On December 10, 2019, the Swiss Financial Market Supervisory Authority (FINMA) published its inaugural report on market risk in the Swiss economy. The report provides an overview of what FINMA believes are the most important risks currently facing Swiss supervised institutions and describes the resulting focus of its supervisory activity.
At a mutual fund industry conference held on December 3, 2019, Dalia Blass, director of the Securities and Exchange Commission’s Division of Investment Management, previewed a new structure for registered mutual funds seeking to invest substantially in digital assets and related investments.
In particular, Director Blass indicated that an unnamed registered closed-end interval fund with a bitcoin futures strategy is preparing to launch. As a result of recent industry feedback and engagement, and in response to issues the SEC staff previously identified:
- The fund expects to generally value its bitcoin futures holdings at daily settlement prices reflected on a CFTC-registered futures exchange, consistent with the principles of the Investment Company Act of 1940 and US GAAP.
- With respect to custody, the fund will invest in cash-settled futures and will therefore not face the challenges presented by direct holdings of digital assets.
- Structured as a closed-end interval fund, the fund will not offer daily redemptions and will not be subject to potentially large, unexpected liquidity demands over short periods. And as an unlisted fund, its pricing will not depend on an efficient arbitrage mechanism and the willingness of market makers to make markets in a fund pursuing a digital asset strategy.
According to Director Blass, the fund also has taken steps to address issues related to potential manipulation in the digital asset markets. These steps include disclosing prominent risks, offering the product only through registered investment advisers, and limiting the size and future growth of the fund, with an initial cap of $25 million.
The full text of Director Blass’s speech is available here.
In a television interview on November 19, 2019, CFTC Chairman Heath Tarbert discussed digital assets and the importance of U.S. leadership in this space. Notably, he stated:
“I want the United States to lead, particularly in the blockchain technology that underlies digital assets… [U]ltimately I could see it overtaking the internet or being effectively parallel to the internet in using a variety of different kinds of transactions, not just the financial system, but in other types of transactions as well… I think whoever ends up leading in this technology will end up writing the rules of the road for the rest of the world. My emphasis is on making sure that the United States is a leader.”
The entire interview is available here.
The Federal Reserve Board’s most recent semi-annual Financial Stability Report, issued November 15, 2019, includes a lengthy discussion of potential systemic risks posed by stablecoins. In the report, the Fed observed that innovations fostering faster, cheaper and more inclusive payments could complement existing payment systems and improve consumer welfare if appropriately designed and regulated. But the Fed also warned that the emergence of global stablecoin payment networks introduces important challenges and risks related to financial stability, monetary policy, money laundering and terrorist financing, and consumer and investor protection.
The United Kingdom tax authority, HM Revenue & Customs (HMRC), has issued revised guidance regarding the tax treatment of cryptocurrency.
Separate guidance has been published for individuals on the one hand, and businesses on the other.
The revised guidance represents more of an elaboration of the basic principles set out in prior guidance than any significant change in HMRC’s approach to the taxation of the receipt and disposal of cryptoassets.
On October 28, 2019, staff in the SEC’s Division of Trading and Markets provided a no-action letter to Paxos Trust Company, LLC permitting it to pilot a blockchain-based clearance and settlement platform for a limited number of U.S.-listed equity securities for 24 months. The staff’s action enables the further development and commercialization of a blockchain platform for clearing and settling U.S. securities trades.
In the wake of the recent controversy surrounding the proposed Libra cryptocurrency, two members of Congress have begun circulating draft bills that would tighten federal regulation of certain stablecoins.
A recent speech by Fed Governor Lael Brainard entitled “Digital Currencies, Stablecoins, and the Evolving Payments Landscape” discusses a number of topics of interest to the crypto community, including the development of stablecoins and their potential impact on the global payments system. In particular, Governor Brainard opined that the widespread adoption of stablecoins could have implications for the role of central banks and monetary policy.
On October 3, 3019, the Liechtenstein Parliament unanimously approved the Token and TT Service Provider Act (the Act). The Act, sometimes referred to as “TVTG” based on its German acronym, provides a comprehensive framework regulating the issuance, storage and conveyance of blockchain tokens in Liechtenstein. According to Liechtenstein’s embassy in Washington, Parliament’s approval began a 30-day public comment period that runs through November 8, 2019. If there is no adverse public comment by the citizens of Liechtenstein, the embassy anticipates that the Act will take effect soon thereafter.
Today the CFTC, SEC and FinCEN issued a joint statement on digital assets. In particular, the joint statement reminds persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA). The entire joint statement is available here.