Japan to Publish Report of New Crypto Regulations

The report contains measures in areas that are not currently enlighten in existing laws
17 December 2018   12819

The Financial Services Agency of Japan (FSA) published the long-awaited preliminary report on the new regulatory framework for cryptocurrencies and initial coin offerings (ICO), Bitcoin.com reported. Discussion of the document was included in the agenda of the eleventh meeting of the research department of the department and contains recommendations for the previous ten meetings. According to local media, the proposed measures did not arouse significant objections, therefore, it is expected that based on them, the FSA will draft a new bill.

One of the main points of the report was the prevention of hacking and working with them - this year the country's cryptocurrency exchanges in such incidents appeared twice, and both times with large sums: Coincheck in January and Zaif in September. The FSA will require cryptocurrency exchanges to reinforce customer property management and maintenance systems and have reserves sufficient to cover losses in the event of a break-in. The document also proposed measures to prevent the bankruptcy of cryptocurrency exchanges. In part, this has already been implemented in the current licensing system.

The regulator notes the fact of the rapid development of the financial and technological industry and recognizes the importance of its self-regulation. In October, the Japan Association of Virtual Currency Exchanges was accredited by the FSA, with which it received the right to set rules for industry participants.

The FSA considers it permissible to deny registration to operators who do not want to join an accredited association and follow its rules, or will not have their own systems to comply with these rules. Given the positive experience of licensing cryptocurrency exchanges in Japan, they are probably among the first to be able to make self-regulation work in this industry.

Among other things, the document discusses restrictions on listing of private cryptocurrencies, derivatives trading and margin trading - already familiar to us proposals for earlier discussions.

According to the FSA, ICO "can be subject to securities regulation". “We are implementing an administrative measures,” the agency reports, whatever that implies. Depending on their structure, tokens can be regulated in accordance with the law on financial instruments and stock exchanges or the law on financial settlements. The possibility of vesting third-party organizations with the authority to study the business of issuers of tokens and their financial position is also being considered.

A separate place in the report is reserved for crypto-custodian business, which is currently not regulated by Japanese laws. The FSA proposes to create a registration system, implement internal control systems, divide the management of client funds and company funds, oblige services to prepare hacking response procedures and have reserves for paying compensation to users - in general, everything that is already applied to cryptocurrency exchanges licensing system.

Court to Ban TON Tokens Release

U.S. District Judge P. Kevin Castel, of the Southern District of New York issued a temporary restiction, therefore supporing the SEC
25 March 2020   1028

The American court issued an order to the developer of the Telegram messenger, according to which he should refrain from the distribution of tokens of the TON blockchain project planned for next month.

According to CoinDesk, on March 24, the District Judge of the Southern District of New York, Kevin Castel, issued a temporary injunction, recognizing the SEC's arguments regarding the sale of unregistered securities by the company as reasonable.

The Court finds that the SEC has shown a substantial likelihood of success in proving that the contracts and understandings at issue, including the sale of 2.9 billion Grams to 175 purchasers in exchange for $1.7 billion, are part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram’s ongoing efforts.

 

Kevin Castel

U.S. District Judge

According to the judge, this feature does not allow considering the Telegram offer as subject to exceptional conditions. He also noted that Telegram structured its project in such a way as to attract “the maximum number of primary buyers” against the background of the expectation of maximum profit at the time of launch.

Considering the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement. 

 

Kevin Castel

U.S. District Judge

Conducting an analysis from the standpoint of the Howey test, the judge stated that buyers expected to profit from participating in the campaign. Moreover, although Telegram may argue that it will not become a guiding force in the further development of TON, “in fact,” it will be precisely this.

The judge agreed to distinguish between non-existent Gram tokens and securities purchased by TON investors, but refused to support Telegram's argument that Gram would be a commodity.

The Court rejects Telegram’s characterization of the purported security in this case. While helpful as a shorthand reference, the security in this case is not simply the Gram, which is little more than [an] alphanumeric cryptographic sequence.

 

Kevin Castel

U.S. District Judge

This is not the final decision, but it can serve as a powerful indicator of what position the court will adhere to further.