Crypto regulation in the world: weekly digest #113

USA

The U.S. SEC stated that it did not intend to classify crypto tokens themselves as securities, which marks a notable shift in its approach. This decision emerged in the context of ongoing legal battles with major cryptocurrency exchanges like Binance and Coinbase.

Historically, the SEC has pursued enforcement actions against various crypto projects, asserting that many tokens qualify as securities under the Howey test, which evaluates whether an asset is an investment contract. This test considers factors like the investment of money in a common enterprise with an expectation of profits primarily from the efforts of others. The SEC's lawsuits against companies such as Binance and Coinbase have claimed that numerous crypto assets fall under this definition, leading to significant market repercussions.

In a recent court filing, the SEC expressed regret over its previous language that referred to crypto tokens as securities. This acknowledgment indicates a potential shift in the SEC's regulatory stance and reflects the challenges it faces in proving that specific tokens meet the criteria for securities classification. The agency's prior assertions have led to confusion and calls for clearer regulations, as many in the industry argue that the SEC's approach has been inconsistent and overly aggressive.

The SEC's clarification is seen as a positive development for the crypto market, as it alleviates fears of blanket classifications of all tokens as securities. This ruling could foster a more favorable environment for crypto projects, potentially leading to increased investor confidence and market activity. The decision not to classify tokens as securities could also allow for broader trading opportunities on existing exchanges, which are not typically registered as securities platforms.

The UK

On September 11, The Property (Digital Assets) Bill was introduced in the UK Parliament, which aims to clarify the legal status of digital assets, including cryptocurrencies like Bitcoin and non-fungible tokens (NFTs), by recognizing them as a distinct category of personal property under the British law.

The Bill establishes a third category of personal property, separate from the traditional classifications of «things in possession» (tangible items) and «things in action» (rights enforceable through court action). This new category allows for the legal recognition of digital assets that do not fit neatly into these existing categories.

By classifying digital assets as personal property, the Bill provides owners with greater legal protections against fraud and theft. This change addresses previous legal uncertainties where digital assets were not explicitly recognized, leaving owners vulnerable if their assets were compromised.

The legislation aims to assist courts in resolving disputes involving digital assets, such as those arising in divorce settlements or business transactions. It will help judges navigate the complexities associated with these assets.

The government plans to establish an expert group to provide ongoing guidance on legal and technical issues related to digital assets, ensuring that the legal framework can adapt to evolving technologies.

The introduction of this Bill positions the UK as one of the leaders in the global legal landscape for digital assets, aiming to attract investment and enhance the legal services sector, which is crucial for the economy.

Hong Kong

Hong Kong is taking significant steps to strengthen its regulatory framework for cryptocurrency, particularly focusing on over-the-counter trading. This initiative is spearheaded by the Financial Services and the Treasury Bureau (FSTB) in collaboration with the Securities and Futures Commission (SFC).

On February 8, 2024, the FSTB announced a public consultation aimed at establishing a licensing system for OTC virtual asset trading services. This system will require OTC operators to obtain a two-year license from the Hong Kong Customs and Excise Department (C&ED) to legally conduct business in the region. The licensing will enforce compliance with anti-money laundering (AML) regulations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and ensure that only virtual assets listed on approved platforms can be traded.

The proposed framework mandates that OTC providers must have a physical presence in Hong Kong, employ qualified compliance officers, and maintain proper corporate structures. This move aims to close existing regulatory gaps that have allowed unregulated OTC trading activities to flourish, which previously posed risks to investor protection and market integrity.

The SFC has been actively engaging with industry stakeholders to refine the proposed regulations. This includes discussions on the potential introduction of a licensing regime for cryptocurrency custodian services, indicating a broader strategy to regulate various aspects of the crypto market comprehensively.

The new regulations are expected to enhance market transparency and security, aiming to prevent illicit activities such as money laundering and fraud within the cryptocurrency space. By establishing a clear licensing framework, Hong Kong positions itself as a regulated hub for crypto activities, potentially attracting institutional investors looking for compliant trading platforms.

News from other countries:

• Russia is set to regulate cryptocurrency payments by November 2024 as part of a broader strategy to facilitate cross-border trade amid ongoing Western sanctions. The legislation, signed into law on August 8, 2024, permits the use of cryptocurrencies for international transactions, with specific regulations expected to be finalized by the end of November;

• Consumers' Research has issued a significant warning regarding Tether, the issuer of the USDT stablecoin, highlighting serious concerns about its lack of transparency and regulatory oversight. The advocacy group has urged U.S. governors to take action to protect consumers from potential financial risks associated with Tether, which has been criticized for its failure to conduct a full independent audit of its reserves since 2017, despite repeated promises to do so.

We continue to highlight the news of the world of crypto regulation worldwide. Please stay with us!