Crypto Bytes February 2020 | Fieldfisher
Skip to main content

Crypto Bytes February 2020

Fees (Cryptoasset Business) Instrument 2020

The FCA has issued a Handbook notice that includes details on the recently introduced rules for cryptoasset businesses in the UK.  Since 10 January 2020, the FCA has been the anti-money laundering and counter terrorist financing (AML/CTF) supervisor of UK cryptoasset businesses under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
In October 2019, the FCA consulted on the proposed fee structure to be introduced to recover the costs of setting up and undertaking the new regime. The FCA proposed a flat-rate application charge for registration of £5,000 to recover estimated gateway costs of £400,000 from approximately 80 potential applicants known to the FCA. In response to the feedback received, the FCA amended its proposals and set the following application charges:

  • £2,000 – businesses with income from UK cryptoasset activity up to £250,000; and
  • £10,000 – businesses with income from UK cryptoasset activity above £250,000.

(Source: FCA)
As well as coming under what might be termed "mainstream" legislation by inclusion into the Fifth Anti-Money Laundering Regulation, the introduction of fees by the FCA together with the suggestion of setting up a new regime is another step towards bringing crypto assets into regulation. The word 'new' is telling here. It may be a step on a path to sensible regulation, and an investment into another area of financial services in which the UK is dominant and respected.

JPMorgan Chase’s blockchain payments platform set to expand to Japan

JPMorgan Chase (JPM) is set to launch its Interbank Information Network (IIN) in the Japan, according to a report by JPM to Bloomberg. Built on Quorum, a permissioned blockchain based on ethereum and developed by JJPM, IIN is designed to enable member banks to exchange information in real time, allowing them to verify a payment has been approved. JPM states that this will lead to faster processing times and reduce the risk of money laundering, which is why over 80 Japanese banks have expressed an interest in joining IIN.
According to Coindesk, Japan has been under pressure to improve its anti-money laundering practices since the Financial Action Task Force found "numerous and serious deficiencies" in 2014. The article stated that according to JPMorgan's website as of November 2019, around 365 banks had signed up for the initiative including OCBC Singapore and  Deutsche Bank.

Speed of settlement has been an on-going problem for various crypto assets.  With a faster information exchange, users could see the first signs of a long-standing problem diminishing.

Singapore clears securities token platform iSTOX for full trading

iSTOX has graduated from the Singapore central bank’s fintech regulatory sandbox will be one of the first securities token platforms licensed as a capital markets services provider, said the platform's operator ICHX Tech.

The platform will provide institutional investors with issuance, custody and trading services for digitized securities. One of the firm’s goals is to open certain parts of the financial market to more investors, such as private market opportunities in series B startups, corporate debt and hedge funds eliminating intermediaries and time-consuming settlement time. According to ICHX Tech, the Security Token Offerings available on its platform will offer issuers more options for capital fundraising and investment besides the existing mechanism.

Since ICHX entered MAS’s regulatory sandbox in May 2019, the startup has secured a spate of investments from significant backers in Asia. Its early investors include Singapore Exchange (SGX) and Heliconia, a subsidiary of Singapore’s state-owned conglomerate Temasek Holdings.  It is understood to have completed its first issuance, custody and trading of a distributed ledger technology-based security on a single integrated platform in November 2019.
While the FCA was a lead mover in the use of a sandbox by a regulator, it is encouraging to see another respected regulator moving in the same direction and standing behind a sandbox participant. It is a move that could be seen as a continued eagerness to grow the crypto industry in Singapore in a measured and safe fashion.

Greater regulations and enforcement – deterrent to crypto crimes?

Blockchain forensics provider Chainalysis in its recent 2020 "State of Crypto Crime" report offers an analysis of illegal activities in 2019 in contrast with previous years. Chainalysis found that while the amount of bitcoin sent from criminal entities doubled between 2018 and the end of 2019, it still accounts for just 0.08 percent of the total number of bitcoin transactions last year. It stated that scams were the largest (in monetary terms) category of crypto crime in 2019. The report stated that cryptocurrency scams represent a significant danger to consumer protection, and the growth of this activity – scams, in 2019 calls for increased action from regulators, law enforcement and exchanges.
Chainalysis commented that consumer protection implications make cryptocurrency scams an issue that regulators must address and law enforcement must have the resources to investigate. It continued that exchanges are also in a unique position to help, both in terms of protecting users from being scammed and preventing successful scammers from depositing funds or cashing out. In addition, Chainalysis is of the view that regulators must become more familiar with analyzing blockchains.

While the regulatory regime and its applicaption to some crypto assets remains elusive in its clarity, all those in the area should be aware of the underlying body of law, which is applicable in all transactions.  At the same time regulators need to be aware of the speed at which scammers in crypto can set up, steal and then run.

Plans for Bermudan comprehensive crypto ecosystem

It has been reported that Denis Pitcher, chief fintech advisor to the Premier of Bermuda, and Michael Casey of CoinDesk whilst attending the World Economic Forum in Davos, discussed intentions to create a system in Bermuda that will allow Bermudans to spend digital currencies on government services. They suggested that it could provide an opportunity for workers to begin to accept digital dollars.  Mr Pitcher commented that taxi drivers, tourism operators and commercial businesses could make use of the crypto currency global financial ecosystem.  With a digital currency plan, Mr Pitcher believes that Bermuda will become more than just a financial product supplier and will, eventually, turn into a financial powerhouse of its own.

Bermuda is not the first jurisdiction to consider crypto as a means of creating its own governmental currency.  The next issue to consider is what the value of such a currency is should it become accepted as a means of payment outside the narrow confines of one island.