UK: Blockchain And Digital Assets News And Trends

Last Updated: 15 July 2019
Article by Margo H. K. Tank, Mark F. Radcliffe and Michael D. Hamilton

To remain competitive, companies find themselves increasing their efforts to digitally transform their businesses by developing new offerings based on emerging technologies and integrating these technologies into existing product and service offerings.

This is our third monthly bulletin, aiming to help companies identify important and significant legal developments governing the use and acceptance of blockchain technology, smart contracts and digital assets.

While the use cases for blockchain technology are vast, from copyright protection to voting, most of the current adoption is in the financial services section and the focus of this bulletin will be primarily on the use of blockchain and or smart contracts in that sector. With respect to digital assets, we have organized our approach to this topic by discussing it in terms of traditional asset type or function (although the types and functions may overlap), that is, digital assets as:

  • Securities
  • Virtual currencies
  • Commodities
  • Deposits, accounts, intangibles
  • Negotiable instruments
  • Electronic chattel paper
  • Digitized assets

Digital assets can themselves be assets or instead can reflect the ownership of an underlying asset. For example, electronic records that are the equivalents of negotiable instruments and electronic chattel paper would be digital assets, as would an electronic recording of a security interest in the underlying asset, such as recording title to real or personal property and the use of tokens to represent revenue streams from otherwise illiquid assets such as patents and commercial real estate (sometimes referred to as a "tokenized" or digitized asset).

In addition to reporting on the law and regulation governing blockchain, smart contracts and digital assets, this bulletin will also report on the legal developments to support the infrastructure and ecosystems enabling the use and acceptance of these new technologies.

Each issue will feature in-depth insight on a timely and important current topic. In this issue, we take a look at the US Securities and Exchange Commission's Strategic Hub for Innovation and Financial Technology "Framework for 'Investment Contract' Analysis of Digital Assets" and the SEC Division of Corporation Finance's first "No Action" letter to a startup planning to sell digital assets.

For related information regarding digital transformation, please see our monthly bulletin, eSignature and ePayment News and Trends.

INSIGHT

Digital Asset Report: a Templum interview with DLA Piper's John Grady

What is the legal status of blockchain regulation today?  It's almost as if the industry is having to build the plane while flying it, says John Grady, chair of DLA Piper's Investment Management group.  In this video interview with Templum co-founder Vince Molinari and journalist Patricia Wu, John discusses the work that regulators, legislators, the industry and DLA Piper are doing together to arrive at a common understanding of the terminology around blockchain and digital assets and then to craft laws and rules that make sense in this swiftly evolving landscape. See the interview.

FEDERAL DEVELOPMENTS

Securities

  • SEC tracing digital assets. SEC Chair Jay Clayton acknowledged on June 4, 2019 that "SEC staff also trace digital asset transactions on the blockchain. This tracing has been critical to several actions, including two cases in which the Commission obtained preliminary injunctions to stop alleged frauds."
  • SEC seeks comment on bitcoin ETF proposal. On May 20, 2019, the SEC issued a notice to institute proceedings to determine whether to approve or disprove a proposed rule change to list and trade shares of the VanEck Solid X Bitcoin Trust. The SEC seeks comment on questions related to the proposal of Cboe BZX Exchange, Inc, which comments are due 21 days after publication in the Federal Register.
  • SEC FinTech Forum. On May 31, 2019, the SEC hosted the second FinTech Forum to specifically cover distributed ledger technology and digital assets. This event was the first forum sponsored by the SEC's recently created Strategic Hub for Innovation and Financial Technology (FinHub). Panels covered capital formation, trading and markets, investment management, and distributed ledger technology industry trends and specific use cases for financial markets. FinHub staff also used the forum to announce the SEC's new visiting scholars program, which is seeking digital asset experts. 
  • SEC announces Senior Advisor for Cybersecurity Policy. On June 3, the SEC announced that Kevin A. Zerrusen will serve as Chairman Jay Clayton's Senior Advisor for Cybersecurity Policy, coordinating across the Commission to address cybersecurity policy, engage with external stakeholders, and help enhance mechanisms for assessing cyber-related risks.

Commodities

  • FINRA podcast on digital transformation. On June 11, FINRA released a podcast titled DXT: Transforming the Digital Experience of Firms in which members of FINRA's technology team discussed how FINRA's Digital Experience Transformation project can enhance compliance and reduce costs for member firms.

Virtual currency

  • SEC engaging on ETFs. On June 6, 2019, SEC Chair Jay Clayton discussed regulation of cryptocurrency as well as the SEC's need for more information regarding custody of digital assets and consumer protection.
  • IRS Commissioner anticipates guidance on virtual currency. In response to a letter from Representative Tom Emmer (R-MN) and cosigned by other members of Congress, IRS Commissioner Charles Rettig stated on May 16, 2019 that he "has made it a priority of the IRS to issue guidance" on virtual currency transactions and intends to publish such guidance soon.

STATE DEVELOPMENTS

Blockchain

  • Florida establishes blockchain taskforce. On May 23, 2019, Florida enacted SB1024 establishing a blockchain task force within the Department of Financial Services to develop a master plan for fostering the expansion of the blockchain industry in Florida, recommend policies and state investments to help make Florida a leader in blockchain technology, and report to the governor and the legislature.
  • llinois enables blockchain business development. On June 1, 2019, the Illinois legislature passed HB2540, adopting the Blockchain Business Development Act, which provides for the creation and regulation of blockchain-based limited liability companies as businesses that utilize blockchain technology for a material portion of their business activities. It also provides for various blockchain studies and reports and requires the Department of Commerce and Economic Opportunity to incorporate topics concerning blockchain technology and financial technology into business support programs, events, and activities. The bill awaits signature by the governor.
  • Illinois enables smart contracts using blockchain. The Illinois legislature also adopted the Blockchain Technology Act, HB3575, on May 29, 2019. This act provides for the effectiveness of smart contracts, records, and signatures maintained using blockchain technology, and sets certain limitations to the use of blockchain technology. The bill awaits signature by the governor.
  • Nevada authorizes certain business entities to use blockchain technology for sending communications and storing certain records. On June 7, 2019, the Nevada governor approved SB163 which allows certain business entities to send certain notices or other communications using blockchain technology by revising the definition of electronic transmission to include private and public blockchain technology. The law also authorizes businesses to store records on a blockchain, and it amends the Secretary of State's current authority to adopt regulations allowing businesses to perform duties using the most recent technology by specifying that such technology includes blockchain.
  • Nevada revises its UETA for blockchain. On June 7, 2019, the governor of Nevada approved SB162 which revises its Uniform Electronic Transactions Act to address blockchain technology. Specifically, the bill does the following: (i) it states that a public blockchain as a type of electronic record for the purposes of the Uniform Electronic Transactions Act; (ii) it provides that a person who uses a public blockchain to secure information does not relinquish any right of ownership related to that information; (iii) it requires a governmental agency to accept a certified copy of a record in electronic form under certain circumstances; and (iv) it prohibits a local government from taxing or imposing restrictions upon the use of a public blockchain.
  • Texas authorizes use of blockchain technology for businesses to maintain certain books and records. On June 10, 2019, the governor of Texas signed into law SB1859, which amends the Business Organization Code to authorize the maintenance of books and records of any domestic filing entity using one or more electronic data systems - which includes blockchain and other distributed ledger technologies - provided that the records can be converted into written paper within a reasonable period of time.

Virtual currency

  • Nevada classifies virtual currency. The Nevada governor signed SB164 on June 7, 2019, which clarifies that certain currencies are intangible personal property for the purposes of taxation.

ENFORCEMENT ACTIONS

FEDERAL

Securities

  • SEC charges issuer with conducting $100 million unregistered ICO. On June 4, 2019, the SEC announced that it filed a complaint against a social media and messaging application startup, Kik Interactive, Inc., for conducting an illegal $100 million securities offering of digital tokens, claiming that Kik sold the tokens to US investors without registering the offer and sale as required by the U.S. securities laws. According to the SEC, Kik had lost money for years on its sole product, an online messaging application, and its management predicted internally that it would run out of money in 2017. Nevertheless, in early 2017, the company moved to a new business model that it financed through the sale of digital tokens, raising more than $55 million from US investors. The SEC seeks a permanent injunction, a civil monetary penalty and disgorgement. Kik plans to defend the case, and the Kin Foundation has launched an initiative called DefendCrypto.org with $5 million to fund the potential court battle.
  • SEC complaint filed against perpetrator of pyramid scheme. The SEC announced on May 22, 2019, that it filed a COMPLAINT against Daniel Pacheco, a California resident and the alleged perpetrator of a multimillion-dollar pyramid scheme selling instructional packages which also provided "points" that could be converted into digital assets known as "PRO Currency."  The agency claims that the fraudulent pyramid scheme raised over $25 million between January 2017 and March 2018 in an unregistered securities offering. The SEC seeks an injunction and civil monetary penalties against Pacheco, as well as disgorgement.
  • SEC charges cryptocurrency company with fraud. On June 5, 2019, the SEC filed a new fraud action against Longfin Corp. and its CEO for falsifying the company's revenue and, together with a former Longfin consultant, for fraudulently securing the company's listing on Nasdaq. The SEC's prior charges against these defendants and two others resulted in a preliminary injunction freezing more than $27 million in allegedly illegal trading proceeds from unregistered distributions of Longfin stock.

STATE

Virtual currency

  • Southern District of California sentences operator of unlicensed money transmission business. On May 28, 2019 Morgan Rockcoons of Las Vegas, Nevada was sentenced to 21 months in prison for wire fraud and operating an unlicensed money transmitting business and was also ordered to forfeit $80,600 in illicit profits. Rockcoons, a US citizen, pleaded guilty on March 7, 2019, admitting that he operated a bitcoin exchange without registering with the Financial Crimes Enforcement Network (FinCEN) of the US Department of Treasury. 

RECENT EVENTS

  • Hedera Hashgraph master class.  On June 6 in London, 14 lawyers from DLA Piper offices around the world (such as Hong Kong, Silicon Valley, Sydney, Dubai, London and Washington, DC) met with a team from Hedera Hashgraph for an all-day asset tokenization master class. Hedera Hashgraph is a new distributed ledger platform (not based on blocks, so not a blockchain platform) which is designed to be used by enterprises.  The Hedera team provided a briefing on how the Hedera platform works and DLA Piper attorneys described how some of their clients were considering the tokenization of their assets. The two teams focused on specific use cases and how Hedera could work with DLA Piper to implement tokenization solutions on the Hedera platform.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions