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Wyoming Bill Would Clear the Way for Crypto Custody at Banks

Wyoming may soon become the first state in the U.S. to provide clear banking permissions for cryptocurrencies and digital assets.

A bipartisan group of state legislators introduced SF0125 to the government on Friday, which, if passed, would classify digital assets as property within existing laws. It would also establish “an opt-in framework for banks to provide custodial services for digital asset property as directed custodians,” determine standards for such services, clarify how Wyoming courts might classify digital assets and more.

Caitlin Long, co-founder of the Wyoming Blockchain Coalition, told CoinDesk that the bill is a major step forward for the state, and could prove a boon for crypto startups and users alike.

“A lot of companies are setting up as New York trust companies … the [Wyoming proposal] is a much better license than a New York Trust license because it’s [aimed at banks] and it’s in a state that has clarified the legal status of digital assets. Those two things are equally important,” she said. “There isn’t another state that’s providing that clarity.”

One of the most notable aspects of the bill is the support it has upon its introduction. The leadership of both Wyoming’s House and Senate are cosponsoring the bill, which includes members from both the Democratic and Republican parties.

On the list of sponsors are senators Drew Perkins (R.), president of the Senate, Vice President of the Senate Ogden Driskill (R.) and Senate minority leader Chris Rothfuss (D.). Also on board are representatives Steve Harshman (R.), Speaker of the House, and House Majority Whip Tyler Lindholm (R.), alongside a handful of other representatives and senators.

That being said, getting the bill introduced is just the first step.

“This [bill] was just released, it still has to go through everything,” Long noted. “Anything can happen in a legislative process, it’s not done till the governor signs the bill, but it has a lot of momentum behind it and a lot of support.”

She continued to say that just getting the bill to this point was a “labor of love,” adding:

“It truly gives the blockchain industry something I think it needs, which is legal clarity to bring it to the next level, and even the bitcoin purists who would be opposed to intermediate [entities] being in [charge] would take comfort in knowing they now have legal status for their assets.”

There had also been an alternative proposal in the works, Long explained, which would have classified cryptocurrencies similarly to securities and would have forced owners to store such assets through intermediaries.

“We would have lost direct property rights of [those assets],” she said. “There was momentum building behind that proposal … and Wyoming went in a different direction that’s much better for cryptocurrencies.”

Wyoming Senate Room image via Shutterstock

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Oceans Apart: Crypto Regulation in the US and EU

Noelle Acheson is a veteran of company analysis and member of CoinDesk’s product team.

The following article originally appeared in Institutional Crypto by CoinDesk, a newsletter for the institutional market, with news and views on crypto infrastructure delivered every Tuesday. Sign up here.

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Spare a thought for the financial regulators: the American ones, with no paycheck during the government shut-down and a whopping backlog awaiting when they eventually get back to work; and the European ones, with a fragmenting union, disjointed capital markets and a glut of new rules seeping through the labyrinthine halls of power.

Now, compare the very different approaches to crypto asset regulation from each side of the Atlantic.

While the U.S. Securities and Exchange Commission (SEC) is contemplating the bigger picture and working on drawing up sector-wide rules, it is also passing judgment and handing out punitive fines. Last year saw 18 digital token-related actions from the SEC, compared to five in 2017.

The European side, however, seems to be more focused on figuring out how to contemplate the bigger picture. It’s thinking about what structure the decision-making process should take. It’s forming committees. Recommendations are flying across the departmental divides, and preparations are being made for the deliberations. It seems to be perpetually thinking about regulating digital assets, rather than actually doing so.

As an example, earlier this month you may have noticed yet more calls for EU-wide crypto rules, this time from both the European Banking Authority and the European Securities and Markets Authority (ESMA).

This may on the surface seem like the cultural differences that film lovers are already familiar with: the fast, action-heavy approach of the U.S. blockbusters vs. the thoughtful and careful style of the European indies.

But it’s more than that. The differences are actually embedded in legal structures and traditions and highlight the unfathomable difficulty of reaching agreement on how the new class of crypto assets should be regulated.

Deep roots

European law is based on Napoleonic code, or “civil law,” in which everything is regulated by pre-established law or administrative decision. Codified statutes predominate, and regulation is often even more comprehensive than it needs to be, which also makes it less agile. Its aim, however, is to produce a uniform set of rules to cover all eventualities and to foster harmonious coordination.

The U.S. runs on a “common law” system, in which judges have a greater role in decision making and rules are made on a case-by-case basis, often (but not always) based on previous rulings.

Another big difference is that the European Union has sovereign nation-states to answer to. Many of the decisions taken by the EU have to be ratified by the actual countries, which gives them a lot more scope to undermine Europe-wide initiatives, depending on their national interest. Getting things done on a top-down, regional basis is very, very difficult.

What’s more, in Europe securities law is still, on the whole, national. The push towards capital markets union is moving slowly, in spite of being one of the priorities of the current mandate: of the 13 foundational legislative texts presented by the commission since 2014, only three have been adopted.

And time is running out: the current mandate ends in May, and the urgency fuelled by increasing concern over Brexit and the possibility of another financial crisis does not seem to have accelerated the pace of progress.

In the U.S., the relationship between the states and the federal agencies is simpler. A long history of enforcement of the application of federal laws by the Supreme Court has brought a veil of interoperability to the patchwork of state regulation.

Different speeds

So, understandable frustrations over the lack of clarity on the part of the U.S. regulators and their slow, case-by-case approach should be tempered with an appreciation that at least they are not as cumbersome as their European counterparts. That, combined with the sheer size of the U.S. capital markets, means that all eyes are on what steps the SEC will take regarding crypto assets.

Yet that’s not to say that the European Union is not taking crypto assets seriously. The report released by ESMA last week revealed the results of a months-long survey of member states’ regulators, in a bid to identify common definitions and parameters when it comes to digital tokens. It also highlighted gaps in current regulation and suggested measures to close them. The regional securities body recognized, however, that many of the potential solutions were beyond its remit, implying that actual agreed-upon measures were still a long way off.

Meanwhile, we are likely to see individual countries in Europe take tentative steps toward allowing crypto asset issuance on regulated exchanges. Yet the reduced size of the local markets and the fragmented rules governing exchanges and custody are likely to constrain tokens issued in Europe, especially since network effects – which rely on a broad market – are a fundamental part of token valuations.

In the U.S., on the other hand, 2019 is likely to bring a flurry of actions and statements from the SEC, as unregistered securities offerings are punished, listing proposals are examined and clarity is given as to expectations going forward. While this may influence other securities regulators around the world and edge the sector towards a more comprehensive framework, regional differences and national considerations make that probably wishful thinking.

Yet even disappointing progress is better than none. The structural obstacles that hinder the good intentions of sprawling economic blocs, and the reduced size of more agile and “crypto-friendly” jurisdictions, will consolidate the U.S. role as one of the more secure and liquid markets for digital tokens. And its regulators will get the chance to set the precedent for crypto asset regulation going forward.

Let’s just hope they can get back to work soon.

Globe image via Shutterstock

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US Lawmaker Reintroduces Bill Seeking ‘Safe Harbor’ for Some Crypto Startups

U.S. Representative Tom Emmer wants to boost crypto companies which may be impacted by state-level money transmission laws with a bill aimed at creating exceptions for firms which do not store any coins.

House Resolution 528, which aims “to provide a safe harbor from licensing and registration for certain non-controlling blockchain developers and providers of blockchain services,” would allow companies which use or trade cryptocurrencies but do not hold users’ coins to be exempt from money transmission laws if passed.

The bill is identical to one Emmer introduced last year with the 115th Congress, though there are a few key differences which may ensure its passage through the House – or at least give it a boost. The first is that unlike its previous iteration, the bill now has bipartisan support, a spokesperson for the Congressman told CoinDesk.

Representative Darren Soto, a Democrat, is now listed as a co-sponsor for the bill.

Further, “this time around, this bill … will be referred to the Financial Services committee which Congressman Emmer sits on, and we intend to see the House take up the measure,” the spokesperson added.

D.C. advocacy group Coin Center noted previously that “state money transmission licensing laws are broadly drafted and carry harsh penalties for failure to comply,” after the bill was last introduced.

The key issue is that “only custodians present a risk of loss that would be sensibly addressed through licensing,” the group wrote at the time.

Through a spokesperson, Coin Center executive director Jerry Brito told CoinDesk that he hopes the bill will move through Congress, “even though the Hill is focused on other priorities at the moment,” adding:

“We worked closely with Rep. Emmer and his staff to develop this bill last year and we’re very happy to see it reintroduced in this new Congress with bipartisan support.”

According to congress.gov, the bill has been referred to the Judiciary committee as well as the Financial Services committee, and each group will consider the provisions of the bill relevant to their mandates.

Tom Emmer image via Al Mueller / Shutterstock

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Japan and Korea Officially Approve Their Biggest Crypto Exchanges

South Korea’s Internet & Security Agency (KISA) has granted an important certification to the country’s leading cryptocurrency exchange Bithumb. Meanwhile, in Japan, Coincheck, the country’s largest exchange, is now registered with the Financial Services Agency. 


Bithumb Granted ISMS Certification

Cryptocurrency exchange Bithumb has managed to obtain Information Security Management System certification from the country’s KISA.

According to the official release, this is the highest certification system in the country. Cryptocurrency exchanges, which earn more than $8.99 million are required by law to obtain this certification.

The company says it will continue working on increasing its security. Speaking on the matter, a Bithumb’s representative said:

We are going to continue to establish the industry’s best security system that can be safe and trustworthy. […] We are going to become a global business that will lead the cryptocurrency exchange market by establishing a safe and trustworthy cryptocurrency exchange.

In July 2016, Bithumb was hacked, resulting in the theft of more than $31 million worth of cryptocurrencies. The company confirmed that it will reimburse all affected users.

Japan’s Coincheck Completes FSA Registration

In another important event, one of Japan’s bigger cryptocurrency exchanges has managed to complete the registration process under the Registration Review Process of Virtual Currency Exchange issued by the country’s Financial Services Agency.

FSA

At the beginning of 2018, Coincheck was also hacked resulting in the theft of $420 million in XEM tokens. The company compensated its users and later got acquired by Monex Group – a Japanese-based financial services firm.

Korea and Japan are both prominent countries when it comes to bitcoin trading. According to Coinhills, the Japanese Yen (JPY) is the second most traded national currency for bitcoins after the USD, comprising almost 42 percent of all trading.

The Korean Won (KRW), on the other hand, is the third most traded national currency for BTC.

What do you think of Japan and South Korea approving some of their major cryptocurrency exchanges? Don’t hesitate to let us know in the comments below!


Images courtesy of Shutterstock

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Coincheck Wins Crypto Exchange License 12 Months After Major Hack

Japanese crypto exchange Coincheck, which suffered a $530 million hack in January of last year, is now a licensed entity.

Monex Group, the Japan-based online brokerage firm that acquired Coincheck for $33.5 million following the cyberattack, announced Friday that the exchange is now registered with the Kanto Financial Bureau, under the country’s Payment Service Act, effective immediately.

The license was approved by the country’s Financial Services Agency (FSA), on the basis of Coincheck’s improved risk management and governance systems with “concrete internal controls and customer protection in mind,” Monex said.

Following the massive hack of around 500 million NEM tokens in January 2018, the FSA had ordered Coincheck to strengthen its security systems and submit a business management improvement plan to the authority. At the time, the exchange was not registered with the regulator.

The breach also forced Coincheck to suspend its services for some months. Since then, the exchange has been phasing back in its operations. By November 2018, it had reinstated services for all listed cryptos on its platform.

Now with the license in place, Coincheck joins the growing list of regulated crypto exchanges in the country, including financial services giant SBI Holdings, which operates a registered platform called VCTRADE. U.S.-based exchange unicorn Coinbase has previously said it expects to become licensed in Japan in 2019.

All crypto exchanges in Japan came under anti-money laundering (AML) and know-your-customer (KYC) rules in April of 2017 when the country’s legislature passed the Payment Service Act and recognized bitcoin as a legal method of payment.

Over 160 firms are planning to apply for the crypto exchange license, the FSA said back in September, adding that it is looking to increase its staffing levels to speed up the review process.

Tokyo image via Shutterstock