DC Blockchain Summit 2017

Transcription

1 DC Blockchain Summit 2017 Legal Update March 16, 2017 Dana Syracuse, Senior Counsel Perkins Coie LLP

2 Potential Use Cases Blockchain 1.0 Already in Existence Blockchain Blockchain Beyond Digital Assets Payments Remittance Private Stock Trading Smart Contracts Identity Management T+0 Clearance and Settlement Complex Smart Contracts Asset Ownership IoT Management Complex Exchange Management EHR Management Complex, Advanced Financial Instruments Decentralized Management and Governance (DAOs and DAGAs) Liquidization of Physical Assets 2

3 Use Cases for Blockchain Cut Across All Industries Technology & Communications Consumer Products & Services Financial Services & Real Estate Life Sciences & Healthcare Energy & Natural Resources Aerospace & Transportation Distributed Networking Platform Technology Digital Rights Management Supply Chain Management Issuance and Settlement of Stock/ Commodities Public and Private Stock Ledgers Recordkeeping and Auditing Payment Solutions Identity Management Tokenized Energy Credits Smart Grid Equipment Automation and Smart Contracts Supply Chain Management Inventory Management DISRUPTIVE TECHNOLOGY THAT CUTS ACROSS INDUSTRIES 3

4 Regulatory Developments October 2008 Satoshi Whitepaper March 2014 IRS Virtual Currency Guidance: Virtual Currency is Treated as Property for U.S. Federal Tax Purposes March 2013 Department of Treasury Financial Crimes Enforcement Network Guidance August 2015 New York State BitLicense Implemented September 2015 CFTC Settlement with Coinflip, in doing so asserts jurisdiction over bitcoin as a commodity September 2015 Conference of State Banking Supervisors Model Virtual Currency Framework March 2016 OCC Whitepaper Supporting Responsible Innovation June 2016 OCC Responsible Innovation Forum June 2016 CFTC Settlement with Bitfinex finding that bitcoin is a commodity when used in the context of leveraged or margin trading October 2016 Securities and Exchange Commission FinTech Forum July 2016 North Carolina Amends Money Transmitter Act December 2016 Illinois issues clarification on its state money transmitter law December 2016 OCC Whitepaper Exploring Special Purpose National Bank Charters for Fintech Companies Introduced January 12, 2017 Passed Feb New Hampshire HB 436 Exempting persons using digital currency from registering as money transmitters Introduced January 4, 2017 North Dakota SB 2100 An Act to provide for a legislative management study of virtual currency Introduced Dec. 15, 2016 (House) Jan. 10, 2017 (Senate) Wash. State Amendment to UMSA adding virtual currency to definition Introduced January 25, 2017 Hawaii HB 1481 Establishes a working group to study the uses and best practices regarding blockchain technology Introduced January 23, 2017 Georgia HB Amending State MTL Anticipated July 2017 Uniform Law Commission Model Law Introduced February 7, 2017 Arizona HB 2417 Defining smart contracts 4

5 The States Digital Currency Specific New York State BitLicense Regulates: Transmitters; Issuers; Exchanges; Custodians; Administrators North Carolina Amends MTA Money transmission to engage in the business of any of the following: a) Sale or issuance of payment instruments or stored value primarily for personal, family, or household purposes; or b) Receiving money or monetary value for transmission or holding funds incidental to transmission by any and all means This includes maintaining control of virtual currency on behalf of others. New Hampshire Passed house vote on March 8, seeks exempt persons using virtual currency from registering as money transmitters Washington State Amendment to existing law seeks to define virtual currency and regulate under that state s Uniform Money Services Act 5

6 The States Some state money transmission laws cover only money, i.e. fiat currency Others cover monetary value, and therefore may reach bitcoin and similar digital currencies Therefore, where a particular business activity requires a money transmission license will vary from state to state and requires an analysis of whether a state s statute covers solely the transmission of money or the transmission of money and monetary value 6

7 International Activity PBOC conducts inspections of several Chinese exchanges (Jan. 2017) Central Bank of UAE bans all digital currencies (and transactions thereof) (Jan. 2017) Britan s Royal Mint announces plan to use blockchain to operate a gold trading system (Dec. 2016) France s Central Bank discusses use of blockchain tech for identification (Dec. 2016) Hong Kong Monetary Authority whitepaper on use of blockchain (Nov. 2016) Swiss Federal Department of Finance outlines plan to regulate fintech (Nov. 2017) Central bank of Canada publishes working paper concerning digital currencies (August 2016) Poland announces plan to promote digital public services and cashless solutions (June 2016) ESMA issues report on DLT applications to securities markets (June 2016) Japan promulgates law regulating digital currencies (June 2016, to be enacted 2017) Australia begins drafting legislative proposals to regulate digital currencies (April 2016) 7

8 SEC Virtual Currency as a Security The Howey Test of an Investment Contract 1. Reasonable Expectation of Profits 2. Common Enterprise 3. Derived Mainly from the Efforts of Others Exchange Traded Funds Three applications, one denial to date Winklevoss Bitcoin Trust Sought rule change to would permit the first exchange traded fund to track digital currency Would have permitted the Bats BZX Exchange, Inc. to list and trade shares issued by the Winklevoss Bitcoin Trust Application denied because: a) many exchanges remain unregulated; b) the Bats Exchange would therefore not be able to enter into the necessary surveillance sharing agreements Denial was not related to the specifics of the filing but rather the largely unregulated ecosystem 8

9 Office of the Comptroller of the Currency Responsible Innovation Initiative March 2016: White paper outlining principles that would guide a FinTech charter framework. October 2016: Released Recommendations and Decisions for Implementing a Responsible Innovation Framework, and announces the creation of an Office of Innovation. December 2016: OCC issues a white paper entitled Exploring Special Purpose National Charters for FinTech Companies, setting forth criteria for the Charter. Special Purpose National Bank Charter (the FinTech Charter ) Entities must be a fiduciary or engaged in one of the three core banking functions: 1) receiving deposits; 2) paying checks; and 3) lending money. Application will include a thorough review of the applicant s: business plan; governance structure; capital; liquidity; compliance and risk management; and plan for an orderly wind down. The OCC will also consider applicant s likelihood of success. Application process will include four stages: 1) prefiling; 2) filing; 3) review and evaluation; and 4) decision. 9

10 CFTC Digital Currency as a Commodity Commodities Exchange Act, 7 U.S.C Regulation of commodity based futures, options, and derivative transactions CFTC Enforcement Actions In re BFXNA Inc. d/b/a BITFINEX (Order, June 2, 2016) Commodity transactions conducted on a leveraged or margined basis, or financed will be regulated by the CFTC and subject to CEA. CEA exempts transactions from regulation where there is actual delivery within 28 days. Book entry recordation is not actual delivery where: 1) there is no actual delivery of the commodity to a) the buyer or b) a depository other than the seller and its parent company, partners, agents, and other affiliates, or 2) there is no transfer of title of the commodity to the buyer. Actual delivery will not occur if a digital currency exchange controls a customer s wallet by either 1) maintaining an omnibus wallet, or 2) uses multi-sig but maintains control over the keys. 10

11 Legal Questions Remain Bitfinex CFTC enforcement action (June 2016) questions functional control of funds in margin trading Bitfinex hacked - $66 million in bitcoin stolen from exchange (August 2016) BFX Tokens tokens issued to those who lost funds in hack. Convertible into equity (August 2016) OCC Legal authority to expand the scope of permissible bank activities? DAO DAO hacked - $60 million in ether stolen (May 2016) Etherium hard fork ether and ether classic 11

12 Questions? Thank You 12