Edition No. 40
SEC's new approach to custodies; South Dakota's proposed UCC amendment; CSA's requirement on crypto; and more. Here's what happened from 2/26 - 3/4.
Welcome back to Around the Blockchain, the weekly letter dedicated to keeping readers like you up to date on the fast-paced world of Crypto & Law by airdropping current stories directly to your browser.
Table of Contents:
1. On the Docket (Top Stories of the Week)
2. Bird Watching (Tweet, tweet!)
3. The Public Ledger
4. Podcasts, Videos, & Blogs (The faces, voices, and pens of Web3’s brightest contributors)
5. Closing Statements
On the Docket
Five things you might have missed last week:
1. SEC’s ‘Hammer’ Approach to Custody Revamp Worries Money Managers
To a Hammer, Everything is a Nail
The Securities and Exchange Commission (SEC) has proposed expanding its "Custody Rule," which currently requires investment advisors who custody client funds and securities to place such holdings with entities designated “qualified custodians.”
The Commission’s proposal seeks to include all types of assets held in advisory accounts–art, property, digital currencies, and more.
The proposal is partly seeking to further regulate cryptocurrencies, but has raised broader concerns from investment adviser groups worried the change will have a disproportionate impact on small money managers.
The new requirements would include securing a written agreement from the custodian and making certain assurances, such as segregation of client assets and indemnifying clients against certain losses.
Small businesses make up the largest segment of advisers registered with the SEC and may lack the necessary resources to comply with the expanded Custody Rule.
See Also: SEC Proposed Rule Text; JD Supra
2. Proposed South Dakota UCC Amendment Would Prohibit Cryptocurrencies, But Not CBDC
Who’s Down With UCC? (Every Last CBDC)
A Republican state legislator in South Dakota has proposed a bill amending the Uniform Commercial Code (UCC) to exclude cryptocurrencies from the definition of money, preventing their use as a medium of exchange.
In contrast, however, central bank digital currencies (CBDCs) would still be considered money under the proposal–the bill defines "money" as a medium of exchange that is currently authorized or adopted by a domestic or foreign government and an intergovernmental organization or by agreement between two or more countries. It does not include an electronic record that is a medium of exchange recorded and transferable in a system that existed before the medium of exchange was authorized or adopted by the government.
The United States does not yet have a CBDC, although a "digital dollar" is under research within the US government and other groups such as the Digital Dollar Project.
The measure has drawn sharp rebuke from leadership in the state’s conservative Freedom Caucus, and legal experts have questioned how the potential law would be applied in court.
3. UKJT Concludes Digital Securities Can Be Easily Accommodated Within Existing English Law
Securing Accommodations
The UK Jurisdictional Taskforce (UKJT) issued a legal statement on whether the issuance and transfer of securities on distributed ledger technology (DLT) systems can be achieved within the confines of the existing English law. The statement concludes that digital securities can easily be accommodated within existing English law, without the need for statutory intervention for the most common use cases of digital securities. The UKJT's first legal statement was cited with approval by the English courts, and it is likely that the new statement will be positively received by various stakeholders seeking certainty in the legal position concerning digital securities. The statement focuses on three types of securities - digital debt and related contractual securities, digital proprietary securities, and digital equity securities. It distinguishes between digital bonds involving permissioned, centrally managed DLT-based systems and digital bonds capable of circulation on a public blockchain without intermediation, with the latter creating legal issues that can be dealt with by reference to pre-existing tools in the English legal system. The statement notes that tokenized digital bond structures where the holder of the security is intended to obtain property rights in the token itself pose issues requiring closer consideration. The digital transfer and issuance of equity securities pose greater difficultiesThe UKJT identified three issues involving the transfer and issuance of equity securities, the statutory requirements imposed in relation to registration, certification, and transfer of shares. The statement does not comment on how the law should develop but presents the current legal position in relation to digital securities.
See Also: JD Supra
4. SEC Objections To Voyager-Binance Ready to Publish Deal Criticized By U.S. Judge
Objectionable Objections
A US bankruptcy judge has criticized the Securities and Exchange Commission (SEC) for its objections to crypto lender Voyager Digital's proposed sale to Binance.US, stating the regulator had asked to "stop everybody in their tracks" without enumerating objections specific enough to address.
At a hearing in New York, US Bankruptcy Judge Michael Wiles said despite the SEC’s claim the Voyager deal could violate US securities law, Commission attorneys lacked definitive answers as to why and how.
Voyager filed for bankruptcy in July of 2022 amidst fallout from the earlier collapse of the once-vaunted TerraUSD and Luna cryptocurrencies. If approved, the deal with Binance.US will allow Voyager customers the first chance to access their funds since withdrawals were frozen last summer.
5. CSA Imposes More Requirements on Unregistered Crypto Trading Platforms
Canadian Crypto Winter Grows Colder for Some CTPs
The Canadian Securities Administrators (CSA) has given notice that it is enhancing the requirements that regulators impose on unregistered crypto asset trading platforms (CTPs) in their preregistration undertakings. The new CSA guidance sets a 30-day deadline (expiring March 24, 2023) by which unregistered CTPs are expected to provide a revised undertaking. The guidance also expands on the CSA’s previously announced position that stablecoins may constitute securities and/or derivatives under Canadian securities legislation. One of CSA’s goals in requiring the undertakings is to enhance investor protection. Another goal is to level the playing field between CTPs that continue to operate in Canada without complying with applicable securities laws and CTPs that are registered, and who are subject to a significant compliance burden.
The Public Ledger
Highlights from the hundreds of sources gathered each week by our research AI. Always DYOR - but in case you don’t have time, here’s some of ours:
General News and Opinion
U.S. - Federal
Congressional Republicans aren’t happy with an SEC effort to rein in crypto platforms
SEC Chief Gensler Warns Money Managers on AI and Crypto Custody
Ripple Lawyer Argues SEC Chair Gensler Has Prejudged Crypto Asset Cases
U.S. - State Law
International
Podcasts, Videos, and Blogs
The brightest voices & sharpest pens:
Law of Code - Jacob Robinson sits down with Justin Daniels, a cybersecurity SME and M&A attorney at Baker Donelson. The pair discuss cybersecurity and crypto before diving into the Axie Infinity hack.
Bankless - The Bankless team discuss all the crypto news that took place in the first week of March including unregistered securities, Silvergate’s struggles, and Crypto vs Gary!
Bloomberg Crypto - Bloomberg’s Hannah Miller joins this episode on AI tokens and the role AI can play in the crypto ecosystem.
Unchained - “The Chopping Block!” team is joined by Kyle Samani for a deep-dive into FTX, Coinbase launching its L2 Base and the future of Paxos!
DaoTalk - DAO Talk looks at sudoDAO’s latest on-chain proposals and Coinbase announcing its L2 “base”.
Bird Watching
Tweet, Tweet, Tweet!
Closing Statements
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Quote of the Week:
No man is above the law, and no man is below it.
Theodore Roosevelt
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The articles and opinions in this newsletter are not legal or financial advice. For legal and financial guidance, please consult a qualified attorney or financial advisor.
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