Canadian Securities Regulators Announce Platform to Identify Market Abuse
The Canadian Securities Administrators (“CSA”) announced it has selected a market analytics platform designed to identify, assess, and assist potential market abuse cases. Kx, a division of First Derivatives plc, was platform chosen as a result of a public bidding process. Kx is a division of First Derivatives plc, a global technology provider with 20 years of experience working with some of the world’s largest finance, technology, retail, pharma, manufacturing and energy institutions.
Although the project will take place in several stages, the agreement is effective immediately. Louis Morrisset, CSA Chair and President and CEO of the Autorité des marchés financiers, expects the insights collected from the platform to “strengthen the [CSA’s] data examination capabilities” and enable it to “identify any irregularities that may require further investigation”.
Crypto, Currencies, … Coronation Street?
Popular UK sitcom Coronation Street recently had an unlikely guest – cryptocurrency. The episode featured a storyline in which character Ryan remembers investing £50 in cryptocurrency “Whipcoin”, only to realize he has forgotten his password.
New York Federal Judge Rules Securities Law Covers Virtual Currencies
New York Federal Judge Raymond Dearie has ruled that United States securities law can be used to prosecute cases of virtual currencies fraud. In September 2017, Maksim Zaslavskiy was charged by the United States Securities and Exchange Commission for selling unregistered securities for coins and tokens which do not exist. The charges were in direct relation to two different cryptocurrencies: “REcoin”, which Zalasvskiy claimed was backed by real estate, and “Diamond”, which he claimed was backed by diamonds. Zaslavskiy and REcoin had allegedly misrepresented having raised between $2 million and $4 million from investors, when the actual amount was closer to $300,000.
In March of 2018, Zaslavskiy’s legal counsel was unsuccessful in attempts to classify the cryptocurrencies as currencies, rather than securities, and therefore not subject to the Securities Exchange Act. Federal Judge Dearie dismissed the argument, and suggested that securities law should be interpreted “flexibly”. Furthermore, Dearie stated that the US securities and exchange commission already considers, and continues to consider, some cryptocurrencies to be securities.
Given the infancy of current virtual currency regulation, it remains unclear on whether other courts will adopt this approach.
Wall Street Places Crosshairs on Virtual Currency Firms
Three separate actions were announced by the Financial Industry Regulatory Authority (“FINRA”) and the US Securities and Exchange Commission (“SEC”) against several Crypto firms.
The SEC announced that Tokenlot, which is headed by Lenny Jugel and Eli Lewitt, agreed to settle charges against them for $471,000 in disgorgement plus interest. The charges state that the parties were acting as an unregistered broker-dealer for the sale of digital tokens.
The SEC also announced that hedge fund Crypto Asset Management LP has agreed to settle and pay a penalty of $200,000 after they were caught offering a fund they falsely claimed was regulated by the SEC.
Finally, FINRA has accused the president of Rocky Mountain Ayre (RMTN.PK), Timothy Ayre, of committing securities fraud after he sold and marketed the virtual currency, Hempcoin, which Ayre claimed was backed by shares of Rocky Mountain Ayre. Between 2016 and 2017 over 81 million Hempcoins were mined, which were subsequently traded on crypto exchanges. However, Hempcoin was not registered as a security during this time. Based on this conduct, Ayre could potentially face fines or a suspension from the securities industry.
First Canadian Bitcoin Mutual Fund Launched
Blockchain and cryptocurrency investment company First Block Capital Inc. has announced that its bitcoin trust, the FBC Bitcoin Trust, has achieved mutual fund status, enabling unit holders to put units in self-directed registered accounts, such as RRSPs and TFSAs.
The BTC trust enables qualified accredited investors the capacity to gain exposure to BTC without the need to manage, purchase, or store the cryptocurrency. The fund is currently available to accredited investors on NEO Connect, under the ticket FBCBT.
Canada Delays Virtual Currency Regulations
The Canadian government has opted to delay the release of its final regulations for cryptocurrency and blockchain companies. The regulations (under Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act) were due for publication in the Gazette in the fall of 2018, but have been pushed back until late 2019 or into 2020.
Some groups spoke positively about the delay. The Blockchain Association of Canada (BAC) suggested the decision to delay was appropriate, given the distinct and often complex world of virtual currency:
“The decision to delay the proposed regulations bodes well for the Canadian blockchain and cryptocurrency space. The government is committed to an innovation agenda and sometimes … it may be best to observe and intervene as little as possible” said BAC Executive Director Kyle Kemper.
The government published a draft of the virtual currency regulation in June of 2018, which placed certain rules and guidelines on the industry as a whole. The regulations received extensive feedback from blockchain organizations across Canada.
Toronto-based Blockchain Research Institute (BRI) called for a “middle ground” when it comes to regulations while admitting that the placing guidelines down would aid the development of the industry. BRI gathered input from 70 other participants who agreed that excessive regulation could inadvertently halt innovation within the industry.
Ontario Securities Commission Announces Participation in Global Innovation Initiative
The Ontario Securities Commission has announced its participation in the Global Finance Innovation Network (“GFIN”), a collaboration of over 11 financial regulators from across the globe to assist firms in navigating the complex regulatory schemes found when operating across multiple jurisdictions.
The collaboration aims to enhance information-sharing between financial service regulators and will build on the OSC’s current connections built through LaunchPad, the first team dedicated to providing direct support to fintech businesses by helping them navigate regulatory requirements. Pat Chaukos, Deputy Director of OSC’s LaunchPad, says the collaboration “…furthers our commitment to enhancing the regulatory experience for emerging businesses that offer novel products and services to investors.”