🌐 The HODL Regulatory Radar | August 1, 2024 🪩
Stay ahead of the curve in the world of Web3 with our bite-sized weekly regulatory updates!
1. South Korea Imposes Supervisory Fees on Crypto Operators 🇰🇷
Korean crypto operators, including Upbit, Bithumb, and Coinone, will now be required to pay supervisory fees under the newly enforced Virtual Asset User Protection Act. The Financial Services Commission (FSC) announced on July 1 revised regulations that mandate virtual asset operators to contribute supervisory fees for inspections by the Financial Supervisory Service (FSS) starting next year. The fee, based on the previous fiscal year’s operating revenue, is estimated to be around 300 million won ($219,992) for leading exchanges. This new financial obligation applies to businesses with an operating revenue of 3 billion won or more, posing significant challenges for many exchanges which continue to suffer operating losses.
2. Senator Lummis Introduces Bitcoin Strategic Reserve Bill 📜
On July 31, Senator Cynthia Lummis introduced the Bitcoin Strategic Reserve bill, which proposes the creation of a reserve fund for Bitcoin under the control of the US Treasury. The bill outlines the establishment of a decentralized network of secure Bitcoin vaults and mandates strict cybersecurity and physical security measures to safeguard the funds. The bill’s goal is to accumulate 1 million Bitcoin, approximately 5% of Bitcoin's total supply, using existing Treasury funds in a manner similar to the Treasury's gold allocation. Additionally, the bill reaffirms the right to self-custody Bitcoin in the United States.
3. Law Commission Urges UK to Create New Property Category for Crypto Assets 🇬🇧
On July 30, the Law Commission of England and Wales urged the United Kingdom government to categorize all crypto assets as a new form of personal property in its supplemental report on digital assets. The Law Commission highlighted the inadequacy of current personal property categorizations and their legal implications for crypto assets. The report argued that digital assets, including cryptocurrencies and NFTs, possess qualities of both tangible and intangible properties, complicating dispute resolution in court proceedings. Consequently, the commission recommended creating a “third category” to ensure clear and enforceable property rights for crypto assets. The commission issued a draft bill proposing a separate category for crypto assets to establish a robust legal framework. The draft bill suggests that courts develop the third category for crypto assets, allowing for future amendments without disrupting the legal proceedings of other personal property forms.
4. Wisconsin Launches Investment Scam Tracker to Combat Crypto Fraud 👀
On July 30, the Wisconsin Department of Financial Institutions (DFI) launched a publicly accessible tracker aimed at deterring crypto and other investment scams. According to the DFI, Wisconsinites lost nearly $3.55 million to financial grooming and cryptocurrency fraud between January 2022 and June 2024. The new investment scam tracker collects consumer complaints to gather threat information and alert the public, making it harder for perpetrators to deceive more investors. Wisconsin government records show 22 entries in the tracker from older complaints, mostly involving victims of pig butchering scams or fraudulent crypto trading platforms. The tracker is intended to protect crypto investors by continuously updating with new entries, which are searchable by company name, scam type, or keyword.
5. Coinbase UK Fined $4.5 Million for Breaching FCA Agreement 🚨
Coinbase’s UK subsidiary, CB Payments Limited (CBPL), was fined $4.5 million by the Financial Conduct Authority (FCA) for violating a voluntary agreement related to user onboarding. In 2020, CBPL entered an agreement with the FCA to prevent onboarding customers deemed "high risk." Despite this, CBPL allegedly onboarded 13,416 high-risk customers and provided them with cryptocurrency services, violating the agreement. As a result, the FCA imposed a fine of 3,503,546 British pounds ($4.5 million) for these repeated breaches.
6. FINMA Proposes New Guidelines for Stablecoin Issuers to Enhance Regulatory Oversight 🇨🇭
On July 26, the Swiss Financial Market Supervisory Authority (FINMA) proposed new guidelines for stablecoin issuers to enhance regulatory oversight and mitigate financial risks. The guidance aims to classify stablecoin issuers as financial intermediaries due to increased risks associated with money laundering, terror funding, and sanctions evasion linked to these digital assets. FINMA emphasized that stablecoin issuers must adhere to the same Anti-Money Laundering (AML) obligations as traditional financial institutions, including verifying the identity of stablecoin holders and establishing the identity of beneficial owners. Additionally, stablecoin issuers can operate without a banking license if they meet specific conditions to ensure depositor protection, such as maintaining a bank guarantee in case of default, informing customers about the guarantees, adhering to guarantee limits, and allowing immediate claims in case of insolvency without waiting for a certificate of loss.
7. DraftKings Halts NFT Operations Following Legal Setback ❌
DraftKings announced that it would cease its NFT business in light of recent legal developments. This decision follows a federal court judge's rejection of DraftKings' motion to dismiss a class action lawsuit claiming the company's NFTs were unregistered securities. Customers of DraftKings' fantasy sports game Reignmakers will still be able to access and transfer their NFT assets. The class action lawsuit, initiated earlier this year by DraftKings customer Justin Dufoe, argued that the NFTs qualified as securities under the Howey test. The court agreed that Dufoe had adequately alleged that DraftKings NFTs were investment contracts, and therefore securities, under the Securities Act and Exchange Act.
8. Artists Sue SEC Over NFT Regulation Authority ⚖️
On July 29, two artists filed a lawsuit against the US Securities and Exchange Commission (SEC) to clarify whether non-fungible tokens (NFTs) fall under the commission’s jurisdiction. Law professor and filmmaker Brian Frye, along with songwriter Jonathon Mann, seek to determine which actions might trigger US securities laws when creating and selling NFT art. The lawsuit questions whether artists need to register their NFT art before selling it to the public and if they must disclose the risks of buying their art. Frye and Mann’s attorneys used Taylor Swift concert tickets as an analogy, arguing it would be absurd for the SEC to classify NFTs as securities. They stated that Swift’s concert tickets, which are sold on the secondary market and promoted by her, would not be considered securities by the SEC, and it would be equally nonsensical to treat NFTs this way. The lawsuit seeks declaratory and injunctive relief against what they consider unlawful enforcement actions by the SEC on NFT projects launched by Frye and Mann.
9. SEC and US Attorney’s Office Charge BitClout Founder with Securities Fraud 🚨
On July 30, the United States SEC, in conjunction with the US Attorney’s Office for the Southern District of New York, announced charges against BitClout founder Nader Al-Naji. The SEC's complaint alleges that Al-Naji sold $257 million in unregistered securities via BitClout's native token, BTCLT, and defrauded investors by misusing a portion of those funds. The complaint also names Decentralized Social (DeSo), another project by Al-Naji, in the allegations. Al-Naji is also accused of spending $7 million in customer funds on luxury items, despite assuring investors that the funds would not be used as compensation for any BitClout team members.