Category Archives: Blockchain, Crypto, ICO Regulations

News on China cryptocurrency and more reforms

Schulte Research | Paul Shulte | Aug 21, 2019

China coin crypto - News on China cryptocurrency and more reformsChina is barreling forward on reforms and rolling out the crypto currency. It will be the first central bank to do so.  This will give added momentum to Libra.

Libra could become a new anchor market for global IPOs. Take this seriously. Join if you can.  I’m pretty sure I’m right that it has backing from the very top of the US govt.

1. Cryptocurrency — The China coin is due to be rolled out in November. I hear that the distribution of the coin will be limited to 7 players:

  • The big banks: CCB, ICBC, BOC, ABC.
  • Alibaba and Tencent.   Positive momentum,,,
  • Union Pay.   Interesting — to keep this alive.

All others will be secondary.  The PBOC head did on SUnday make an explicit reference to Libra. As I suspected, China rightly sees Libra as a challenge to China’s early commanding lead in e commerce and payments in all of Asia and through the Silk Road. It clearly is.   Interestingly, HSBC and Stan Chart are cut out. No foreign banks in the consortium.    No foreign firms in Libra (except, weirdly,  Mercato Libra from Arge).

2. China yesterday doubled the size of the free trade zone in Shanghai and has allowed partial capital account convertibility in Shanghai.  This is big and a challenge to HK.  It will also drop duties in Shanghai.

3. ALibaba has cancelled the secondary listing in HK until further notice due to the instability. Big negative for HK.

4. Singapore has suspended all university exchange programs between Singapore and Hong Kong for this year due to the instability.  SO, people are stuck in Singapore to finish programs.

Check out Paul Schulte's new book: AI & Quantum Computing for Finance & Insurance: PRC VS US. https://www.worldscientific.com/worldscibooks/10.1142/11371

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NCFA Jan 2018 resize - News on China cryptocurrency and more reforms The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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New money-laundering rules change everything for cryptocurrency exchanges

MIT Technology Review | Mike Orcutt | Aug 15, 2019

money laundering rules - News on China cryptocurrency and more reformsComplying with regulators could mean the difference between going mainstream and remaining forever on the margins of the global financial system.

One of the biggest knocks against cryptocurrency has always been its status as a refuge for tech-savvy criminals. Even as some bigger players—particularly exchanges that handle many billions of dollars in crypto-wealth each day—have gone out of their way to play nice with regulators, the image persists, in part because some crypto firms have evaded regulators by moving to jurisdictions that are less strict. 

But the end of the lawless era may be nigh. A new set of global anti-money-laundering rules aimed at cryptocurrency exchanges has been handed down by the Financial Action Task Force, an intergovernmental organization that sets standards for policing money laundering and terrorist financing. The rules, which call on exchanges to share personal information about their users with each other, are controversial. Many cryptocurrency enthusiasts think the privacy that drew them to the technology could evaporate. On the other hand, complying with the rules is likely to make the industry more attractive to mainstream financial institutions and users. In other words, cha-ching.

See:  A Global Review Of The Regulatory Considerations Relating To Crypto-Asset Trading Platforms

The problem

The cryptocurrency market is small and immature compared with markets for traditional stocks and bonds, but the criminals trying to profit from it are among the most sophisticated in the world—and they are reaping bigger and bigger rewards.

“Unfortunately, we keep seeing the criminal numbers go up and up and up,” says Dave Jevans, CEO of blockchain analytics firm CipherTrace, which is developing an anti-money-laundering product for exchanges.

According to a new report published by the company, thieves and scammers took an estimated $4.26 billion from cryptocurrency exchanges, investors, and users in the first half of 2019. “All of that stuff has to be laundered out,” Jevans says. 

What draws criminals to cryptocurrency is the capacity for anonymous, peer-to-peer value transfer. Technically, most cryptocurrency systems are pseudonymous—users are identified publicly, but only by a string of random numbers and letters. Since every transaction is recorded on a public ledger, criminals resort to a range of tactics, including using multiple addresses and exchanges, to cover their tracks as they move ill-gotten money around

In regulated jurisdictions like the US, Japan, and EU, exchanges—the bridges between the traditional financial system and the cryptocurrency world—are already required to verify the identities of their users, a process commonly called “know your customer.” But many exchanges around the world have lax policies that allow people to move money or cash out without identifying themselves. 

The “travel rule”

In June the Financial Action Task Force (FATF; pronounced “fat F”) published a much anticipated, technically nonbinding guidance detailing expectations of how its 37 member jurisdictions should regulate their respective “virtual asset” marketplaces. Here’s the contentious part:

whenever a user of one exchange sends cryptocurrency worth more than 1,000 dollars or euros to a user of a different exchange, the originating exchange must “immediately and securely” share identifying information about both the sender and the intended recipient with the beneficiary exchange. That information should also be made available to “appropriate authorities on request.”

See:  UK Financial Conduct Authority Provides Final Guidance on Cryptoassets: Better Defines Utility Tokens

Besides deterring would-be money launderers, this makes it possible to blacklist certain individuals who are subject to economic sanctions, as well as entities like terrorist organizations. It’s essentially a crypto version of a US banking regulation commonly called the “travel rule,” which imposes a similar requirement on traditional financial institutions (though the threshold is $3,000). In the US, crypto exchanges have always been subject to this rule, according to a recent guidance from the Treasury Department’s Financial Crimes Enforcement Network. The agency just hasn’t started enforcing it yet. 

Not so nonbinding

Since the Group of Seven (G7) and influential members of the G20 plan to apply the policy, it really is binding, says Jesse Spiro, global head of policy at Chainalysis, a blockchain analytics firm. In particular, the US, which held FATF’s rotating presidency from July of 2018 until last month (China now holds that responsibility), is pushing the issue. Secretary of Commerce Steve Mnuchin has called FATF’s standards “binding to all countries.”

A global anti-money-laundering system?

In July, Reuters reported that as part of an effort to combat money laundering, Japan’s government is “leading a global push” to set up for cryptocurrency exchanges a system like SWIFT, the international messaging protocol that banks use for bank-to-bank payments. Last week, a report from Nikkei suggested that 15 governments are planning to create a system for collecting and sharing personal data on cryptocurrency users. 

See:  SEC wants big data tools for monitoring and enforcing cryptocurrency market compliance

But several people familiar with the FATF-led international discussions around cryptocurrency regulation told MIT Technology Review that these reports don’t have it quite right. There doesn’t appear to be a government-led global cryptocurrency surveillance system in the works—at least not yet. And it’s likely that whatever does eventually emerge won’t look much like SWIFT. Exchanges are still early in the process of figuring out what systems and technologies to use to securely handle sensitive data, Spiro says, and how to do it in a way that complies with a range of local privacy rules. “There are a lot of balls in the air,” he says. 

“I would describe the crypto space as being at a crossroads,” says Fanusie. Over the next year are so, we will see the industry “trying to figure out how it wants to position itself, and if it wants to scale.”

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NCFA Jan 2018 resize - News on China cryptocurrency and more reforms The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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United States: The Fed’s Jump Into Real Time Payments Appears To Be Good News For Community Banks and FinTechs

Pryor Cashman | Jeffrey Alberts and Dustin N. Nofziger | Aug 13, 2019

cash payments - News on China cryptocurrency and more reformsThe Federal Reserve Board has announced plans to develop a real-time payment service that should appeal to FinTech companies and community banks. The Board announced last Monday that it will develop a new round-the-clock real time payment and settlement service to support faster payments in the United States. This new real-time gross settlement (RTGS) service, which will be known as the "FedNow Service," is anticipated to be available in 2023 or 2024. The Board is currently soliciting comments on all aspects of the proposed service in order to finalize its design and features. The Board's intention to operate a RTGS service is a win for community banks and FinTech companies, although it may threaten those FinTechs with business models centered around providing real time payments.

The Board's plans were not developed in a vacuum. The Clearing House (TCH), which is owned by 30 of the world's largest commercial banks, previously rolled out a RTGS system known as the "RTP network" in November 2017 – some six years before the Board anticipates that its FedNow Service may first become available. The RTP network reportedly cost over $1 billion to develop and already reaches over 50 percent of U.S. demand deposit accounts. TCH's Business Principles for the RTP Network provide that TCH runs the RTP network "as a utility for the benefit of the industry" and that it charges flat fees to all participants regardless of size or volume.

See:  New Regulatory Framework for Canadian Retail Payments Coming in 2019

It is fair to say that community banks have been skeptical of the intentions of the large commercial banks behind TCH and the RTP network. The Independent Community Bankers' Association of America (ICBA), for example, strongly advocated for the Board to operate a competing RTGS service. The ICBA argued that there was a need for competition in real-time payments and expressed concern about "the risk of having only one, for-profit, private sector settlement service run by the nation's largest and riskiest financial institutions." Due in part to these concerns, the Board's previously announced consideration of whether it should create a competing system reportedly slowed adoption of the RTP network by community banks.

FinTech companies may also benefit from the availability of a real time payments networks. Consumers increasingly expect real time payments, and FinTech companies have expressed frustration about the difficulty of providing payments services in the United States that can meet this expectation. Of course, those FinTech companies whose primary service is the provision of faster payments may face a future threat from the FedNow Service.

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NCFA Jan 2018 resize - News on China cryptocurrency and more reforms The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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New Regulatory Framework for Canadian Retail Payments Coming in 2019

Gowling WLG | Jeffrey Roode, Partner | Aug 12, 2019

new retail payment regs coming to canada  - News on China cryptocurrency and more reformsIn its budget released in March, the Canadian federal government confirmed that it plans to introduce legislation in 2019 to implement a new retail payments oversight framework.  It is proposed that the Bank of Canada will would oversee this regulatory framework. This is a significant development as it will mean that a number of payments industry participants that are currently unregulated, including many fintech companies, will now be regulated.

Background

While the recent federal budget provided few details about the proposed regulatory framework, we expect that it will be based on a 2017 discussion paper released by the Department of Finance.  The discussion paper noted a number of problems in the way retail payments are regulated, most notably that regulated financial institutions, such as banks, are subject to detailed regulation with respect to their retail payments businesses, while other payment service providers (referred to as PSPs) are not subject to a comprehensive regulatory oversight framework.

See:  JP Morgan is rolling out the first US bank-backed cryptocurrency to transform payments business

The Department of Finance is concerned that this will create risks and confusion for consumers who might expect similar levels of protection, regardless of who their PSP is. The new legislation (which has yet to be developed) will presumably attempt to shift the regulatory framework away from an “institution-based” approach, where an entity is regulated based on the type of institution it is, towards a “functional” approach, where entities are regulated based on the types of activities they engage in — regardless of what kind of institution they are.

According to the discussion paper, the goal of the new oversight framework is “to ensure the retail payments ecosystem evolves in such a way that payment services remain reliable and safe for end-users and the ecosystem is conducive to the development of faster, cheaper and more convenient methods of payment.”

Who will be Regulated?

The discussion paper suggests that PSPs that engage in one or more of the following activities in the context of an electronic fund transfer for an end-user will be subject to the new regulatory framework:

  • Providing and maintaining a payment account for the purpose of making electronic fund transfers
  • Enabling the initiation of a payment on behalf of an end-user
  • Providing services to approve a transaction and/or enabling the transmission of payment messages
  • Enabling an end-user to hold funds in an account with the PSP until the funds are withdrawn or transferred to a third party through an electronic fund transfer
  • Enabling the process of exchanging and reconciling the payments items (referred to as “clearing”) that result in the transfer of funds and/or adjustment of financial positions (referred to as “settlement”)

As a result, the discussion paper envisions that the new regulatory oversight framework would apply to a wide array of transactions, including credit and debit card transactions, online payments, pay deposits, pre-authorized payments and peer to peer money transfers. Certain exceptions would apply, including cash transactions and gift cards or shopping mall cards that allow the consumer to make purchases at only one merchant or a limited group or merchants.

See:  Capital One data breach shows why it shouldn’t be a tech company that does banking

Interestingly, the discussion paper proposes that the new regulatory framework would only apply to transactions in fiat currencies like the Canadian dollar, so bitcoin and other virtual currency transactions would be exempt. However, the government does plan to monitor the use of virtual currencies in retail payments, leaving open the possibility that the regulations could apply to virtual currencies in the future.

The New Regulatory Requirements

The discussion paper proposes the following measures:

  • Safeguarding requirements regarding the holding of end-user funds by PSPs
  • Operational standards for PSPs
  • Requirements for PSPs to disclose key characteristics of their products to end-users
  • Requirements for PSPs to maintain dispute resolution mechanisms
  • Liability rules shielding end-users for losses as result of unauthorized transactions
  • Requirements that PSPs register with the regulator

 

Conclusion

As with any new legislation, the devil will be in the details. However, assuming the new legislation adopts the principles set out in the discussion paper, we would expect that a large number of fintech companies and other previously unregulated PSPs will fall under the new regulatory regime and will, for the first time, need to develop a compliance strategy.

 

Jeffrey Roode - News on China cryptocurrency and more reformsAbout the Author

Jeffrey Roode is a partner at Gowling WLG, an international law firm. Gowling WLG’s dedicated tech group works with clients to navigate complex regulatory and operational challenges, enabling them to take advantage of the innumerable opportunities available in the burgeoning tech sector.

 


NCFA Jan 2018 resize - News on China cryptocurrency and more reforms The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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How Many Colleges Teach Blockchain Technology in the World

Guest Post | Aug 12, 2019

Blockchain tiles - News on China cryptocurrency and more reforms

Image: Pexels

Blockchain is the hype today. The talent is in high demand and the technology takes over many of the headlines in publications and news. Investors keep piling their money into it. Blockchain is known to be the best thing that happens to public services. As a result, we are witnessing an increase in blockchain education. In the past few years, universities slowly began introducing blockchain technology courses and designing special programs that teach you the skill.

However, as we mentioned, this usually goes really slow. By the time the education designs great programs and lists new courses, the technology will have switched and advanced. This is why your choices in terms of blockchain courses and education are still rather limited. However, the number of universities that offer them is growing by the minute.

Blockchain Today

In our list, you’ll find about the most prepared universities that offer a blockchain degree. Finding a university that has this course can be truly beneficial for your career and future, which makes this a serious decision to make. If you enroll onto a program that excludes blockchain from its curriculum, you’ll be left out in the modern job market.

See:  Blockchain Technology and the UN: The Sustainable Development Goals

Statistics are there to prove all this. According to modern estimates, we’ve experienced an increase of 200% in jobs related to blockchain technology and Bitcoin in 2019. Compared to 2015, this number has grown by 600%.

Therefore, if you’re looking to work in the finance and accounting world in the future, you must definitely get blockchain technology education. This will get you ahead of the competition, especially if you choose a great blockchain university to obtain your education in.

Places Where You Can Get Blockchain Technology Education

Before we get into the actual colleges and universities that offer these courses, let’s discuss your options. Students who don’t have access to such education at college have started establishing online clubs like the BEN or Blockchain Education Network. They perform research, use online courses, and even publish materials to show their findings.

Without any further ado, here are the programs you should definitely be looking into:

1.   Cornell University

The Cornell University is the youngest Ivy League university. Its main aim is to provide modern technology education. This makes it different from other Ivies that started off as liberal arts colleges and seminaries. Because of it, Cornell is now considered a leader in computer science and one of the most promising research universities worldwide.

Since this university is mostly focused on innovation and technology, you’ll get the chance to study very useful skills that will take you ahead of the competition. If you like to study blockchain but struggle with some other subjects, there are services that can do your homework for you and relief you from the pressure.

2.   Duke University

The Duke University is known for its successful business, medical and technological research opportunities. It has the most research spending in the world, and in every possible field. They fund research for AIDS, oncology, economics, and modern technology.

Nowadays, students have access to the Duke’s Blockchain Lab. This is a place specialized to get students acquainted with the blockchain technology, as well as provide them with opportunities for research. If you select this institution for your education, you can attend their many lectures, workshops, and interest groups, as well as discover great things about this trendy technology.

3.   MIT

MIT is the private university in Cambridge that is created for one purpose only – research. It’s the best known in the world and central to technological developments. Ever since the beginnings of the digital era, MIT has been on top of everything including AI, hackers, and open-source programming. Right now, it’s one of the best places to study blockchain technology. Their Media Lab’s Digital Currency Initiative is the perfect spot to do research projects, take part in blockchain groups, and write papers.

4.   Princeton University

Princeton is one of the oldest US universities. It’s a member of the Ivy League and one of the most innovative institutions in the world. It has excelled in the field of business, engineering, as well as technology. Right now, they have some amazing courses for Bitcoin, Cryptocurrency, and Blockchain.

See:  Blockchain’s potential will continue to spur public and private investment

5.   Stanford University

Stanford has been founded back in 1885 and ever since, it’s been fully dedicated to modern and updated technology. With its amazing facilities and courses, Stanford is considered to stand on the top of technological innovations. This is why it attracts more college candidates than any other institution in the country.

BTC and currency - News on China cryptocurrency and more reforms

Image: Pexels

6.   University of California at Berkeley

UC Berkeley teaches everything from sustainable energy to computer processing. It is the teaching hub of some of the most successful experts in the technology fields. You may not know this, but the creators of Tesla and Apple both studied here.

Today, there’s a student-led organization at Berkley called Blockchain. It is specifically designed to study blockchain and other modern technologies.

Final Thoughts

Blockchain technology is the moving force in the modern tech world. Because of it, it is something you should definitely study if you want to succeed once you graduate. We hope that these college and university choices get you where you want to be. After all, they are your best chance at a bright, bright future!

Author’s Bio:

Robert Everett is a technology lover. He explores all modern technology, performs continuous research, and publishes his findings on the web for everyone to see. But, most of it all, Everett focuses on helping others find the best way to study technology.

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NCFA Jan 2018 resize - News on China cryptocurrency and more reforms The National Crowdfunding & Fintech Association (NCFA Canada) is a financial

ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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The era of security tokens has begun

Venture Beat | Nabyl Charania and Carlos Naupari | Aug 4, 2019

digital coin - News on China cryptocurrency and more reformsThe excitement that initial coin offerings (ICOs) have created in the past few years has been marred by an onslaught of scams, hacks, and critical mistakes committed by careless investors. As it turns out, one of crypto’s biggest appeals — limited oversight and regulation — has proven to be its greatest vulnerability.

But cryptoassets are already coming of age. With the arrival of the security token offering (STO), the crypto space is beginning to reach an uncharted level of legitimacy in the financial community. We are about to witness perhaps even more disruption in markets and society than we’ve been promised.

What exactly is an STO?

The STO is the safe, secure, and sensible answer to the ICO. The word “security” in the name says a lot: Security tokens have to be backed by a tangible asset, like a company’s profits or shares. On the other hand, ICOs involve “utility coins,” which have the potential to amount to little more than a promise or a souvenir.

STOs also require licensing approved by the SEC and other regulatory bodies. In other words, security coins have the features and protections of traditional assets, such as a share of company stock, while also leveraging the benefits of being a digital asset. And virtually any kind of physical asset — real estate, equity, etc. — can be “tokenized,” or used to back a security coin.

See:  TokenFunder announces Canada’s first Security Token Exempt Market Dealer

Here’s why STOs will matter for crypto investment:

Security tokens accelerate the democratization of venture capital

For decades, the world of private equity was reserved exclusively for venture capital firms and accredited investors — individuals with a net worth of at least a million dollars or with an annual salary of at least $100,000. But when Title III of the JOBS Act went into effect in May 2016, suddenly anyone could invest in private companies. It was a major win for everyday investors, and several equity crowdfunding portals opened up, showcasing many compelling opportunities in private equity.

Then 2017 happened. The advent of cryptocurrencies, blockchain technology, and smart contracts opened up an even more efficient way for entrepreneurs to raise capital without the use of a middleman, as well as the promise of a more equitable and democratized private equity landscape. While its ICO was accessible to the public, not just accredited investors, messenger app Telegram raised $850 million, marking one of the largest fundraising events in the history of tech.

Companies like Securitize, Polymath, and Harbor have become leaders in the movement to tokenize all kinds of traditional assets into security tokens. As a fundraising vehicle, security tokens allow companies to raise capital without having to lean on investment banks and stock exchanges as intermediaries. Spice VC, for example, is a tokenized fund, as is Blockchain Capital.

Given the oversight from the SEC and other regulatory bodies that security tokens are subject to, investors are able to invest in an opportunity without worrying about being scammed. Their only concern is the financial success of the company, as is the case with stock ownership. The financial regulatory framework in the U.S. creates a favorable landscape for STOs to thrive. The already corporation-friendly state of Delaware stands out in particular, as it now allows companies to write shares on a blockchain.

See:  UK Financial Conduct Authority Provides Final Guidance on Cryptoassets: Better Defines Utility Tokens

Above all, security tokens give companies an efficient way to raise capital from a broader investment pool than has ever been possible. This means innovation is accelerated and more people stand to benefit from a company’s success. Of course, easier access to capital creates a more competitive landscape, so companies that are doomed to fail will realize this inevitability sooner.

Traditionally illiquid investments are made liquid

As the old adage goes, it takes money to make money. But the advent of blockchain may do away with that notion. Before, several investment classes — including those with the highest and most bankable returns — had a prohibitively high barrier to entry.

Thanks to the technological breakthroughs of security tokens, this is no longer the case. Distributed ledgers enable the tokenization of otherwise illiquid assets, such as real estate and fine art. Security tokens allow fractional ownership, and the issuer determines how fractional that ownership is. This means virtually anyone who wants to own real estate in a place like Manhattan, for example, is able to. Even the most expensive piece of real estate, once it’s tokenized into a security token, can be divided into portions that anyone can afford. The same goes for fine art and other asset classes previously reserved for the super wealthy.

One might think this is comparable this to owning shares of a real estate investment trust (REIT), but becoming an owner of tokenized real estate offers far more flexibility, as you have more autonomy over the properties you own.

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But everyday investors are not the only ones who win in this case. If you’re the owner of a multimillion dollar piece of property or a rare Cézanne and you want to turn it into cash, it can be difficult to find an individual with both the net worth and the interest to take it off your hands. By tokenizing whatever expensive piece of property it may be, the ownership can be divested to dozens or even hundreds of investors who may want to lay claim to it. That way, a valuable and expensive piece of property is no longer destined to sit around and collect dust.

The first known prominent example of this is the iconic Andy Warhol painting “14 Small Electric Chair” (1980), which was tokenized and offered for fractional ownership by the decentralized art gallery Maecenas. It certainly won’t be the last.

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NCFA Jan 2018 resize - News on China cryptocurrency and more reforms The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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UK Financial Conduct Authority Provides Final Guidance on Cryptoassets: Better Defines Utility Tokens

Crowdfund Insider | | July 31, 2019

UK final crypto guidance - News on China cryptocurrency and more reformsThe UK Financial Conduct Authority (FCA) has published its much anticipated final guidance on cryptoassets following a feedback period on prior commentary. The FCA has now established which sector of crypto is regulated by the authority and which digital assets fall outside their remit. The FCA said the majority of respondents had supported their previous proposals on a regulatory approach. Additionally, the agency noted that few changes had been made since the prior document with the exception of “reframing” the taxonomy of cryptoassets to provide greater clarity for firms operating in the sector.

The FCA said that 92 different firms and individuals provided feedback ranging from big banks, to crypto exchanges, issuers, and individuals.

See:  FCA reveals findings from first cryptoassets consumer research

The FCA provided an important caveat stating the Guidance should act as a first step for market participants to understand whether authorization is required and should be read in conjunction with PERG [Perimeter Guidance Manual]. Where market participants are unsure and require regulatory feedback, Innovate support functions such as the Sandbox or Direct Support can provide this help for requests that meet the eligibility criteria for support. Market participants should also consider obtaining appropriate external advice.

E-Money and security tokens fall under FCA regulation but everything else, depending on the specific characteristics of the cryptoasset, do not fall under the watchful eye of the UK regulator Click to Tweet

The Guidance follows a report published last fall from a crypto task force which included HM Treasury, the FCA and the Bank of England.

In an accompanying release, FCA Executive Director of Strategy and Competition Christopher Woolard stated:

“This is a small, complex and evolving market covering a broad range of activities. Today’s guidance will help clarify which cryptoasset activities fall inside our regulatory perimeter.”

The FCA advised consumers to remain cautious on the emerging sector of Fintech due to intrinsic risk noting that unregulated cryptoassets fall outside the Financial Compensation Scheme and there is no recourse to the Financial Ombudsman Service.

See:  FCA confirms new rules for P2P platforms

Digital assets, as defined by the FCA, fall within four separate categories.

  • Specified investments under the Regulated Activities Order (securities)
  • e-money under the E-Money Regulations
  • captured under the Payment Services Regulations
  • outside of regulation

Regarding specific token types, the FCA updated the previous delineations as outlined below:

  • Security tokens: this category does not change materially from the Guidance that we consulted on and refers to those tokens that provide rights and obligations akin to specified investments as set out in the RAO, excluding e-money. We have now specifically removed e-money from the definition of a security token, to create a separate category. These remain within the regulatory perimeter.
  • E-money tokens: this category refers to any token that reaches the definition of e-money. These tokens are subject to the EMRs and firms must ensure they have the correct permissions and follow the relevant rules and regulations. This category formerly sat within the utility tokens category. These tokens fall within regulation.
  • Unregulated tokens: this category refers to any token that does not meet the definition of e-money, or provide the same rights as other specified investments under the RAO. This includes tokens referred to as utility tokens, and exchange tokens.
    • These tokens can, for example, be issued centrally or be decentralised, give access to a current or prospective good or service in one or multiple networks and ecosystems, or be used as a means of exchange. They can be fully transferable or have restricted transferability. These tokens fall outside the regulatory perimeter.

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Bitcoin Unregulated?

While “exchange tokens” were deemed not to be regulated by the FCA, the report noted that “5AMLD” will bring in an anti money laundering (AML) regime for cryptoassets including exchange tokens. 5AMLD is the Fifth Anti-Money Laundering Directive by the European Union that is an enhancement of existing rules (4AMLD). 5AMLD has provisions for virtual currencies and EU member states must implement provides by January 2020. While exchange tokens like Bitcoin may not be directly regulated, firms using these tokens on either side would be subject to Payment Service Regulations (PSRs).

Regarding stablecoins, some of which are backed by fiat currency such as US dollars or British Pounds, the FCA had this to say:

“…not every ‘stablecoin’ will meet the definition of e-money, or a security token.”

E-money tokens are tokens that meet the definition of electronic money in the EMRs. That is:

  • electronically stored monetary value that represents a claim on the issuer
  • issued on receipt of funds for the purpose of making payment transactions
  • accepted by a person other than the issuer
  • not excluded by regulation 3 of the EMRs [E-Money Regulations]

Exchange tokens as they fall outside the FCA regulatory perimeter. This means that the transferring, buying and selling of these tokens, including the commercial operation of cryptoasset exchanges for exchange tokens, are activities not currently regulated by the FCA. If you are a crypto exchange that deals in Bitcoin, Ether, etc. you are not carrying out a regulated activity.

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A Security is a Security But it Still Depends…

To quote the FCA:

“For our taxonomy, we specifically refer to security tokens as only those that reach the definition of specified investments under the RAO. The category has been slightly amended to specifically exclude e-money from this definition.”

FCA: “any token that is not a security token, or an e-money token is an unregulated token.”

The RAO references the Regulated Activities Order as defined by the Financial Services and Market Act legislation. The FCA Guidance is the first step but “definitive judgments can only be made on a case-by-case basis.” This is indicative of ongoing ambiguity within the crypto sector.

Utility Token Clarity

Utility Tokens are unregulated tokens that do not provide rights or obligations akin to specified investments (like shares, debt securities and e-money). While Utility Tokens remain unregulated this may change but only by an act of legislation, according to the FCA. HM Treasury is said to be reviewing this issue.

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NCFA Jan 2018 resize - News on China cryptocurrency and more reforms The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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