Former CFTC Chairman Gary Gensler: ICOs Should be Considered Securities

Former chairman of the U.S. Commodity Futures Trading Commission (CFTC), Gary Gensler said that most tokens sold through Initial Coin Offerings (ICOs) should be classified as securities, Bloomberg reported Oct. 15.

Should cryptocurrencies be considered securities, they would fall under the regulatory purview of the U.S. Securities and Exchange Commission (SEC). Issuers of coins would have to comply with certain laws, register with the SEC, and disclose specific information like a description of the organization’s properties or financial statements.

When asked whether blockchain technology should be regulated, Gensler asserted that “we should be technology-neutral.” He continued, stressing the necessity to ensure investor protection within certain blockchain applications, such as cryptocurrencies. Gensler said:

“I think that cryptocurrencies like Bitcoin (BTC) need more protection, and probably more protection than even the oil markets.”

Speaking about future developments in blockchain regulation, Gensler said that there should be some sort of oversight — “traffic lights and speed limits” — to ensure confidence on “crypto roads.” Gensler said he thinks that the two will coexist, but “it will take a number of years to sort it through and get the balance right.”

Gensler’s words echo a statement from SEC Senior Advisor for Digital Assets and Innovation, Valerie A. Szczepanik, who said that “if you want [the crypto] industry to flourish, protection of investors should be at the forefront.”

Speaking at a U.S. SEC and CFTC senate hearing in February, SEC chairman Jay Clayton said that while every ICO token the SEC has seen so far is a security, a distinction should be made between tokens and major digital currencies such as BTC and Ethereum. The definition of ETH as a security has reportedly been questionable.

In December last year, Clayton issued a public statement, concluding that most tokens sold in ICOs are likely securities under U.S. law. Clayton then noted that the content of the transaction is more important than the form in determining if an investment is a security.

Crypto Trading Ban Won’t Work, Says Hong Kong’s Top Financial Regulator

Carlson Tong Ka-shing believes Hong Kong needs a more robust regulatory framework for cryptocurrency trading. The soon-to-be former head of the Hong Kong Securities and Futures Commission (SFC) has called for greater emphasis on investor protection in the volatile virtual currency trading arena.

Blanket Cryptocurrency Trading Ban isn’t the Right Approach

Speaking to South China Morning Post, Tong declared that it would be futile to issue a blanket ban on cryptocurrency trading given the global nature of the venture. Commenting on the issue, the outgoing SFC chairperson said:

We do not think imposing a total ban on these platforms is necessarily the right approach, and it will not work in today’s internet world when trading can cross national boundaries. Even if we were to ban them, transactions can still be easily conducted via platforms in overseas markets.

Tong’s sentiments are at odds with the status quo in mainland China where the country has elected to crack down massively on cryptocurrency trading along with ICOs. For Tong, a more nuanced but robust regulatory framework would serve all parties best.

Tong is due to hand over as head of the SFC to Tim Lui Tim-leung on Friday (October 19, 2018). Earlier in the year, a report by Hong Kong’s Financial Services and Treasury Bureau (FSTB) issued a report that said cryptocurrencies weren’t a viable option for organized crime.

For Tong, an effective regulatory environment requires an extension of the SFC’s mandate to cover the emerging digital asset class. According to him, the regulatory watchdog’s purview only covers securities. This limitation isn’t unique to Hong Kong alone as other jurisdictions face similar issues of applying securities law to monitor and control digital asset trading.

Cryptocurrency Companies in Hong Kong Welcome Regulatory Scrutiny

Despite the SFC’s technical limitations, Tong believes it is important that Hong Kong works on a formalized regulatory framework for the cryptocurrency market. Speaking further, Tong noted:

We have to carefully consider the regulatory approach for these platforms because they are new technology and may not qualify as securities. We need to see if and how these platforms can be regulated to a standard that is comparable to that of a licensed trading venue, while at the same time ensuring investors interest are being protected.

While Tong continues to sound the call for more regulations, operators in Hong Kong believe such a move would be beneficial to the legitimacy of their enterprises provided the laws do not hamper growth and development.

Angelina Kwan, COO of Bitmex, whose company recently moved into Hong Kong’s most expensive office building, called for the proposed regulations to keep pace with the current market landscape.

Do you agree with Tong’s comments regarding cryptocurrency regulations in Hong Kong? Let us know your thoughts in the comment section below.

Images courtesy of Business Insider, Shutterstock

Bitcoin is Not a Legal Tender in Zambia, Says Central Bank


Zambia’s central bank has said that cryptocurrencies like bitcoin aren’t legal tender in the country.

The Bank of Zambia (BoZ), responsible for creating and implementing monetary policies for the world’s 105th largest economy, explained their stance against the use of cryptocurrencies in contrast to the growing public interests in the field.

The central bank admitted that it was receiving a lot of inquiries related to Bitcoin’s legal status in Zambia, and they had to “safeguard the interests of members of the public and to maintain the integrity of the financial system” with its official stance on the digital currency, according to a local news report.

Constitutional Barriers

BoZ cited references from their financial constitutions, naming Section 30 as the main barrier that keeps Bitcoin and similar digital assets from having a legal tender status. Also, the bank agreed that they had no constitutional power to disfigure or ban the local crypto market under the existing legal framework. Excerpts:

“Firstly, Section 30 of the Bank of Zambia Act vests the right to issue notes and coins exclusively in the BoZ. To date, BoZ has not issued any form of cryptocurrency. Cryptocurrencies are not legal tender in the Republic of Zambia; Secondly, BoZ does not oversee, supervise nor regulate the cryptocurrency landscape. Consequently, any and all activities related to the buying, trading or usage of cryptocurrencies are performed at owner’s risk.”

Adding further, BoZ issued a public-interest warning identical to those released by its international peers in the past. The bank said that the investors should be aware of the risks associated with the use of cryptocurrencies. It added money laundering, consumer protection (related to hacking and fraud), and terrorism financing to its statement, reminding that they will not be able to offer any legal recourse to crypto users if they get subjected to any of such online crimes.

Regulation in Cards

The constitution of Zambia does not define Bitcoin, which is why it has received a flack from the country’s central bank. There is, however, a possibility of lawmakers taking an active approach to regulating it under a modified provision. BoJ confirmed that it would be actively looking into the cryptocurrencies to come up with a law that “should not constrain but enable innovation.”

As of now, the Zambian crypto community does not constitute any substantial trading activity to the global crypto volume. The country does not have an active local exchange, and the local crypto traders mostly rely on either foreign crypto exchanges or peer-to-peer desks to conduct their transactions. It might be due to the lack of crypto education in a country where only 11.6 percent of people have an internet connection, according to a World Bank report.

Victoria falls, Zambia image from Shutterstock.

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