Blockchain Blog

Regulatory Actions About Virtual Currencies Around the World

By Alexandra Levin Kramer and Marina Fyrigou-Koulouri

During the week ending November 24, 2017, a number of countries made official statements or took specific actions with respect to the regulatory treatment of cryptocurrencies.

South Korea

On Thursday, November 23, 2017, the Governor of the Financial Supervisory Service (the “FSS”), Choe Heung-sik, said that South Korea’s financial watchdog does not intend to regulate financial transactions involving cryptocurrencies or digital tokens nor to directly supervise exchanges of them. The government views digital tokens as “subjects of speculation” and not as a “legitimate currency.” Accordingly, the FSS does not consider digital token trading as “financial products or services.” Indeed, the Governor parallels this position with the practice followed in the casino and gambling industry - FSS does not have grounds to regulate or supervise casinos practices despite the concerns around gambling.

“Though we are monitoring the practice of cryptocurrency trading, we don’t have plans right now to directly supervise exchanges. Supervision will come only after the legal recognition of digital tokens as a legitimate currency,”[1] the Governor stated.

This statement was issued shortly after the server outage of Bithumb, a South Korean cryptocurrency exchange and one of the largest such exchanges in the world, which occurred on November 12th in the midst of record highs of Bitcoin Cash. Approximately 3,000 South Korean trades have filed a class action lawsuit against Bithumb as a result of estimated losses of billions of won [2]

Malaysia

On Wednesday, November 22, 2017, the Governor of Bank Negara Malaysia (“BNM”), Muhammad Ibrahim, provided some information about Malaysia’s forthcoming regulatory framework for cryptocurrencies.

Since early September, BNM has been working on developing rules “for those trading and exchanging cryptocurrencies,”[3] and during a counter-terrorism financial summit on November 22nd, the Governor proclaimed that the new rules will further aim to secure Malaysia against money-laundering and terrorism financing. Further, from 2018, persons “converting cryptocurrencies into conventional currency will be designated as ‘reporting institutions’ under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act.”[4] Accordingly, such institutions would need to comply with the legal requirements of traditional reporting institutions and take “preventive measures” in order to ensure that they are not used as means for “money laundering and terrorism financing activities.”

Bermuda

On Wednesday, November 22, 2017, the Government of Bermuda announced the formation of a Blockchain Task Force to “advance the regulatory environment and develop Bermuda as a destination for Utility Tokens, Tokenised Securities, Cryptocurrencies, and Coin Offerings.”[5] The Bermudian Blockchain Task Force, operating under the direction of the Minister of National Security, the Hon. Wayne Caines, JP, MP, consists of two working groups, the Blockchain Legal and Regulatory Working Group, and the Blockchain Business Development Working Group. Additionally, the Government of Bermuda partnered with the Bermuda Business Development Agency in an effort to boost innovation in the Bermudian market.[6]

According to Bermudian Premier, the Hon. David Burt, the Government of Bermuda also plans to launch a regulatory framework for distributed ledger technologies (“DLT”). The new framework, which would be in place in early 2018, will focus on DLT firms that are “stor[ing] or transmit[ting] value belonging to others, such as virtual currency exchanges, coins and securitized tokens.”[7] Such firms would need to comply with the code of conduct of the new Bermuda Crypto Association as well as KYC and AML provisions.

Philippines

On Tuesday, November 21, 2017, the commissioner of the Philippines’ Securities and Exchange Commission (the “PSEC”), Emilio Aquino, said that token sales (“TS”) could be considered “possible securities,” in which case the Philippines’ Securities Regulation Code would apply.[8] In fact, whether or not a TS is a security depends on the “facts and circumstances” in which it is issued.  This position is in line with the view of the U.S. Securities and Exchange Commission as well as regulators in Malaysia, Hong Kong and Thailand.[9]

Additionally, the PSEC is working with the Philippines’ central bank, the Bangko Sentral ng Pilipinas (the “BSP”) concerning licensing of exchanges in the Philippines. According to the BSP’s Governor, Nestor Espenilla, Jr., “[t]oday, there are two virtual currency exchangers registered with the BSP and several more are under evaluation,”[10] Additionally, a number of money services businesses working in remittances, have also been “registered and endorsed by the BSF.” The BSF Governor supports that the BSF’s “open-minded approach to fintech” will provide “opportunities for innovation.”

Please contact Alexandra Levin Kramer, the Chair of CKR Law’s Blockchain Technology & Digital Currency practice group if you have any questions. She can be reached at akramer@ckrlaw.com or +1 (212) 259-7300.

  



[1] http://www.koreatimes.co.kr/www/biz/2017/11/488_239795.html

[2] https://www.financemagnates.com/cryptocurrency/exchange/korean-traders-file-class-action-lawsuit-bithumb-server-outage/

[3] https://www.coindesk.com/malaysias-central-bank-close-drafting-new-cryptocurrency-rules/

[4] https://www.reuters.com/article/uk-malaysia-cenbank-cryptocurrency/malaysia-says-working-on-regulatory-framework-for-crypto-currencies-idUSKBN1DM0DQ

[5] https://www.gov.bm/articles/blockchain-working-group-members-announced

[6] https://globenewswire.com/news-release/2017/11/23/1205310/0/en/BDA-partners-with-government-to-attract-cryptocurrency.html

[7] Id.

[8] http://www.manilatimes.net/regulators-eye-wider-virtual-currency-use/364344/

[9] Id.

[10] Id.