Alabama Regulator Joins NJBS to Question BlockFi’s Ability to Provide BIA Services

Alabama Regulator Joins NJBS to Question BlockFi’s Ability to Provide BIA Services

Regulatory issues are quickly stacking up against major cryptocurrency company BlockFi. In a release by the Alabama Securities Commission (ASC), the crypto-facing company has a limited time to prove its innocence over the sales of unregulated securities.

BIAs Unregistered Securities

In a growing wave of crypto regulation, Alabama regulatory agency ASC has issued a show-cause order against BlockFi. According to the US regulator, BlockFi has allegedly sold unregulated securities without registering with the agency.

Made public in an agency release, ASC Chief Joseph Borg explained that the order is primarily aimed at clearing the air surrounding BlockFi’s interest-yielding accounts, BlockFi Interest Accounts (BIAs). According to Borg, BlockFi needs to explain why they should not be issued a cease and desist order from selling unregistered securities in Alabama.

According to the ASC, the company raised over $14 billion from selling these crypto-focused interest accounts. However, BlockFi did not register with any regulatory authority and violated the Securities Law by doing this.

“Most of those registered to sell securities live outside of Alabama, but anyone offering securities must be registered before making an investment offer to an Alabama resident,” Borg reiterated the agency’s stance.

BlockFi has been given 28 days to put up a good defense.

In a recent tweet, BlockFi asserted that its BIA products were not securities. Meanwhile, it assured users that it was presently dialoguing with regulators.

BlockFi Reeling From Regulatory Blows

This is the second regulatory clampdown BlockFi is battling with this month. In a July 19 report by Forbes, the New Jersey Bureau of Securities (NJBS) issued a cease and desist order against the crypto lending firm. The government agency also blocked BlockFi from onboarding any new customers to its platform.

Like the Alabama scenario, the NJBS alleged that BlockFi issued unregulated securities to its customers through its savings product. In a document supposedly authored by Attorney General Andrew J. Bruck, the Judge said that any company selling securities within its territories must comply with the States’ securities laws.

It also added that no company could sidestep this requirement even if they operated in the crypto space.

Company CEO Zac Prince confirmed this order and noted that the firm is in talks with regulators in the jurisdictions the company operates in. He also asserted that the BIA is not a security offering of any kind, and the company stands on this premise.

According to Prince, the NJBS initially wanted BlockFi to end its BIA product today, but the crypto firm convinced the regulator to shift it forward.

Crypto lawyer Preston Byrne noted that the regulatory action stems from the agency’s definition of BIA as a product and not a service.

World governments are gradually paying close attention to the booming crypto space. Beginning with China’s crypto mining ban in its Inner Mongolia region, regulatory agencies like the UK’s FCA sanctioned crypto exchange Binance.

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Author: Jimmy Aki

US Financial Regulator Slams $70 Million Fine On Robinhood for Misleading Customers

US Financial Regulator Slams $70 Million Fine On Robinhood for Misleading Customers

The US Financial Industry Regulatory Authority (FINRA) has slammed a $70 million fine on trading platform Robinhood.

According to the statement released, Robinhood was authorized to pay the penalty for misleading customers, systemwide outages, and trading practices.

Most Severe Fine Imposed by FINRA?

The $70m fine is the highest penalty FINRA has imposed on any firm. This emphasizes the seriousness of the matter, as stated by Jessica Hopper, head of FINRA’s department of enforcement. Hopper noted in the release,

“The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers.”

FINRA explained that the online broker caused widespread and significant harm to thousands of users, including millions of customers who received false or misleading information from the firm.

The false information includes allegations that Robinhood misrepresented margin trades, customer’s cash holdings in the app accounts, the risk of loss in options transactions, the extent of the buying power users had, and information regarding margin calls.

FINRA further stated that millions of customers were also affected by Robinhood’s systems outages in March 2020.

According to the self-regulatory body, the $70 million fine would be split. Robinhood had been ordered to pay $57 million in fines; almost $13 million would be paid in restitution to customers.

These customers include those who reported seeing inaccurate negative cash balances in their accounts and those affected by Robinhood’s outages.

Many customers had reportedly lost thousands of dollars in trades during these outages as they were unable to trade equities, options, or cryptocurrency at that time. Robinhood was offline during some of the highest volume trading days with significant volatility.

According to the agency, Robinhood neither admitted nor denied the charges but instead consented to the entry of FINRA’s findings.

Responding to FINRA’s investigations, Robinhood said it had invested heavily in improving its platform stability while also building out its customer support and legal and compliance teams.

This is the second time FINRA would penalize Robinhood for trading violations. In December 2019, the regulatory body fined the online broker $1.25 million for violating best execution rules.

FINRA’s rule of best execution stipulates firms to use reasonable diligence in ascertaining the best market for their clients. Basically, the law states that brokers must put clients’ interests first in all dealings.

Robinhood’s Issues With Regulators Amid IPO Plans

The penalty slammed on Robinhood comes as the firm plans to go public. The online broker still hasn’t confirmed the exact date for its listing, but according to CNBC, the firm has chosen Nasdaq as its preferred exchange.

The popular trading app initially wanted to launch its IPO in June but has now postponed the offering to July, which is still uncertain. This is due to the scrutiny and delayed review from the U.S Securities and Exchange Commission (SEC).

A Bloomberg report says the SEC has been delaying Robinhood’s review in recent weeks as it scrutinizes the broker’s growing cryptocurrency arm.

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Author: Jimmy Aki

Canadian Regulator Takes Action Against Bybit Over Alleged Violations Of Securities Law

Canadian Regulator Takes Action Against Bybit Over Alleged Violations Of Securities Law

The Ontario Securities Commission is pursuing a regulatory action against Bybit Fintech Ltd, a company incorporated in the British Virgin Islands, that operates a cryptocurrency platform in the country.

The regulator accused Bybit of disregarding and flouting the Canadian securities law.

Regulator Files Statement Of Allegations Against Bybit

According to the statement of allegation filed by the regulator, Bybit failed to comply with the registration requirements even though the OSC cautioned unregistered trading platforms in March.

The OSC had issued an April 19 deadline for crypto exchanges to register before offering derivatives products in Ontario, but Bybit failed to do so.

As a result, the regulator has now added Bybit to its investor warning list and has set a hearing date of July 15. The OSC said,

“Entities such as Bybit, which flout this compliance process, expose Ontario investors to unacceptable risks and create an uneven playing field within the crypto asset trading platform sector.”

Potential penalties include payment of not more than $1 million in fines for each failure to comply with Ontario securities law. It may also include penalties stipulating Bybit to cease trading for a given period of time.

OSC’s action against Bybit comes after it took similar enforcement action against another exchange, KuCoin, earlier this month. Last month, the OSC also alleged that crypto exchange Poloniex had not completed its registration process.

The regulator’s reasons have remained the same across all three instances – the exchanges offered securities and derivatives to Ontario residents without complying with the province’s securities laws.

Founded in 2008, Bybit is one of the biggest crypto exchanges with millions in trading volume. Headquartered in Singapore and registered in the British Virgin Islands, Bybit is the third-largest Bitcoin futures exchange by open interest.

Bybit Faces Similar Enforcement Action In Japan, UK

Regulators around the world have become more cautious about cryptocurrency services as exchanges, and trading platforms are now more scrutinized.

Bybit seems to be familiar with these actions. The exchange has not only gotten in trouble in Canada but is also having issues with regulators in Japan.

A few weeks ago, the crypto derivatives platform received a warning from Japan’s Financial Services Agency (FSA) over unregistered operations.

Bybit has also previously received a similar warning in the United Kingdom. Earlier on Feb. 24, the UK Financial Conduct Authority (FCA) issued a notice alerting the public that the exchange has been operating in the UK without authorization.

A week later, Bybit announced on March 5 that it would stop servicing UK residents from March 31.

Despite these recent hurdles, Bybit still ranks in the top five in terms of the largest Bitcoin (BTC) futures exchanges volume of trades.

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Author: Jimmy Aki

Swiss Regulator, FINMA, Denies Bitcoin Suisse Banking License Application

Swiss Regulator, FINMA, Denies Bitcoin Suisse Banking License Application

The financial watchdog of Switzerland Financial Market Supervisory Authority (FINMA) has turned down Bitcoin Suisse’s application for a banking license.

AML Weaknesses Sees Bitcoin Suisse Miss Out On Banking License

According to the Swiss regulator, Bitcoin Suisse AG is not eligible for approval following a string of concerns. FINMA said its prognosis of the situation was unfavorable, following the absence of a number of factors that are relevant under FINMA’s licensing laws.

FINMA says the major reason Bitcoin Suisse’s banking license was denied was the indication of weaknesses in the company’s money laundering defense mechanisms.

The company has decided to withdraw its application for the time being, and FINMA has duly terminated the licensing procedure.

The application would have seen Bitcoin Suisse offer custodial services to its crypto-facing customers in Switzerland. Bitcoin Suisse had applied to FINMA in 2019 for banking and securities dealer licenses.

“These licenses would allow Bitcoin Suisse to further expand its offering with regulated services and products, thereby strengthening its position as a leading provider of crypto financial services,” the press release had stated at the time.

Bitcoin Suisse’s Valuation Shoots Up

Outside of the licensing fiasco, Bitcoin Suisse’s business continues to expand. In a Series A funding round led by Roger Studer of Vontobel fame, a private bank with $ 215 billion in assets under management (AUM), Bitcoin Suisse saw over CHF 45 million ($48.5 million) injected into the company.

This fundraising round saw its market valuation shoot up to CHF 302.5 million ( roughly $327 million) in July 2020.

The company is also reportedly fast-tracking an initial public offering (IPO) process and will be publicly listed in a few years to come.

Bitcoin Suisse recently launched a payments solution that enables crypto owners in Switzerland to pay taxes with digital assets making it the first company in the European nation to do so.

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Author: Jimmy Aki

Indian Securities Regulator to Restrict IPO Promoters from Holding Bitcoin: Report

India’s securities regulator is reported to be working on barring all IPO organizers from holding cryptocurrencies. This is another statement move from the government following its cryptocurrency ban.

The Indian government has shown no subtlety in its approach to banning cryptocurrencies from the country.

Now, it appears to be extending its anti-crypto stance to the traditional financial industry. Initial Public Offerings (IPO) promoters would be the first to feel its wrath.

No Crypto for Fundraisers

Recently, the Economic Times reported that the Securities and Exchange Board of India (SEBI), India’s securities regulator, is planning to force all IPO participants to divest all crypto holdings before proceeding with their listings.

Per the report, crypto selloffs will most likely become a prerequisite for anyone looking to raise funds through an IPO, forming what the latest in New Delhi’s plans to eradicate digital assets is.

The news source reported that the SEBI plans to send notices to merchant banks, underwriters, securities lawyers, and all other stakeholders in India’s IPO space, warning them to stay off digital assets.

A securities lawyer told the news source that this would most likely be a government directive, as they could believe that an IPO promoter holding an illegal asset could pose a risk to investors.

Some investment bankers have also explained that the SBI might move ahead with the restriction even if the Reserve Bank’s ban on digital assets doesn’t pass parliamentary approval – an improbable process on its own.

Mahesh Singhi, an executive at investment banking firm SInghi Advisors, explained that SEBI is looking to avoid a situation where IPO promoters divers their raised funds to crypto investments, which remain highly speculative.

SEBI has yet to release any written notifications to that effect, but many stakeholders seem to believe that this restriction will come into effect soon.

No Time to Waste

The IPO restriction is the latest approach from the Indian government, which has vowed to disrupt the crypto sector in the country. First announced last month, the ban is gaining traction ahead of a presentation at the country’s lower parliament.

Titled the “Cryptocurrency and Regulation of Official Digital Currency Bill,” the proposal is already in consideration at the Rajya Sabha, India’s upper house of parliament. However, the current budget session is expected to run till April 8, with a recess session already ongoing until March 7.

Earlier this month, local news source CNBC-TV18 reported that the government might as well skip the parliamentary process altogether. Per the report, it could look to take the “ordinance route” to ban the use of private digital assets while also allowing the Reserve Bank to create a digital framework for its planned Central Bank Digital Currency (CBDC).

CNBC-TV18 reported that all appropriate parties had already begun drafting the ordinance as they look to pass the crypto ban proposal within a month. Ordinances usually allow the Indian government, through President Ram Nath Kovind, to bypass parliament and take action.

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Author: Jimmy Aki

French Regulator Proposes New Regulations And Pilot Programs For Blockchains & Crypto

French Regulator Proposes New Regulations And Pilot Programs For Blockchains & Crypto

A leading French financial regulator calls for accelerated focus and development of new crypto regulations around emerging technologies (blockchain, crypto, AI, and data) across the EU.

In a speech by Robert Ophèle, Autorité des Marchés Financiers (AMF) Chairman, during the 5th Annual Fintech and Regulation Afore Consulting conference, French regulators need to take a step forward in pilot programs and creating new laws to govern distributed ledger technology (DLT) and blockchain across the EU.

Ophèle further acknowledged the “digital acceleration” in the financial world due to blockchains and DLTs coming up but stated government intervention is needed to guarantee a level playing field. He further designated the European Securities and Markets Authority (ESMA) as the best regulator to take over crypto regulation and supervision due to entry barriers into the new ecosystem.

According to Robert in his speech, ESMA leading the crypto supervision would ensure the regulator is fully competent on crypto while “building all the expertise in one place.”

Additionally, Ophèle also calls for creating rules on digital assets classified as financial instruments and non-financial instruments as well through the Markets in Crypto Assets (MiCA) regulation. However, to promote technological growth in the DLT industry, he suggests creating a pilot regime. The ‘Pilot regime’ allows crypto companies to be “able to try out and test within a proportionate and clear regulatory framework.”

“Work is needed in MICA to ensure that the technological neutrality principle is respected. As already highlighted for security tokens, we need to ensure that all types of DLT can be used, private and public.”

“Nor should we close the door on decentralized business models by prohibiting or overlooking them.”

The regulatory sandbox will offer companies the chance to operate as traditional money financial services (MFS) and broaden the range of issuers able to benefit from listing their securities on DLT-based infrastructures. He also proposed the sandbox to have an ‘open mind’ while accepting companies’ listing to the pilot regime and respecting the “principle of technological neutrality.”

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Author: Lujan Odera

Zurich-based Crypto Broker AG Receives Securities License from FINMA

Crypto Broker AG has obtained a securities house license from Swiss financial regulator, the Swiss Financial Market Supervisory Authority (FINMA) that will allow the company to offer services to institutional investors — “a significant milestone (that) caps a successful previous year,” the broker said in a statement Monday.

The firm is based in Switzerland, which has crypto favorable regulations, while major banks still stayed largely away from offering blockchain-based services.

Moreover, the securities license has been granted to a handful of companies that includes Sygnum and SEBA. Calling this a “pivotal moment,” Jan Brzezek, founder and CEO of the Crypto Finance Group, said, with this license,

“We will be able to offer our professional – and regulated – services to even more financial institutions, enabling them to enter this new asset class.”

Receiving the license means the broker can now hold funds on behalf of its clients as well, a feature which is “highly relevant for institutional clients, as many do not have their own capability.”

AG’s clients traded more than $1 billion in assets last year, with its digital operations growing “exponentially.” The company expects to further expand its business in 2021.

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Author: AnTy

South Africa’s Primary Financial Regulator Proposes New Crypto Regulations In The Country

South Africa’s Primary Financial Regulator Proposes New Crypto Regulations In The Country

  • South Africa’s financial regulator is looking to regulate cryptocurrencies and introduce laws to prosecute fraudsters in the industry following the uncovering of the “largest Ponzi scheme.”

Reports from Bloomberg confirms that South Africa’s primary financial regulator, Financial Sector Conduct Authority (FSCA), is planning to regulate cryptocurrencies such as Bitcoin, Ethereum, and Litecoin. The regulator is making proposals to oversee the cryptocurrency industry, prosecute fraudsters and “put people in jail,” the Head of enforcement at FSCA, Brandon Topham, said.

“At the point, something becomes a Ponzi scheme, we have lost our jurisdiction,” he said. “We need the police and the prosecuting authority to work fast and put people in jail.”

This follows the recent uncovering of a Ponzi scheme by a top Bitcoin trading desk, Mirror Trading International Ltd., said to have collected over 23,000 BTC (~$700 million) from its customers. In December, MTI, with over 260,000 customers on its books, was placed under ‘provisional liquidation’ as the customers rushed to withdraw their funds.

South Africa’s Mega-Million Bitcoin Scams

The rising demand for the world’s largest digital asset, Bitcoin, drives up the number of scam projects in the space. The MTI saga started in early 2020 when questions arose on whether the company was running a Ponzi. Then, the FSCA stated the company was not a Ponzi but rather lacked a crypto trading license.

After several investigations on the firm, the FSCA “found that the company kept neither accounting records nor a comprehensive register of participants, apart from 170,000 unique email addresses” recovered during a raid on the company in October. This led to more speculations of MTI running a Ponzi as MTI’s Chief Executive Officer Johann Steynberg fled into hiding – believed to be in Brazil.

In 2009, an alleged Bitcoin Ponzi ring involving over 800 investors across eight countries was stated to have stolen close to 12.5 billion rands (~$800 million) in a scam operation. According to Topham, such mega million scams are getting out of hand, who called for action against the MTI investors. He said,

“We need to make an example of MTI so that people understand that investing in a Ponzi is never a good idea.”

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Author: Lujan Odera

UK’s Financial Conduct Authority (FCA), Extends Temporary Registration For Crypto Exchanges

  • UK’s top financial regulator extends “temporary registration regime to July 2021.
  • Customers are warned to withdraw assets from exchanges that are not in the registration process.

U.K. regulator, the Financial Conduct Authority (FCA) launched its ‘Temporary Registration Regime’ to allow cryptocurrency service providers who are in the process of registration to continue offering their services. The registration deadline to crypto firms in the U.K is being extended to July 10th next year for every firm that applied for registration before December 16th, 2020 – previously set on January 10th, 2021.

The temporary registration regime is set to allow the regulators additional time to check and approve licenses “due to the complexity and standard of the applications received” and the effects of the global pandemic on their operations.

Earlier in January, FCA took on the lead supervisory role of the cryptocurrency ecosystem in the U.K. The regulator enforces anti-money laundering and counter-terrorism financing (AML/CFT) compliance across the country to safeguard the consumers. The regulator introduced several stringent laws in crypto, including every crypto service provider acquiring a license to operate a business in the country.

The deadline for registration of crypto firms was set for January 10th, 2021.

However, the regulator announced an extension of the registration period – a “Temporary Registration Regime” – to 10th July 2021 as applications are still being assessed. The regime allows crypto service firms, those who had registered before December 16th, to continue offering their services as the regulator works on the licenses. The statement from FCA reads,

“This [The Temporary Registration Regime] is to enable those existing businesses to continue to trade after 9 January 2021 until 9 July 2021, pending the FCA’s determination of their application.”

The registration delay is blamed on the “complexity and standards of the applications received” by the regulator.  The Coronavirus pandemic also hindered the authorities as their visits to the crypto exchanges themselves was limited.

The statement warns both crypto trading services providers and customers on the consequences of leaving assets on a trading platform not registered before December 15th –as the waiver does not apply to them. Exchanges that weren’t registered by Wednesday, Dec 15, will need to ask their customers to withdraw their funds by January 10th, 2021, or risk “being subject to the FCA’s criminal and civil enforcement powers.”

According to FCA’s website, only three companies have received approval to start trading crypto, with a list of 90 crypto firms waiting in line. So far, Kraken exchange subsidiary, Crypto Facilities, received a crypto futures trading license earlier in the year, and Binance announced its plans to launch FCA regulated exchange in the U.K. However, only the U.K fintech firm Ziglu, Archax, and Gemini are regulated by the FCA.

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Author: Lujan Odera

US Regulator OCC Proposes ‘Fair Access’ to Banking Services For All Including Crypto Companies

The Office of the Comptroller of the Currency (OCC), the US’s national bank regulator, has proposed a rule that would forbid banks from providing their services to legal industries, including cryptocurrency companies.

As per the proposed rule, led by former Coinbase counsel Brian Brooks, fair access is promoted under which financial services could be denied by banks to customers only on the basis of “quantitative, risk-based standards established in advance.”

They can’t do so due to political pressures, to prevent the customer from entering or competing in a market or to benefit another person or business activity.

Published on Friday, the proposal does not explicitly mention cryptocurrency but is surely welcoming news for the industry, which has been time and again denied the services by the banks.

The proposal does mention Operation Choke Point, an initiative taken by the Justice Department under the Barack Obama presidency that reportedly aimed to shut down the fraudulent businesses and lenders.

It further reads that it has been revealed that the government agencies have pressured banks to sever their financial services access to “disfavored (but not unlawful) sectors of the economy.”

But neither OCC nor banks are well-equipped to balance these risks that are unrelated to the financial exposure, it said.

Marco Santori on US OCC
Source: @MSantoriESQ

“Fair access to financial services, credit, and capital are essential to our economy,” said Acting Comptroller of the Currency Brian P. Brooks.

“This proposed rule would ensure that banks meet their responsibility to provide their services fairly since they enjoy special privilege and powers because if the system fails to provide fairness to all, it cannot be a source of strength for any.”

The proposal is open for public comments until January 4, 2021.

This week, President Donald Trump nominated the acting Comptroller Brooks as the permanent head of the OCC, a five-year stint.

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Author: AnTy