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CFTC Staff Issues Advisory for Virtual Currency Products

On Monday, May 21, 2018, the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR) issued a joint staff advisory providing information and guidance relating to the listing of virtual currency derivative products to exchanges and clearinghouses registered with the CFTC. As well, the advisory emphasized the CFTC’s priorities in reviewing new virtual currency derivatives.

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NASAA Announces Initial Results of Operation Cryptosweep

On Monday, May 21, 2018, the North American Securities Administration Association (NASAA) announced a coordinated series of enforcement actions by state and provincial regulators in Canada and the United States to crack down on fraudulent Initial Coin Offerings (ICOs) and cryptocurrency investment products. To date, “Operation Cryptosweep” has resulted in nearly 70 inquiries and investigations, as well as 35 pending or completed enforcement actions related to ICOs or cryptocurrencies since the beginning of May, including the recent warning issued by the Ontario Securities Commission against five digital currency firms (as described in our recent blog post).

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OSC Issues Warning Against Five Digital Currency Firms

On May 18, 2018 the Ontario Securities Commission (the “OSC”) released an Investor Alert warning investors of five digital currency firms (the “Firms”) that have been identified as targeting Ontario investors and encouraging trades and investments in cryptocurrency. This announcement follows the OSC’s participation in an international initiative called “Operation Cryptosweep” to raise public awareness about ICOs and cryptocurrency-related investment products, including such unregistered and fraudulent cryptocurrency schemes.

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TMX Group Exchanges Provide Guidance to Crypto and Blockchain Issuers

The TMX Group recently posted a series of short online webinars consisting of informal conversations between TMX staff (Staff) about a variety of topics related to blockchain and cryptocurrencies. The discussions provided a number of tips and insights for listed issuers and for issuers that might seek to list on TSX or the TSX Venture Exchange (the TSXV). Some of the highlights are set out below.

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Major Technology Companies Restrict Cryptocurrency Advertisements for Consumer Protection

UPDATE: On March 26, 2018, Twitter confirmed the report referenced below and announced that cryptocurrency advertisements would be banned from its website as of March 27, 2018. Further, all ads relating to digital currency, other than public companies listed on major stock exchanges, will be removed from its website.

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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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