As the holidays approach, time seems to fly – not in the reindeer sense — but quicker and more rushed than usual as year-end work increases and as parties and other social events seem to multiply like presents under the Christmas tree. In that rush it is easy to overlook the fact that entities that “conduct business” in New York state and collect information of New York residents must also be aware of the New York Shield Act (the “Stop Hacks and Electronic Data Security Act”). Though some portions have gone into effect already, the “reasonable security” requirements” go into effect in March 2020. For businesses that also collect California residents’ personal information, the double-punch of the Shield Act coupled with the California Consumer Privacy Act of 2018 (CCPA), effective Jan. 1, 2020, could add up to an all-consuming regulatory task for businesses that are not fully prepared.
LIBOR Transition Newsletter – Issue 1
Posted in banking, European Union, Financial Regulation, Lending, LIBOR, Securities and Exchange Commission, United KingdomWelcome to Greenberg Traurig’s LIBOR Transition Newsletter, where we provide updates, analysis, and occasional commentary on the latest developments relating to the highly anticipated phasing-out of LIBOR at the end of 2021 – barely two years from now. Questions addressed in this issue: Why is LIBOR being phased out? What will be the immediate effect? Where are we now? Are market participants ready for LIBOR replacement? What should market participants be doing now? Documentation and Other Recent Developments.
Click here for the full LIBOR Transition Newsletter.
2019 Report on FINRA Examination Findings and Observations
Posted in Client Alert, Compliance, Financial Regulation, FINRA, GT AlertIn October 2019, the Financial Industry Regulatory Authority (FINRA) released its “2019 Report on FINRA Examination Findings and Observations.” FINRA publishes a report yearly to highlight its examination “findings” (i.e., findings of violations committed by member firms) detected throughout the year. In addition to findings, the 2019 Report advances further than years past and consists of “observations.” Observations (formerly known as recommendations) are suggestions to a member firm on how to improve its control environment to address weaknesses that do not typically rise to the level of a violation or cannot be tied to an existing rule.
Although the 2019 Report repeats many of the findings highlighted in previous years with respect to important topics such as suitability, anti-money laundering, segregation of assets, and best execution, the 2019 Report introduces new findings and expands upon findings made in previous reports. FINRA hopes that the 2019 Report, like previous reports, can assist member firms navigating common pitfalls such as fixed income mark-up disclosures, direct market access controls, liquidity management, and net capital calculations. FINRA’s new/expanded key findings involve hot topics such as supervision, digital communication, know-your-customer rules, cybersecurity, and business continuity plans. This GT Alert highlights certain of the new findings and observations within the 2019 Report.
U.S. House Passes Bill That Would Require Disclosure of Beneficial Owners of U.S. Corporations and Limited Liability Companies
Posted in Client Alert, Compliance, Financial Crimes Enforcement NetworkOn Oct. 22, 2019, the U.S. House of Representatives, in a 249 to 173 vote, passed H.R. 2513, known as the “Corporate Transparency Act of 2019.” The Corporate Transparency Act, if enacted into law, would require each person who creates a corporation or limited liability company in the United States to report, on an ongoing basis, to the U.S. Department of the Treasury, Financial Crimes Enforcement Network (FinCEN) the identities of the “beneficial owners” of the U.S. Company. The Bill generally defines “beneficial owner” as a natural person who, directly or indirectly:
- exercises substantial control over a U.S. Company;
- owns 25% or more of the equity interest of a U.S. Company; or
- receives substantial economic benefits from the assets of a U.S. Company.
CFTC, FinCEN and SEC Issue Joint Statement Reminding Persons in Digital Assets Space of Obligations Under Bank Secrecy Act
Posted in Anti-Money Laundering, Banks, Blockchain, CFTC, Client Alert, Compliance, Financial Crimes Enforcement Network, GT Alert, SEC, white collarOn Oct. 11, 2019, the Financial Crimes Enforcement Network (FinCEN), the U.S. Commodity Futures Trading Commission (CFTC), and the U.S. Securities and Exchange Commission (SEC), published a Joint Statement on Activities Involving Digital Assets. The purpose of the Joint Statement was “to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).”
Bermuda Launches Two Key Fintech Initiatives, Becomes First Nation to Accept Stable Coins for Government Payments
Posted in Blockchain, Blockchain Technology Task Force, cryptocurrency, FintechOn Oct. 16, 2019, Bermuda Premier the Hon. E. David Burt JP, MP announced that Bermuda has committed to accept, for payment of government taxes, fees, and services, 1:1 U.S.-dollar-backed digital currencies of entities licensed by the Bermuda Monetary Authority (BMA) under the 2018 Digital Asset Business Act (DABA), becoming the first nation to do so. Known for its established skill in regulating financial services, particularly in the insurance and re-insurance markets, Bermuda has in recent years sought to exploit its market experience by creating a regulatory framework around digital assets.
IRS Issues New Cryptocurrency Guidance
Posted in Blockchain, Blockchain Technology Task Force, cryptocurrency, TaxOn Oct. 9, 2019, the Internal Revenue Service (IRS) released revenue ruling (Rev. Rul. 2019-24) and a Frequently Asked Questions (FAQs) document, which provide additional guidance on the tax treatment and reporting obligations for transactions involving virtual currency (also known as cryptocurrency). This guidance supplements the original guidance that was issued in 2014 in the form of a notice (Notice 2014-21), which provides a baseline rule that cryptocurrency is property for federal income tax purposes.
Rev. Rul. 2019-24 addresses questions related to the tax treatment of hard forks. The revenue ruling describes a hard fork as a protocol change that results in a permanent split of a new distributive ledger from a legacy or existing distributed ledger, resulting in the creation of a new cryptocurrency on the new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. Continue Reading
SEC Passes Long-Awaited New Rule 6c-11 to Modernize Regulation of ETFs
Posted in Client Alert, Exchange-Traded Funds (ETFs), GT Alert, Investment Company Act of 1940, Investment Regulation, SEC, Securities and Exchange Commission, UncategorizedOn Sept. 26, 2019, the Securities and Exchange Commission (SEC) announced it had adopted a new Rule 6c-11 under the Investment Company Act of 1940 (the “Investment Company Act” or the “Act”). Rule 6c-11 will permit exchange-traded funds (ETFs) that satisfy certain conditions to operate without the expense and delay of obtaining an exemptive order. The new rule is effective 60 days after it is published in the Federal Register. The new rule was proposed in June 2018 after an earlier version of the rule first proposed in 2009 was not adopted.
In connection with the adoption of new rule, the SEC also announced that one year after the effective date of the new rule, prior ETF exemptive relief granted to provide relief related to the formation and operation of an ETF will be rescinded. However, the SEC did indicate that portions of the prior ETF exemptive orders allowing funds to invest in ETFs in excess of statutory limits are not being rescinded, and the SEC will continue to grant similar relief to newly formed ETFs upon application to the SEC. Prior exemptive relief related to unit investment trust (UIT) ETFs, leveraged and inverse ETFs, share class ETFs, and non-transparent ETFs also will not be rescinded, as such ETFs cannot rely on the new rule.
Click here to read the full GT Alert, which summarizes the new Rule 6c-11.
Qualifying Assets Under Investment Company Act Section 3(c)(5)(C) Mortgage Exemption
Posted in Client Alert, Financial Regulation, GT Alert, Investment Company Act of 1940, Investment Regulation, Mortgage, SEC, Securities and Exchange CommissionOn Aug. 15, 2019, the staff of the Division of Investment Management at the U.S. Securities and Exchange Commission (the “Staff”) issued a significant no-action letter. The letter clarifies the treatment of certain assets held by an entity seeking to rely upon Section 3(c)(5)(C) to be exempt from registration as an investment company under the Investment Company Act of 1940. The letter recognizes that the way that mortgage lending companies conduct their business has changed significantly since the original adoption of the exemption, and contains the Staff’s pronouncements on how the test will be applied.
Click here to read the full GT Alert.
Recent Rocky Mountain State Law Blockchain Developments
Posted in Blockchain, Blockchain Technology Task ForceRocky Mountain States Make Headway in Blockchain-Related Legislation
With Wyoming having become the first state to define “utility tokens” as a new asset class (see article in Blockchain & Cryptocurrency’s Winter 2019 Issue), Montana and Colorado are following close behind with their own cryptocurrency legislation. Both states have blockchain-related bills going into effect in July and August 2019, respectively.
Four Blockchain Regulations are Now Effective in Wyoming
In 2018, four (4) pro-blockchain regulations were signed into law by the governor. Now all are effective:
- HB 19 and HB 70 amend the Wyoming Money Transmitter Act under Wyoming Stat. Sections 40-22-102 and 40-22-104, and Wyoming Stat. Sections 17-4-206, 17-4-102, 40-22-1094 and 40-22-126, respectively.
- HB 19 provides an exemption from money transmitter laws and regulations for digital currency transmission. Signed by the governor March 7, 2018.
- HB 70 provides an exemption from certain securities and money transmission laws for a person who develops, sells, or facilitates the exchange of an open blockchain token (a “consumer” or “utility” token). The Wyoming Uniform Securities Act was amended to provide for the same. Effective July 1, 2019.
- SB 111 exempts digital currencies from property taxation, providing that virtual currency is not “property” for purposes of taxation. Signed by the governor March 12, 2018.
- SF 34, codified at Wyoming Stat. Sections 2-3-1001 to 2-3-1017, regulates fiduciary management of digital assets, including digital currency. Effective July 1, 2019.
In January 2019, the state introduced and passed new legislation. Effective July 1, 2019, (1) House Bill No. HB0185 permits companies to issue digital or “certificate tokens” in lieu of stock certificates, declaring that the words share certificate, share, stock, share of stock, or other similar words also include a certificate token and certificated shares or similar words to include shares represented by certificate tokens; and (2) Senate File No. SF0125 allows for banks to provide custodial services for a range of digital assets, including virtual currencies (such as bitcoin and ether), digital consumer assets (utility tokens, including those used to purchases goods and services), and digital securities.
Montana Cryptocurrency Act Now in Effect
Montana is the third Rocky Mountain state (after Wyoming and Colorado) to pass blockchain-related legislation; House Bill No. 584 went into effect July 1, 2019, and exempts blockchain-based utility tokens from securities laws so long as the tokens have a “primarily consumptive” purpose.
Entitled “Generally Revise Laws Relating to Cryptocurrency,” the new Act defines this purpose as having a primary aim to “provide or receive goods, services, or content, including access to goods, services, or content.” The issuer of the tokens cannot market them as an investment or for speculation.
The Act provides that tokens that qualify for the exemption (i.e., the consumptive purpose of the utility token) must be available no more than 180 days after their date of sale or transfer, and initial buyers of the tokens are not permitted to transfer the tokens until their consumptive purpose is available. Prior to the tokens being offered for sale, the issuer must file a notice of intent to sell them with the state’s securities commissioner.
Additionally, while utility tokens are now exempt from the state’s securities law, the issuers of such tokens still have to notify the securities commissioner, and must file certain disclosures in the state in order to sell such tokens. Such notice must be amended within 30 days for any information previously disclosed that becomes inaccurate in any material respect for any reason.
The Act is codified as a transactional exemption under Section 30-10-105(23) of the Montana Securities Act. The Act terminates Sept. 30, 2023.
Colorado Digital Token Act to Take Effect in August 2019
The Colorado Digital Token Act (Colorado Act) is scheduled to become effective August 2019. The Colorado Act permits Colorado businesses to effect transactions involving the purchase, sale, and transfer between certain persons of digital tokens secured through a decentralized ledger or database, with a focus on the production, distribution, and consumption of goods.
Under the Colorado Revised Statutes Section 11-51-308.7, transactions meeting certain conditions will be exempt from the securities registration requirements under the Colorado Securities Act (CSA), and those persons dealing in these digital tokens will be exempt from the securities broker-dealer and salesperson licensing requirements under the CSA. This issuer exemption requires the issuer of the digital token, and a person engaged in the business of effecting the purchase, sale, or transfer of a digital token, to file a notice of intent, and the consumptive purpose must be available at the time of sale or within 180 days after the date of sale or transfer of such digital token. For more on the Colorado Act, click here.
Click here to read the full GT Spring/Summer 2019 Blockchain & Cryptocurrency Newsletter.
