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Japan Sets its Sights on a Self-Regulating Cryptocurrency Group

United by the goal of providing better safeguards to cryptocurrency investors, sixteen Japanese cryptocurrency exchanges are reportedly joining forces to create a self-regulating cryptocurrency body in Japan.

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Canadian Securities Regulators Sign Fintech Cooperation Agreement with the French Autorité des marchés financiers

The securities regulatory authorities in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Québec and Saskatchewan announced on February 8, 2018 a co-operation agreement with the French Autorité des marchés financiers ("French AMF"). The agreement extends the work of the CSA Regulatory Sandbox Initiative and the French AMF FinTech, Innovation and Competitiveness division, and provides an environment for businesses to develop innovative solutions in the financial sector. It is intended to help businesses navigate the regulatory systems in both countries, and monitor market developments to identify and propose ways to address emerging regulatory issues. Collaboration is expected to include information sharing, support for financial innovators, referrals, expertise sharing, secondments, and dialogue on fintech and innovative financial services. While a positive development, the agreement does not come with any changes to the current Canadian regulatory regime for fintech innovators as we are seeing implemented or proposed in other jurisdictions such as Spain, Japan and Switzerland.

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Cryptocurrency: EU Warns While Spain Warms

In a statement released on February 12, 2018, the European Supervisory Authorities ("ESAs") for securities, banking, and insurance and pensions issued a warning to EU consumers outlining the risks involved with buying cryptocurrencies. Despite this warning, only two days later on February 14, 2018, it was reported that the Spanish government is in the process of establishing a comprehensive legal regime to encourage and foster the growth of the cryptocurrency and ICO markets in Spain.

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All Things Fintech: Key Takeaways from the BCSC’s Notice and Request for Comment

On February 14, 2018 the British Columbia Securities Commission (the “BCSC” or the “Commission”) published a notice and request for comment on all things fintech.

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Canadian Tokenized Securities Trading Platform Announced

The Canadian Securities Exchange (“CSE”) announced a proposed securities clearing and settlement platform based on blockchain technology. The platform is intended to enable companies to issue conventional equity and debt through tokenized securities, which would be offered to investors through, what the CSE is calling, “Security Token Offerings” or “STOs”. The CSE expects major benefits to investors and the Canadian financial services community, including real-time clearing and settlement and substantial cost and error reductions compared to conventional clearing services. The CSE intends to file an application with Canadian regulators to recognize the new clearing house, which it will operate. While most ICOs and ITOs have attempted to avoid any regulation under the securities laws of any jurisdiction, STOs will require that issuers “walk in the front door”.  Issuers will submit themselves to full compliance under Canadian securities laws and the rules of the CSE, providing investors with greater transparency, enhanced disclosure, and real protections.

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U.S. Senate Hearing Takes Cautious, Optimistic Tone on Cryptocurrencies

On Tuesday, February 6, 2018, the Chairman of the Securities and Exchange Commission (SEC) and the Chairman of the Commodity Futures Trading Commission (CFTC), met before the U.S. Senate Committee on Banking, Housing & Urban Affairs to discuss the future of regulation of cryptocurrencies.

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CSA Members Set Terms and Conditions for Crypto-Based Investment Fund Managers

With the rise in popularity of cryptocurrencies over the last 12 months, investors have been looking for ways to enter the market through legitimate, regulated vehicles. Several portfolio and investment fund managers (Managers) have entered the market and are or will offer cryptocurrency funds to qualified purchasers. Given the novel nature of blockchain technology and the associated cryptocurrencies – as compared to traditional asset classes – these funds present unique challenges, particularly with respect to valuation and security of the assets. Accordingly, these Managers have worked with the members of the Canadian Securities Administrators (the CSA) as part of the CSA Regulatory Sandbox initiative to ensure that appropriate measures are implemented to protect investors in this new asset class.

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SEC Announces 2018 Examination Priorities – Crypto and ICOs in Focus

On February 7, 2018, the Securities and Exchange Commission's Office of Compliance Inspections and Examinations ("OCIE") announced its 2018 examination priorities, which include a focus on cryptocurrencies and initial coin offerings.  OCIE will continue to monitor the sale of these products, and where the products are securities, examine for regulatory compliance. In addition, as the number of broker-dealers and investment advisers engaged in this space continues to grow, OCIE will be examining registrants involved in their offer and sale.  Areas of focus will include, among other things, whether financial professionals maintain adequate controls and safeguards to protect these assets from theft or misappropriation, and whether financial professionals are providing investors with disclosure about the risks associated with these investments, including the risk of investment losses, liquidity risks, price volatility, and potential fraud.

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Crypto Worldwide - South Korea

As home to one of the world’s most tech-savvy, digitally-connected populations and several of the top global digital currency exchanges, South Korea has been a hotbed for blockchain technology developments and cryptocurrency trading.

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More Warnings From US Regulators Regarding Cryptocurrency

In a Wall Street Journal article [subscription required] Jay Clayton, the chair of the Securities and Exchange Commission, and J. Christopher Giancarlo, the chair of the Commodity Futures Trading Commission, remind participants in the burgeoning cryptocurrency market that their agencies are being vigilant in the pursuit of their regulatory mandates to enforce the law and to "set and enforce rules that foster innovation while promoting market integrity and confidence."

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SEC to Target Lawyers Assisting with ICOs

On January 22, 2018, Jay Clayton, Chairman of the Securities Exchange Commission (the “SEC”), issued a warning statement to lawyers assisting clients with ICOs and to companies who have, or are looking to, shift their focus to distributed ledger or blockchain technologies in his opening remarks at the Securities Regulation Institute. The SEC has the power to impose liability and penalties on lawyers who fail to satisfy their responsibility as gatekeepers to the capital markets. These remarks signal that lawyers may be a focus of the SEC as it seeks to regulate the world of ICOs.

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FINRA to Emphasize ICO Monitoring in 2018

On January 8, 2018, the Financial Industry Regulatory Authority (“FINRA” or the “organization”) released its 2018 Annual Regulatory and Examination Priorities Letter addressing the areas of focus for the organization for 2018. Of note, FINRA emphasized the need to “deepen [its] understanding” of initial coin offerings ("ICOs"), as the financing mechanism has dramatically increased in popularity over the course of 2017.

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U.S. Court Orders Certain Identifying Information to be Provided to the IRS

On November 29, 2017 a US federal judge in San Francisco ruled that Coinbase, Inc. (“Coinbase”) a popular online cryptocurrency exchange, must supply the Internal Revenue Service (the “IRS”) with identifying information on users who had more than US$20,000 in annual transactions on the Coinbase platform between January 1, 2013 and December 31, 2015.

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SEC Issues Guidance on Celebrity Endorsements

On November 1, 2017, the U.S. Securities and Exchange Commission (the “SEC”) released a statement addressing the recent influx of celebrities that are endorsing and promoting investments in stocks and other investments, particularly Initial Coin Offerings (“ICOs”).

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OSC Gives Relief to First Initial Token Offering

On October 17, 2017, the Ontario Securities Commission (“OSC”) granted relief to an initial token offering (“ITO”), its first decision of this kind.  The OSC granted exemptive relief to Token Funder (“Funder”) in connection with its ITO of FNDR tokens (as defined below) through a private placement offering (the “Offering”). The exemptive relief was sought through the Canadian Securities Administrators’ regulatory sandbox (the “CSA Sandbox”), which is an initiative of the CSA to support fintech businesses seeking to provide innovative products, services and applications by offering a faster and more flexible process to register and/or obtain exemptive relief from securities laws requirements.

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CSA Provides Guidance on How Canadian Securities Law Applies to Cryptocurrencies

On August 24, 2017, in response to the growing number of cryptocurrency offerings, the Canadian Securities Administrators (the “CSA”) issued Staff Notice 46-307 - Cryptocurrency Offerings (the “Staff Notice”). Cryptocurrency offerings can appear in a number of forms, such as initial coin offerings (an “ICO”) or the sale of securities of cryptocurrency investment funds. In an attempt to clarify its position on these offerings, the CSA issued the Staff Notice to provide guidance on how securities law in Canada may apply to this emerging field and to specify the required obligations that must be met under the current applicable regulations.

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Australian Cryptocurrency Reforms

On Thursday, August 17, 2017, the Australian government proposed a set of reforms aimed at regulating the purchase and sale of digital currencies on online exchanges, in an attempt to deter individuals from using these currencies for illicit purposes such as money laundering and the financing of terror-related activities.

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