Category: Blog Row 3 (Member)

Canada Considers Regulation of Crypto Asset Trading Platforms

by Chamber

Canada Considers Regulation of Crypto Asset Trading Platforms

Chamber Canada Presents Eight Principles-Based Recommendations

Canadian securities regulators are working to establish a regulatory framework for the digital asset marketplace. The Canadian Securities Administrator (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) recently published Joint Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms, requesting feedback from market participants on “how requirements may be tailored for Platforms operating in Canada whose operations engage securities law.” The blockchain industry has long called for regulatory clarity around the regulatory treatment of digital assets and trading platforms.

The versatility of digital assets has proved a challenge for regulators around the globe. The sheer number of unique characteristics that digital assets may represent means that much work remains to be done to understand their potential and functionality. A digital asset can be a security, a currency, a commodity, property, or even a hybrid of these characteristics. Some have even suggested that a digital asset may initially represent one functionality, such as a security, and then shift and represent another, such as a commodity. When it comes to the regulatory treatment of digital assets, this very versatility can be baffling at best.

The Chamber of Digital Commerce Canada welcomes the opportunity to engage with CSA-IIROC and recently submitted a comment letter on their Joint Consultation Paper. Below is a summary of our comments.

Our Recommendations for Canadian Regulators

At the heart of blockchain technology innovation is tokenized networks.  All assets, whether tangible or intangible, can be tokenized, tracked, traded, and stored on blockchains. Digital asset trading platforms are a foundational part of a global blockchain infrastructure. They are the on and off ramps into the blockchain ecosystem. In our response, we proposed eight core recommendations to CSA-IIROC regulators to help establish a robust blockchain ecosystem that meets the needs of securities and non-securities stakeholders:

Recognize that not all digital assets or digital asset trading platforms should be considered within the reach of securities, commodities, or derivatives regulatory frameworks.

  1. Publish frequent, timely, and transparent guidance on digital assets, digital asset trading platforms including guidance related to digital assets that are, and are not, considered to be securities, commodities, or derivatives.
  2. Coordinate with other policymakers and regulators, including the Department of Finance, FINTRAC, and the Canada Revenue Agency, to ensure that regulations are aligned, consistent, clear, and not overly burdensome to industry.
  3. Take a principles-based, technology-neutral approach to regulation and policy to foster innovation.
  4. Establish meaningful industry dialogue and collaborative consultations to create effective and appropriate policy, regulatory, and legislative regimes for the global digital marketplace.
  5. Establish a task force of experts to work with federal and provincial government policy makers and regulators to fully study and review each aspect of digital asset trading platforms alongside broader global regulatory frameworks and objectives.
  6. Develop objective investor and consumer education tools to help inform the public about digital asset trading exchange platforms and associated risks and benefits.
  7. Take the time necessary to research and review the global blockchain ecosystem, considering all policy and legislative perspectives, to design and support a competitive blockchain ecosystem in Canada.

Foundational Marketplace Research and Policy Discussions Are Needed

Blockchain technology is fundamentally reshaping how we interact with each other and how we acquire and transfer value digitally. Companies in all sectors, not just financial services sectors, are being impacted by this technology.  It is time to bring additional clarity and support to the blockchain ecosystem so that Canada does not get left behind while the rest of the world moves forward.

The much bigger question is where do we start?  The CSA-IIROC proposal brings the conversation forward, but industry participants feel quite strongly that it does so without addressing fundamental points of clarity like, when is a digital asset considered a security or not? And when is a trading platform no longer a money service business? There are many more questions that appear to be unanswered and, if addressed collaboratively between policy makers, regulators, and industry, may actually allow Canada to establish a clear and successful path forward.

Steps toward Making Blockchain Technology Mainstream

Working to establish cross-Canada policy and regulatory regimes is crucial to ensuring that innovators, markets, consumers, digital asset owners and trading platforms, and everyone in between knows how to best act to take advantage of blockchain technology. Through our work, it is clear that companies operating in Canada are keen to work with policy makers to establish a path forward. We encourage CSA-IIROC to find solutions that work nationally and internationally that encourage innovation and economic opportunity.

As a next step, we’re told by regulators that the industry comments will be considered in drafting a balanced policy and regulatory approach for digital asset or “crypto-asset” platforms.

The CSA and IIROC are expected to host broader industry roundtables and additional consultations as they work toward a proposed draft regulatory framework.

So, while the regulatory waters are still a bit murky for digital assets and their trading platforms in Canada, collaborative discussions that support industry will best promote this highly innovative sector of Canada’s digital economy while ensuring efficient functioning of the market place.

Following the Chamber’s recommendation, IIROC has launched a call for participants to join its newly established Crypto-Asset Task Force.

To view the Chamber’s comments to CSA-IIROC, please visit here.

New Report Card Measures State Legislative Support for Blockchain Tech

by Chamber

New Report Card 

Measures State Legislatures’ Support for

Blockchain Tech

 

Exponential Increase in State Blockchain Legislation

State legislators started recognizing the economic and consumer opportunities that blockchain technology can bring as early as 2014 and began to introduce legislation supporting its growth. Recognizing this upward trend, we published our Legislator’s Toolkit for Blockchain Technology prior to the start of the January 2019 state legislative sessions. State legislators want to promote blockchain technology in their states.  Our goal was to arm policy makers with ideas for legislation that would benefit the growth of blockchain technology.

So how are the states stacking up? Nearly six months later, our State Working Group is taking a closer look through the introduction of a new State Blockchain Report Card. The results:  The introduction of state blockchain legislation has exploded. In fact, we’ve seen an increase from 64 bills introduced among the state legislatures in 2018 to 237 and counting as of May 16, 2019. Of these bills, 55 support the concepts in our Toolkit.

One of the key suggestions in the Legislator’s Toolkit for Blockchain Technology, and one of our primary principles in our National Action Plan for Blockchain, is the development of an office to coordinate resources and information to support blockchain technology.  The following states have created working groups or task forces specific to blockchain technology: California, Delaware, Illinois, New York, Vermont, and Wyoming; while 11 states have introduced legislation to create a government office or group that focuses on promoting blockchain technology: Connecticut, Florida, Kentucky, Maine, Massachusetts, Nevada, New York, Oregon, Texas, Utah, and Virginia.

We look forward to seeing even more support for blockchain technology in state legislation throughout the year and in the next legislative sessions.

 

A Patchwork of State Smart Contract Legislation

The federal Electronic Signatures in Global and National Commerce Act (E-SIGN Act) and the state Uniform Electronic Transactions Act (UETA) are technology neutral and thus already address the enforceability of signatures and records using blockchain technology and smart contracts.  Nevertheless, in an attempt to support the technology, Arizona, Arkansas, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, and Washington have all enacted disparate amendments to their electronic transactions laws. And four states – Connecticut, Illinois, Iowa, and New York – still have legislation pending to do the same.

While there is no doubt that these laws share a common goal – to encourage and support blockchain development in their respective jurisdictions – these state laws are independent of one another, are inconsistently drafted, and create a patchwork of inconsistent laws from state to state.  This makes it difficult for global digital businesses to comply with laws in the United States and is a barrier to entry to the market.  As noted by the Uniform Law Commission, “… the UETA already adequately encompasses blockchain and smart contracts, and changes to specifically address these technologies are not only unnecessary but also detrimental.”

Seven U.S. Members of Congress Urge Administration to Support Blockchain Technology

by Chamber

Seven U.S. Members of Congress Urge Administration to Support Blockchain Technology

This week, seven Members of Congress wrote a letter to the Director of the National Economic Council requesting that the Administration “hold a forum on blockchain technology and include blockchain technology in the initiatives the Administration intends to promote on emerging technologies.” The letter is the first step in making blockchain technology – the innovation and the economic benefits that come with the technology – a national priority. The letter was led by Congressman Trey Hollingsworth (R-IN) and supported by members of the Congressional Blockchain Caucus including Darren Soto (D-FL), Bill Foster (D-IL), Tom Emmer (R-MN), Ted Budd (R-NC), Josh Gottheimer (D-NJ) and David Schweikert (R-AZ). The Chamber was happy to work with Congressman Hollingsworth and his staff to bring life to his vision to support blockchain technology on a national level.

We view the letter as a key component of the Chamber’s National Action Plan for Blockchain, which calls on the U.S. Government to make support of blockchain technology a priority.  Specifically, it:

        • Urges the U.S. Government to publicly support the development of blockchain technology in the United States; and
        • Provides a set of guiding principles for government as it considers how best to support blockchain technology, including that industry must lead innovation.

The current regulatory environment is stifling innovation in the United States and this letter will help spark an important national conversation about these issues.  The forum will bring together key public and private stakeholders to address the benefits of the technology, how it can improve business and government processes and promote financial inclusion, while focusing on important barriers to the responsible development of the technology.

Moreover, the U.S. Government is currently supporting key technological advances in 5G, artificial intelligence, and quantum computing.  Blockchain technology is widely recognized to have similar transformational potential and must be developed and promoted as a key technology that will fuel cutting edge industries of the future.

“Innovation is part of this country’s DNA and our efforts to further develop blockchain technology can help our country remain a leader in invention and modernization,” said Rep. Trey Hollingsworth, Vice Ranking Member of the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets. “I am encouraged by the Administration’s efforts to explore financial technology and artificial intelligence and I look forward to working together as the technology evolves.”

We fully support Congressman Hollingsworth and the members of the Blockchain Caucus as they advocate for the promotion of blockchain.  These efforts bring the blockchain ecosystem one step closer to realizing the vision presented in the National Action Plan for Blockchain – one where blockchain technology benefits industry, government, and consumers alike.

The Future of Digital Assets Are Counting on Updated Accounting Standards

by Chamber

The Future of Digital Assets
Are Counting on
Updated Accounting Standards

The Future of Digital Assets Are Counting on Updated Accounting Standards

By Paul Brigner, Director of Technology Policy

The Chamber regularly advocates for updated legal and regulatory frameworks for digital assets, so it should be no surprise that we are also in support of updated accounting standards. As we look to the future, the potential for digital assets is enormous with major corporations starting to invest in them and even accept them as a form of payment. However, in order for digital assets to truly become mainstream, businesses, their accountants and even consumers need better guidelines on how to account for their digital assets. To address this need, the Chamber’s Digital Assets Accounting Consortium (DAAC) has been focused on advocating for the development of accounting and reporting standards for digital assets.

About two years ago, DAAC asked the Financial Accounting Standards Board (FASB) to address accounting for cryptocurrencies, and we have continued to engage on this issue with relevant standard-setting bodies.  On May 15, the Chamber submitted comments in response to the International Financial Reporting Standards (IFRS) Interpretations Committee tentative agenda decision on Holdings of Cryptocurrencies published in the March 2019 IFRIC Update. 

Our comments were informed by results from a recent industry survey conducted by DAAC as well as a set of use cases that demonstrate the various ways in which cryptocurrencies can be held and used in different situations, thus impacting their accounting treatment.  Based on our survey results, use cases, and member feedback, our position is that IFRS should allow for different methods of accounting depending on the intent and use of the crypto asset. For example, these methods should include the option to apply the relevant IFRS accounting standards for investments, inventory, and intangibles.  Read our full comments for more detail.

Accounting standards are of paramount importance for the blockchain industry and an indispensable resource for accounting professionals who are lacking guidance on how to properly account for holdings of cryptocurrencies.  As such, we are counting on IFRS, FASB, and other standard-setting bodies to set appropriate accounting standards that recognize the various uses of digital assets.

Visit the DAAC page on the Chamber’s website and learn more about how you can get involved.

Financial Action Task Force Proposes Recommendations that Impact the Global Blockchain Ecosystem

by Chamber

Financial Action Task Force Proposes Recommendations that Impact the Global Blockchain Ecosystem

Financial Action Task Force Proposes Recommendations that
Impact the Global Blockchain Ecosystem

The Financial Action Task Force is taking significant steps that could impact our industry. Here’s what you need to know.

The FATF Sets Global Anti-Money Laundering Standards.

The FATF is a multi-governmental organization that sets standards and promotes global implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the financial system.  The FATF thus develops anti-money laundering policies to bring about national legislative and regulatory reforms in its member countries.

The organization maintains a series of Recommendations that are recognized as the global anti-money laundering and counter-terrorist financing standards.

The FATF monitors the progress of its members in implementing necessary measures and publicly identifies countries that fail to meet its standards. This can have significant implications for financial institutions operating in or with those countries.

The FATF’s AML Standards Were Expanded to include Virtual Assets and Virtual Asset Service Providers.

Last fall, the FATF’s Recommendations were amended to include a set of definitions for what it calls “virtual assets” and “virtual asset service providers” (VASPs).  In February, the FATF adopted an “Interpretive Note” to explain the application of the Recommendations to virtual assets and VASPs.  In the process, it asked for public comment on how to apply existing Recommendations regarding wire transfers to VASPs.

In setting these definitions of virtual assets and virtual service providers, the FATF expanded the universe of things subject to money laundering and terrorist financing beyond typical payments and money transfers to include:

a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets do not include digital representations of fiat currencies, securities and other financial assets that are already covered elsewhere in the FATF Recommendations. (emphasis added).

Virtual Asset Service Providers include:

any natural or legal person who is not covered elsewhere under the Recommendations, and as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person:

  1. exchange between virtual assets and fiat currencies;
  2. exchange between one or more forms of virtual assets;
  3. transfer of virtual assets;*
  4. safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
  5. participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

* In this context of virtual assets, transfer means to conduct a transaction on behalf of another natural or legal person that moves a virtual asset from one virtual asset address or account to another.

The Chamber’s Response.

Earlier this month, the Chamber submitted a letter to the FATF expressing concerns in relation to the FATF’s proposed paragraph 7(b) of its Interpretive Note to Recommendation 15 which advocates two key principles:

 

1. The Definition of Virtual Asset Is Broad, Going Beyond Typical Payments or Medium of Exchange, and Must Be Limited to Payments or Medium of Exchange When Applying AML Standards to Virtual Asset Service Providers.

The FATF AML Standards are designed for financial institutions to develop an added protective layer between ordinary commerce and financial systems.  As the FATF noted in its 2015 Guidance for a Risk-Based Approach to Virtual Currencies, it focuses on the “gateways” to the regulated financial system, such as convertible virtual currency exchangers.  The broad definitions of virtual asset and virtual asset service provider in this context makes it unclear who is captured within the requirements.

It is more common to see descriptions of regulated financial activity involving a virtual asset limited to its function as a medium of exchange (such as in the FATF’s 2015 Guidance for a Risk-Based Approach to Virtual Currencies and FinCEN’s 2013 Guidance – Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies), and more particularly in the wire transfer context.  The FATF’s own definition of a wire transfer requires that the transaction be carried out through a financial institution.

Note that the FATF’s 2015 Guidance focused on Virtual Currency Payments Products and Services (VCPPS).  In just 3 years, the FATF has changed its terminology, as well as the scope, indicating that this is a quickly evolving area requiring close study to avoid another such shift.

 

2. It Is Inappropriate to include the Broad Scope of Virtual Assets within a Wire Transfer Framework.

Considering virtual assets within a wire transfer context misunderstands the way in which virtual currency transfers work.  Transfers of virtual currency may not always involve regulated financial institutions at both ends, which is contrary to the very definition of wire transfers used by the FATF.

This interpretation would also cut off independent users from accessing regulated exchanges unless they, too, established their account at a VASP.  The requirement to obtain incoming originator information or outgoing beneficiary information would effectively block out any potential participant that does not hold its account at a VASP.  This could have a devastating effect on encouraging growth among this community within a regulated environment, potentially pushing it out.

Building a Coalition to Ensure Effective AML Compliance.

The proposed paragraph 7(b) of its Interpretive Note to Recommendation 15 will be finalized in June 2019.

The Chamber supports effective regulatory action to mitigate the risks presented by emerging technologies, including virtual currencies, but believes that more work needs to be done before a final interpretation and definitions can be issued to effect meaningful compliance.

As part of our efforts to promote sound anti-money laundering and counter terrorist financing (CTF) compliance regimes, the Chamber’s Chief Policy Officer, Amy Davine Kim, along with several Chamber members, will be attending the FATF’s public consultative meetings May 6-7, 2019 in Vienna, Austria.

While each business has its own specific perspectives on the details of these issues, the industry is unified in these broad principles.  We are coordinating a group of industry members to help present these important factors to the FATF. Let us know if you’ll be in Vienna.

New SEC Framework Signals the SEC is Open to Recognizing that Tokens Are Not Securities, But Does Little to Advance Clarity

by Chamber

New SEC Framework Signals the SEC is Open to Recognizing that Tokens Are Not Securities, But Does Little to Advance Clarity

New SEC Framework Signals the SEC is Open to Recognizing that Tokens Are Not Securities, But Does Little to Advance Clarity

 

What happened

On Wednesday, April 3, the SEC released staff guidance entitled, “Framework for ‘Investment Contract’ Analysis of Digital Assets,” to discuss its application of the Howey Test to digital assets.  Specifically, the guidance describes the various considerations for determining when a digital asset may constitute an “investment contract” under federal securities laws based on the actions of promoters, sponsors, or other third parties. The SEC also issued a No-Action Letter regarding TurnKey Jet, Inc.’s (“TurnKey Jet” or “TKJ”) plans to develop a program to use digital tokens to facilitate transactions.

The SEC staff stated that it will not recommend an enforcement action against the interstate air charter services company’s program as described because:      

  1. funds from digital token sales will not be used to develop its blockchain platform, network, or app;
  2. tokens will be immediately useable upon purchase;
  3. the tokens will only be tradeable in the TKJ wallet and not wallets external to the platform;
  4. the price of tokens will be maintained at $1 USD and can only be resold to TurnKey Jet at a discount to their face value; and
  5. the marketing promotion focuses on the functionality of the token over its potential increase in market value.

Why it’s important

Both of these developments are pivotal efforts that will help define how various types of tokens will be treated by U.S. regulators. Said another way, depending on how they are defined, the SEC could assert sweeping jurisdiction (read: enforcement) over the token industry.  If within the SEC’s scope, tokens and token sponsors must comply with SEC registration and reporting requirements or qualify for an exemption.  

Our take on this development

As explained below, our overall view of these developments is that they represent a cautious, albeit imperfect, first step. Importantly, a few kernels of evolution should be noted:

    •  
    • First, the fact that the SEC (staff) has issued a document acknowledging in more detail that tokens may not be securities and provides in depth criteria for determining when that may be the case, comes a long way from Chair Clayton’s statements made in February 2018 during a U.S. Senate hearing that every ICO he’s seen is a security, as well as conversations we have had with the SEC last year.
    • Moreover, the Framework acknowledges in writing (rather than verbally in a speech) that tokens may be a security at one point in time, and then no longer maintain those characteristics of a security as the platform evolves, a policy position that William Hinman, Director of the SEC’s Division of Corporation Finance, notably enunciated regarding ether in remarks at an industry conference on June 14, 2018. 
    • Finally, the Framework also recognizes that virtual currencies may be viewed differently, albeit as a factor in the overall equation. That said, bitcoin and ether should be considered outside the scope of the securities laws given the SEC’s requirements that a currency be immediately used to make payments in a wide variety of contexts or act as a substitute for real currency, may be used to pay for goods or services without first having to convert it, and operate as a store of value that can be saved, retrieved, and exchanged for something of value at a later time.
    • Unfortunately, the good news stops there. By developing a list of over 60 criteria for analysis, the SEC staff has ensured that every token platform will trigger at least one of those criteria, if not more, thus expanding any analysis significantly. 
    • In addition, with little explanation of which factors carry more weight and which carry less, or how those are measured, participants in token systems (and legal counsel for those participants) have an even more challenging task of determining when the relevant token reasonably may be considered a security. Thus, while the insight into the various factors that may cause a token to be viewed as a security is interesting, the sheer number of those factors without meaningful guidance as to how those will be weighted and assessed, potentially creates more ambiguity, rather than less.
    • Another area of concern relates to secondary market considerations. The Framework states that if “a digital asset is transferable or traded on or through a secondary market or platform, or is expected to be in the future,” then it is more likely that there is a “reasonable expectation of profit.” This analysis is concerning. Policy makers must recognize that as the token economy evolves and all manner of assets can be tokenized, the ability to trade those assets will also increase in ways we have not previously seen.  A decentralized system requires a token that is able to be traded freely on secondary markets.  Treating tokens as securities would scuttle this ability.  Thus, the Framework seems rooted in traditional notions of securities platform trading without acknowledging this evolving reality.
    • After that assessment, it’s surprising to find that the TurnKey Jet No-Action Letter detracts even further from meaningful guidance. One can convincingly argue that the TurnKey token would not be considered a security under any circumstances.  That said, the conditions cited for coming to the conclusion that the SEC staff will not recommend an enforcement action regarding TurnKey are not just restrictive, but go even further than the criteria in the Framework would indicate.  The requirements that tokens may be “traded” only on the platform, and if redeemed, must do so at a discount, are overly constricting. 
    • Finally, because the Framework represents the views of SEC’s FinHub staff, it is not binding on the Commission.  Further, by its own terms it restates information drawn from enforcement actions, speeches, the DAO Report, and other previously made statements, thus leaving the industry searching for meaningful clarity.

All in all, we have a lot of work to do as a community to continue to demonstrate the fundamental differences among the various types and functions of tokens. Many businesses and consumers are still wary of conducting business or transactions using blockchain because of the lack of a predictable legal environment governing activities involving the technology. In the current blockchain ecosystem, the development of digital tokens that can represent numerous things, from a currency, to a commodity, a security, title to property, identity, provenance, and many others, has created the need to interpret existing laws that may no longer adequately govern the new features of this technology. As we continue to develop these technologies worldwide, we have seen that government policies have a profound effect on the development of blockchain in that location. Many countries are capitalizing on this opportunity and promoting policies that encourage adoption, while others are not as supportive. It is imperative that governments recognize publicly the benefits of this technology in order to engage businesses (and government) to enable innovation.

Blockchain Has a Champion in Ontario

by Chamber

Blockchain Has a Champion in Ontario

“Ontario is well-positioned to lead blockchain innovation in Canada and on the world stage,” Minister of Finance for the Province of Ontario, Victor Fedeli

Blockchain Has a Champion in Ontario

Last week, the Chamber of Digital Commerce Canada hosted an event to celebrate the launch of the organization. The Honorable Victor Fedeli, Minister of Finance for the Province of Ontario, joined us for the occasion and provided strong statements of support for blockchain technology and the opportunity in for the sector to expand business in Ontario. The Minister is the first Canadian politician to openly state that he would like to support blockchain business.

Minister of Finance shares how “Ontario is well-positioned to lead blockchain innovation in Canada and on the world stage” at Chamber of Digital Commerce Canada launch, March 26.

“It’s been one and a half years since I uttered the word ‘blockchain’ in the Ontario legislature, where it was heard for the first time. Sadly, we haven’t heard ‘blockchain’ mentioned in the legislature again – but this group will help change that!,” Minister Fedeli said. “We want to look at ways to help Ontarians and businesses benefit directly from the data economy, while being confident that their privacy is protected.”

One of the most important blockchain policy initiatives currently underway for Canadians is the joint Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms issued by the Canada Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) This document contemplates a comprehensive regime for regulating digital assets and exchanges and we are actively working with our members to prepare a response. Minister Fedeli acknowledged the Ontario Securities Commission (OSC’s) challenges in keeping pace with blockchain technology.

“In recent months, we have heard from a number of people in the blockchain industry about the concerns and challenges you face in navigating the Ontario Securities Commission, or OSC, and its Launchpad initiative. We have heard your concerns loud and clear, and we are working to ensure regulatory agencies balance their mandate to protect investors, while fostering innovation and fair, efficient capital markets,” he said.

Left: Don Tapscott, Chamber Board of Advisors and CEO, The Tapscott Group Inc.; Perianne Boring, Founder and President, Chamber of Digital Commerce; Victor Fedeli, Minister of Finance for the Province of Ontario; Tanya Woods, Managing Director, Chamber of Digital Commerce Canada

We are encouraged that the OSC is revisiting its regulatory framework to take into account the unique attributes of blockchain technology and the potential benefits it may bring to the capital markets. This is an incredibly important moment for the future of Canada to ensure appropriate oversight, while encouraging innovation. If handled appropriately, we believe Canada will attract a new level of investment and economic activity. We are fortunate to have Minister Fedelli’s support during this important moment for blockchain in Canada.

Read the Minister’s full remarks here.

Follow @DigiChamberCDN and / or contact chamber@digitalchamber.org to learn more or get involved with the Chamber in Canada.

Reading the Security Tea Leaves – Statements from SEC Chair Clayton Provide Needed Comfort

by Chamber

Reading the Security Tea Leaves  

“The Chamber’s assistance to me and my staff regarding my letter to Chair Clayton was invaluable.  I believe that this positive response from the SEC helps stakeholders in the blockchain industry and look forward to working with industry to ensure regulatory clarity in financial services.” – U.S. Rep. Ted Budd

Reading the Security Tea Leaves

Statements from SEC Chair Clayton Provide Needed Comfort

By Amy Davine Kim, Chief Policy Officer

Chair Clayton’s March 7, 2019, letter response to Congressman Ted Budd (R-NC) and a number of bipartisan co-signers is an important development into the SEC’s thinking. It represents a further step in the evolution of policy considerations that is driving decision making at the SEC.

As we know, in February of 2018 Chair Clayton testified before the Senate Committee on Banking, Housing, and Urban Affairs that “every ICO [he’s] seen is a security.”  Then in June 2018, Director of Corporation Finance Bill Hinman acknowledged in his speech, Digital Asset Transactions: When Howey Met Gary (Plastic), that both bitcoin and ether are not securities, and that the characteristic of a token, from security to something else, may change over time. These statements do not constitute binding agency guidance.  Nevertheless, they are extremely helpful in reading the SEC tea leaves.

Chair Clayton’s March response to a letter from Congressman Budd is a new, significant addition to those tea leaves.  Now, the Chair himself formally recognized the following:

Your letter also asks whether I agree with certain statements concerning digital tokens in Director Hinman’s June 2018 speech. I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument. A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition. I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.  (Emphasis added).

The mutability of the characteristics of a token is an important acknowledgment by the Chair of the SEC.  It demonstrates a deepening understanding within the agency of the nuances of this industry and the digital assets of which it is comprised.  From my questions to Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation, Associate Director of Corporation Finance, and head of the SEC’s FinHub, during our panel last week, it appears the Commission continues to work on guidance to reflect this understanding.  (Guidance related to matters specific to custody of digital assets remains elusive.)

We’d like to commend Congressman Budd’s commitment to eliciting answers to these questions that have plagued our industry for some time now, and likely for some time to come.  His leadership on blockchain technology is influencing the dialogue and moving the needle forward in getting regulatory clarity necessary for the private sector to develop and innovate.  We were fortunate to be able to work with him and his colleagues to craft a letter that would obtain a helpful response for our members.

“The Chamber’s assistance to me and my staff regarding my letter to Chair Clayton was invaluable.  I believe that this positive response from the SEC helps stakeholders in the blockchain industry and look forward to working with industry to ensure regulatory clarity in financial services.” – U.S. Rep. Ted Budd

On another matter of “security,” this one of national security, I’d like to call your attention to comments made by Counselor to the Secretary of the Treasury Craig Phillips at the DC Blockchain Summit last week.  He said:

“the government is unlikely to be at all compromising and it’s again kind of a show stopper where you can have 99 things go great and if there’s really serious incident involving national security, terrorism, or money laundering.  It becomes kind of a show stopper for the evolution [of digital assets].” 

The term “show stopper” was used three times in his remarks.  It is unclear whether he meant virtual currency in particular, blockchain in general, or specific companies.  Typically, Treasury’s enforcement in this regard stems from the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), which generally sanction specific persons, companies, governments, regions, and in some cases, vessels (ships).  They typically do not seek to restrict technology.  When entering that realm, regulators will regulate the activity regarding the technology, not the technology itself.  These comments are concerning as it indicates a deeper conversation that must be addressed if Treasury is exploring its role in the oversight of this industry.

Recapping DC Blockchain Summit 2019

by Chamber

Recapping the
DC Blockchain Summit 2019
Key Takeaways

 

 

Recapping the DC Blockchain Summit 2019
Key Takeaways

 

Thank you to everyone who joined us at the fourth annual DC Blockchain Summit!

The first day included a presentation on our National Action Plan for Blockchain from Perianne Boring, President and Founder, and Amy Davine Kim, Chief Policy Officer, Chamber of Digital Commerce. The core ideas of the National Action Plan for Blockchain were reiterated throughout the event, focusing on elevating blockchain to a national priority on par with artificial intelligence, quantum computing, and 5G wireless technologies. The fact that government’s role should be limited was also emphasized by some presenters such as SEC Commissioner Hester Peirce who said she thinks the Chamber’s efforts to promote a national action plan are helpful. She also cautioned that innovation in blockchain comes primarily from industry — an excellent point that we acknowledge in the first Principle in our National Action Plan (the private sector should lead) and with which we passionately agree!

Our regulators panel was a standing room only event involving the government officials whom are at the heart of some of the most complex issues facing our members today — Daniel Gorfine, CFTC Chief Innovation Officer and LabCFTC Director; Kavita Jain, Director of Office of Emerging Regulatory Issues, FINRA; Jessica Renier, Senior Advisor on Domestic Finance, U.S. Dept. of the Treasury; and Valerie Szczepanik, Senior Advisor for Digital Assets & Innovation, U.S. SEC.  Each panelist invited companies to share information about their products and services and areas of friction they experience so they could work with them to come up with appropriate solutions.

On the second day, we heard from Congressman Tom Emmer, Co-Chair, Congressional Blockchain Caucus (R-MN), who recognized that “the Chamber is in the best position to represent the many diverging branches of the blockchain ecosystem and unify the industry.” Congressman Emmer supported the Chamber’s proposed National Action Plan for Blockchain and reminded his colleagues in government to take pause and consider ways to support the technology’s growth rather than impede it. Erik Bethel, Executive Director, The World Bank concluded the Summit by discussing how the organization is examining the use of blockchain for financial inclusion and infrastructure projects globally.

Key themes from our government speakers included harmonizing regulatory regimes and modernizing laws to keep pace with innovators.  They shared their views on the importance of engaging with industry stakeholders to enable them to explore and build public and private solutions using blockchain. Commissioner Peirce directly asked the audience to come in to the SEC to share their perspectives, use cases, and areas of friction.

Here’s what our government speakers had to say:

Congressman Tom Emmer, Co-chair, Congressional Blockchain Caucus said, “As the Chamber of Digital Commerce has outlined, before we stifle, we must encourage the private sector to develop these technologies. The National Action Plan also provides a needed call for clear regulation prior to enforcement.”

Congressman Darren Soto, Co-chair, Congressional Blockchain Caucus, in a remote address to Summit attendees, said, “We’re doing everything we can to have a light-touch regulatory scheme, to make sure we are creating certainty, but also fostering innovation and making sure government stays out of your way as best we can.” He concluded by thanking innovators for, “forging ahead for America’s economy and America’s future,” and stated, “we’ll keep working together.”

Commissioner Hester Peirce, U.S. Securities and Exchange Commission explained to the audience that, “Regulators are slow, so you shouldn’t expect any kind of quick activity. Certainly not, in terms of – everything is relative. For our world, we might be moving very quickly but for your world it’s going to look slow. But I do think there’s a learning curve, so people at the SEC are trying to learn about this space and trying to understand where the pressure points are – where the pain points are – so you all need to come in and tell us where the pain points are, where the old regime doesn’t fit.” 

She also said, “We need to have clear regulatory guidelines…we need to tell people where they stand.”

Chairman J. Christopher Giancarlo, U.S. Commodity Futures Trading Commission acknowledged the work of the Chamber, “it is great to be part of this program put on by the Chamber of Digital Commerce, an organization that brings so much intelligence to the public discussion of digital assets and Blockchain technology.  My thanks to Perianne Boring, who is truly one of the foundational figures in this emerging field of innovation… I am grateful to organizations like the Digital Chamber that have been engaged with us along the way.  They are a trusted resource, as we see in their thoughtful response to our request for information on crypto markets and mechanics.” 

And discussed how, “The digitization of virtually everything…means the decentralization of everything. It means the atomization of traditional ecosystems into their smallest component parts which is especially challenging for traditional approaches to regulation.”

“So, what should your approach be as innovators? My advice to you is this: Keep going!  Solve problems. Innovate boldly, innovate with integrity and innovate intelligently. Get competent advice.  Follow the law.  Keep going. Do not be afraid.”

He concluded by saying, “Recognize that while our regulations were designed for environments that have been transformed, the principles underlying our regulations remain relevant – and remain enforceable. So work with us. Talk to us. Interact with LabCFTC and work with our regulatory divisions.

Counselor Craig Phillips of the U.S. Dept. of the Treasury explained how Treasury is, “probing how innovative technologies like blockchain and AI relate with the regulatory system.  We need to regulate with the pace of technological growth in mind.”

He also said, “the government is unlikely to be at all compromising and it’s again kind of a show stopper where you can have 99 things go great and if there’s 1 really serious incident involving national security, terrorism, or money laundering.  It becomes kind of a show stopper for the evolution [of digital assets].” 

Under Secretary Manisha Singh of the U.S. Dept. of State observed, “In the public sector, this technology could enable improvements to things like data collection for the U.S. census. It could streamline some of the basic functions of government for the benefit of the citizens we serve. And we all know that government can certainly be more efficient! It’s an opportunity to improve public trust and confidence in the information managed by the government.”

She also pointed out that the Department of State, “understand[s] the importance of a coordinated whole of government approach to ensuring American competitiveness in this technology.  We very much appreciate the Digital Chamber providing us with a potential blueprint in their National Action Plan – it is something we are reviewing as a set of guiding principles.”

Erik Bethel, Executive Director, The World Bank discussed how The World Bank attempted to solve the problem of high costs associated with borrowing money by issuing the bond on a blockchain, known as bond-i.

On the prospect of future opportunities at the World Bank, he offered, “What if instead of sending $200 million, we sent $200 million in World Bank tokens” to trace money and ensure that the appropriate people are receiving the funds.

Key themes from our industry speakers included taking time to build during Crypto Winter to get a running start into Crypto Spring. Industry leaders discussed how they are building applications that impact an array of sectors.

Here’s what our Industry speakers had to say:

Anoop Nannra, Head of Blockchain, Cisco

As he discussed the importance of the National Action Plan for Blockchain, Anoop asked how we can turn it into a blueprint for global innovation. He asked, “how do we make this a document for the Western Hemisphere…in a public-private partnership with governments around the world?  How do we build momentum around all of this?”

Later, his colleague Al Lynn, Vice President of Engineering, Cisco, gave insight into how blockchain can help protect digital identity and can be applied to defense communications by moving from two-factor authentication processes to seven-factor identity authentication schemes in the future.

Brad Garlinghouse, CEO, Ripple pointed out that, “We’ve been asked as an industry not to speed, but we weren’t given a speed limit.”

Matthew Roszak, Co-founder & Chairman, Bloq predicted, “The overcurrent will be super positive and good for the tokenization economy that’s ahead of us.  The undercurrent of tokens in our rearview mirror will come back into focus.” Right now, STOs are “in full bloom.”

Jonathan Johnson, President, Medici Ventures, looking back at the early days of e-commerce to see where blockchain is heading, said, “We have seen that perceptions change.  I remember when people were more comfortable calling someone and reading out their credit cards, not filling it in in the form online. Today that would not happen.”

Bernie Moreno, CEO, Ownum offered a glimpse into the future and told the audience to, “Imagine sending a [car] title in the same way you can send a text message.”

Brendan Blumer, CEO, Block.one, stated, “Data is the new oil and it’s floating around in ways companies can’t protect.  It’s being spilled in ways that can’t be controlled.”

Stephen Pair, CEO, BitPay theorized, “Eventually, most transaction databases will become blockchain databases.”

National Action Plan for Blockchain

by Chamber

It’s Time to Make Blockchain Technology a Priority

It’s Time to Make Blockchain Technology a Priority

Chamber Introduces National Action Plan for Blockchain

 

By Perianne Boring, Founder & President, and Amy Davine Kim, Chief Policy Officer

Feb. 20, 2019

Today we’re proud to release our National Action Plan for Blockchain. Ever since we launched the Chamber of Digital Commerce almost five years ago, our team has been working toward a coordinated effort to ensure blockchain technology is supported in the United States. This plan is part of that ongoing advocacy work and our steadfast efforts to promote the acceptance and use of digital assets and blockchain-based technologies.

Government agencies within the United States are exploring blockchain technology in multiple ways. Yet more needs to be done. It is imperative that support be coordinated for this technology which has transformational potential akin to artificial intelligence, quantum computing, and 5G wireless networks. US laws dating back decades are proving difficult to apply to activities involving digital assets, smart contracts, and transfer systems, to name a few. We need policy makers to support and promote that vision – to help the U.S. economy and blockchain technology flourish for the benefit of industry, government, and consumers.

 

The Key Takeaways from the National Action Plan:

      • Calls on the U.S. Government to publicly support the development of blockchain technology in the United States; and
      • Provides a set of guiding principles for government as it considers how best to support blockchain technology.

 

This initiative has broad industry support:

Nasdaq Inc. – Tal Cohen, Senior Vice President and Head of North America Equities:
“Nasdaq believes there is great potential across the financial services industry to leverage blockchain technology. Ideal for tracking and tracing, blockchain technology improves the audit function and regulatory reporting both from both a quality and efficiency standpoint. These benefits can be realized if we coordinate and have a strategy. We support the Chamber’s National Action Plan for Blockchain.”

Cisco – Anoop Nannra, Head of Blockchain:
“Advancement of Distributed Ledger Technologies represents an opportunity to drive efficiencies and automation of accountability in mission critical networks and ecosystems. Programs backed by a National Action Plan will help ensure leadership in this space on a global scale as others around the world look to accelerate their own local ecosystems.”

IBM Fellow – Jerry Cuomo, VP Blockchain:
“At IBM we believe that at its core blockchain is about strengthening trust in data. We’ve applied the technology far beyond digital currencies, for example using it to help improve food safety, speed cross-border payments, modernize global shipping, and secure digital identity. And while the technology will continue to be studied and enhanced for years to come, now is the right time to encourage thoughtful adoption through public and private partnership. The National Action Plan for Blockchain offers important and much needed recommendations for ways the U.S. government can foster understanding and expand access to one of the most groundbreaking technologies of this era in business and computing.”

IHS Markit – Jeffrey Maron, Managing Director
“Blockchain revenues are projected to reach $462 billion globally by 2030 and 10 percent of global GDP is expected to be stored on blockchains by 2025. This technology can be utilized across multiple industries. Governments must recognize the importance of this technology and provide the necessary regulatory clarity for the private sector to innovate and compete at a global scale.”

Deloitte – Wendy J Henry, Managing Director, GPS Blockchain Lead:
“The Chamber’s call for the US government to develop and launch a framework defining and advocating a blockchain national strategy is an important step forward. As the internet opened the door to information globalization, blockchain creates new transnational business models that US companies and citizens will have to participate in to remain viable, let alone competitive. The US government has an important opportunity to provide the guidance and support that will help protect our interests and support the business models needed for blockchain success. The US has always been a global leader. This technology is a game changer. If the US government wants to continue to be a global technology leader, then devising a national blockchain strategy is a critical priority”

Medici Ventures – Jonathan Johnson, President:
“As blockchain technology matures and blockchain-based products go into production, these products are transforming business processes by making it easier for people to transact with each other without intermediary institutions. Blockchain technology and products are expected to add trillions of dollars to the global economy and create millions of new jobs. The Chamber’s National Action Plan for Blockchain is an important step forward to advance our technologic and economic leadership globally.”

Bittrex – Bill Shihara, CEO:
“Bittrex supports building a secure, fully-compliant environment for blockchain that encourages innovation, economic growth, and U.S. leadership in the industry. That’s why we’re continuing to engage regulators in proactive discussions, and working with the Chamber, on how this may be accomplished in the near future with thoughtful policymaking.”

Civic – Vinny Lingham, CEO and Co-founder: 
“Blockchain is the key to solving challenges that we face every day, like proving and verifying identity. The Chamber’s National Action Plan for Blockchain is critical to embracing the potential of emerging technologies and help business explore the solutions that blockchain makes possible. It is important for our nation to embrace emerging technologies and explore the opportunities that blockchain makes possible. As a global leader in digital identity, we believe that blockchain technology can improve access to good and services through digital identity, and we’re happy to support the Chamber’s effort to make blockchain technology a national priority.”

Bloq – Matthew Roszak, Chairman and Co-Founder:
“Blockchain-based systems and cryptocurrencies are redefining concepts of ownership, transparency, and financial inclusion. To participate more fully in this rapidly developing global ecosystem, the United States government requires a strong action plan for this foundational, generational shift in technology, finance, and the intersection between the two. It is time that the United States government made a strong statement in support of financial technology innovation and inclusion by reviewing and seriously considering the Chamber’s National Action Plan and the guiding principles it recommends.”

As we have written before, the potential of blockchain technology will not be realized if we do not act decisively to maintain our competitive advantage in this evolving technology. To maintain our technological and economic world leadership, we believe the United States must develop a coordinated blockchain strategy or risk falling behind to countries whose governments are embracing the technology and exploring its benefits for private and public use.