Consultation Paper published by UK Jurisdiction Taskforce to clarify the legal status of cryptoassets and smart contracts

The UK Jurisdiction Taskforce (UKJT) recently published a consultation paper requesting submissions from stakeholders working with, or interested in, cryptoassets, distributed ledger technology (DLT) and smart contracts. Submissions will inform a legal statement by UKJT which will aim to settle questions on the legal status of cryptoassets and smart contracts. UKJT is drawn from industry, government and the judiciary and was formed to facilitate the growth of the UK legal sector.

Read the full report on our sister site, the Technology Law Dispatch.

R. Raphael & Sons plc fined over £1.8 million by FCA and PRA for their card services programme

R. Raphael & Sons plc (Raphaels) has received fines totalling £1,887,252 from the FCA and PRA for repeated failings in relation to inadequate systems and controls supporting the oversight and governance of its outsourcing arrangements.

Raphaels outsourced certain functions that supported payment services for its prepaid and charge card programmes in the UK and Europe to a service provider. These functions included the authorisation and processing of transactions made by users on these cards and management of the card programme (Card Services). From 2016, Raphaels had 5.3 million prepaid cards in issue in the UK and other European countries with average monthly transaction volumes of over £450 million.

Read the full report on our sister site, the Technology Law Dispatch.

SEC Releases Commentary Applying Howey Test to Digital Assets

On April 3, 2019, the U.S. Securities and Exchange Commission (SEC) took a first step toward providing greater clarity on the key question of how to evaluate whether transactions involving issuance or sales of digital tokens are sales of securities subject to U.S. securities laws and regulations.

To read the full client alert, please visit reedsmith.com.

European Banking Authority revised Guidelines on Outsourcing – Quickfire Briefing

  1. Background – the European Banking Authority (EBA) issued at the end of Feb 2019 its revised Guidelines on Outsourcing arrangements (Guidelines). These are the first wholesale update since 2006 when the guidelines applied exclusively to credit institutions.  They now apply to a broader range of in-scope financial institutions (FIs).
  1. Timings – the Guidelines will apply to outsourcing arrangements entered into, reviewed or amended after 30 Sept 2019. Existing arrangements must be updated in line with the Guidelines by 31 Dec 2021, although there may be some flexibility around that.

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CFTC Technology Advisory Committee Discusses Automated Trading, Cryptocurrency, Cybersecurity, and Blockchain Technology

The Commodity Futures Trading Commission (“CFTC”) held a public meeting of the Technology Advisory Committee (“TAC”) on March 27, 2019.  The TAC is sponsored by CFTC Commissioner Brian Quintenz and Daniel Gorfine, Director of LabCFTC, is the Designated Federal Officer.  The TAC, comprised of industry business, technology, and legal minds, meets periodically to discuss pressing technology-related issues affecting the commodity and derivative markets and regulation.

This meeting of the TAC consisted of four panels focusing on the following core areas: Automated Trading, Cryptocurrency, Cybersecurity, and Blockchain Technology.

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Ringgold II: Court Reverses Course on Preliminary Injunction of Digital Token

As detailed in a prior post on this blog, the United States District Court for the Southern District of California previously denied the U.S. Securities and Exchange Commission’s (SEC) request for a preliminary injunction against Blockvest, LLC and its founder and chairman Reginald Buddy Ringgold, III (Ringgold).  Recently, upon reconsideration, the court changed course, finding that the SEC presented enough facts for the court to preliminarily enjoin Blockvest and Ringgold from further violating Section 17(a) of the Securities Act.[1]

In its prior order, the court held that the SEC failed to establish the two elements needed to preliminarily enjoin Blockvest from committing future statutory violations: (1) a prima facie case of previous securities law violations; and (2) a reasonable likelihood that the wrong would be repeated.  On reconsideration, the SEC successfully challenged the court’s holding on both of these elements, and persuaded the court to issue a preliminary injunction.

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Lessons Learned – The Importance of Governance and Regulatory Oversight in Storing Crypto Assets

Quadriga “Loses” Keys to Stored Digital Assets

Quadriga, Canada’s largest cryptocurrency exchange, is unable to gain access to about $145 million (USD) of bitcoin and other digital assets following the sudden death of Gerald Cotten, its co-founder and CEO, in December 2018.  According to Quadriga, Cotten stored those digital assets in a “cold wallet” on his encrypted laptop and repeated attempts by his widow to gain access to the laptop have proved unsuccessful.  Additionally, details of how to access the encrypted laptop appear to not have been recorded or are nowhere to be found.

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The sandbox goes global – Launch of the Global Financial Innovation Network

The UK’s Financial Conduct Authority (FCA) has announced the launch of the Global Financial Innovation Network (GFIN), an association of 29 regulatory bodies (Members) which will cooperate to promote innovation and share experiences and approaches to supervising new technologies in the financial services sector.

The proposal to launch the GFIN was set out in a consultation paper in August 2018, and has received strong industry support. A key GFIN initiative is a pilot scheme allowing firms to test innovative products, services or business models across more than one jurisdiction – referred to by the FCA as a “global sandbox”.

We summarise below some of the key elements of the GFIN and the practical opportunities for firms under this initiative.

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The Shipping Industry Receives a Boost from Blockchain

After several successful trials over the last year, Israel’s largest cargo shipping company, Zim, has implemented a blockchain platform for electronic bills of lading.  According to Zim, this technology could replace paper bills of lading and further improve other activities which rely on physical means of transfer.

Zim recently conducted several transactions in which bills of lading were transferred to the receiver less than two hours from the vessel’s departure, a process that typically takes days or can take weeks.  Following these successful trials and initial transactions, Zim will soon be entering the next phase, providing an opportunity for all of its customers to take advantage of electronic bills of lading utilizing blockchain technology.

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UK Treasury Committee to appoint special advisor to oversee financial services technology shortcomings

At the end of 2018 the UK Treasury Committee announced that it would launch an inquiry into information technology (IT) failures in the financial services sector. The Treasury Committee has stated that it will appoint a specialist advisor to help provide analysis and aid the inquiry.

The past 18 months have seen numerous IT failures in the financial services sector. Equifax, Barclays and TSB have all suffered incidents, to name a few. TSB is arguably the highest profile case, when 1.9 million customers were logged out of their online banking accounts for up to a month and with some customers also claiming to have been able to view other customers’ bank details. This occurred after the bank attempted to migrate customer information from its former owner to current owner Banco Sabadell.

Read the full report on our sister site the Technology Law Dispatch.

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