CRYPTOINDUSTRY LEGISLATION

CRYPTOINDUSTRY LEGISLATION (15)

Cryptoindustry legislation.

Wednesday, 08 January 2020 17:54

QATAR BLOCKS CRYPTO ASSET SERVICES

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The world is divided into parts regarding the cryptocurrency environment. Some advocate a ban on digital currency, others offer only some restrictions, and some states impose a complete ban on cryptocurrencies. The motivation for the ban and restrictions on cryptocurrency is the fight against crime and money laundering.

So the State of Qatar has added to the list of countries with a ban on the circulation of cryptocurrency. A statement by the Qatar Financial Center regulator states that "Virtual Asset Services cannot be held in or out of QFC at this time." It stated that the ban included “anything valuable that replaces a currency, can be sold or digitized and can be used for payment or investment”.

Simplecoin, a Netherlands-based cryptocurrency 'mining pool' set up to enable collaborative discovery of new virtual currency coins, and Chopcoin, a Bitcoin gaming platform, announced they would be shutting down before the EU Fifth Anti-Money Laundering Directive (5AMLD), came into effect in all EU Member States on 10 January 2020. 

The 5AMLD requires providers of crypto platforms and wallets to identify their customers for anti-money laundering purposes.

Source: Intelligence for the Global Adviser and Wealth Manager.

Paris, 17 December 2019 - The Russian Federation (Russia) has an in-depth understanding of its money laundering and terrorist financing risks and has established policies and laws to address these risks, but it should enhance its approach to supervision and prioritise the investigation and prosecution of complex money laundering cases, especially concerning money being laundered abroad.

The Financial Action Task Force (FATF), the Eurasian Group and MONEYVAL, assessed Russia’s anti-money laundering and counter terrorist financing (AML/CFT) system. The assessment is a comprehensive review of the effectiveness of Russia’s measures and their compliance with the FATF Recommendations. This includes an assessment of its actions to address the risks emanating from UN and domestically designated terrorists and terrorist organisations. The report does not address the justification that led to the domestic designation of an entity as a terrorist or terrorist group or organisation.

Russia recognises that it faces significant money laundering risks as a result of the proceeds of crimes committed within the country, in particular those related to corruption and its role as both a transit and destination country for narcotics trafficking. A national risk assessment, complemented by in-depth knowledge of relevant law enforcement agencies, has allowed the country to identify and understand its risks, including terrorist financing risks. Russia’s legal framework appropriately addresses these risks and the country has formal policies in place, supported by strong domestic co-ordination and co-operation, to combat money laundering and terrorist financing. However, the country needs to address gaps in its ability to freeze, without delay, assets linked to terrorism, financing of terrorism and proliferation of weapons of mass destruction, and ensure that this freezing obligation extends to all natural and legal persons.

In general, Russia cooperates with foreign counterparts, including through more than 100 international co-operation agreements with its financial intelligence unit, Rosfmonitoring. Authorities make excellent use of financial intelligence, based on a wealth of collected data and analysed with sophisticated technologies to contribute to money laundering and terrorist financing investigations. While the country has prioritised getting money back for the victims of crimes – around EUR 816 million per year – it needs to focus more on the investigation and prosecution of complex money laundering cases, especially concerning money being laundered abroad.

Russia has strengthened its oversight of the banking sector and has now mitigated the risks of criminals being the owners or controllers of financial institutions. However, deficiencies in licensing remain and the sanctions for banks that do not comply with AML/CFT requirements are not effective or dissuasive.

In general, financial and certain non-financial entities such as accountants and auditors, have a good understanding of how their services could be used to launder the proceeds of criminal activity or terrorist financing, but given that Russia is a significant centre for mining precious metals and stones, this sector’s understanding of risk is not in line with the country’s risk assessment.

Since its last assessment in 2008, Russia has strengthened its understanding of the money laundering and terrorist financing risks it faces and has developed a robust legal framework to address them. The country has taken a number of actions that have delivered concrete results. But, the country needs to address the areas of weakness this report has identified.

The FATF adopted this report at its October 2019 Plenary meeting.

Source: FATF-GAFI.ORG - Financial Action Task Force (FATF).

From 01.01.2020, a new entity will appear on the financial market - the operator of the investment platform. In accordance with subparagraph 7) of clause 1 of article 2 of Federal law dated 02.08.2019 No. 259-FL "On attracting investments using investment platforms and on amending certain legislative acts of the Russian Federation" the operator of the investment platform is a business company created in accordance with the legislation of the Russian Federation, carrying out activities to organize investment attraction and included by the Bank of Russia in the register of investment platform operators.

It is worth noting that from 01.01.2020 the amendments to the Federal Law of 07.08.2001 also come into force. No. 115-FL "On combating the legalization (laundering) of proceeds from crime and the financing of terrorism" (hereinafter - Law No. 115-FL), according to which:

1. Operators of investment platforms become the subject of Law No. 115-FL (Supplement to the first part of Article 5 with a new fourth paragraph of the above law);

2. The operators of investment platforms are entrusted with the obligations specified in Article 7 of Law No. 115-FL, including the application of measures to freeze (block) money or other property in accordance with the requirements established by subparagraph 6 of paragraph 1 of Article 7 of Law No. 115- Federal Law. 

3. The operators of investment platforms have been granted the rights specified in Article 7 of Law No. 115-FL, in particular:

- simplified identification of investment platform operators with respect to customers in certain cases, namely: when concluding agreements on the provision of investment assistance services involving investment using the investment platform for an amount not exceeding 100,000 rubles, provided that all settlements are carried out exclusively in non-cash form on accounts opened with a Russian credit institution;

- an assignment of the identification procedure to third parties - on the basis of the contract to entrust the credit organization with the identification or simplified identification of the individual customer, as well as the identification of the client’s representative, beneficiary and beneficial owner.

4. The internal control rules of the Investment Platform Operators are developed taking into account the requirements approved by the Central Bank of the Russian Federation in agreement with the authorized body, and approved by the head of the organization.

5. Qualification requirements for special officials responsible for the implementation of internal control rules, targeted internal control rules, as well as requirements for training and education, identification of clients, client representatives (including identification of the sole executive body as a representative of the client), beneficiaries and beneficial owners are determined in accordance with the procedure established by the Bank of Russia.

Please note that non-compliance with the requirements of Law No. 115-FL entails the prosecution of an official and organization on the basis of Article 15.27 of the Code of Administrative Offenses of the Russian Federation. The consequences of non-compliance with the requirements of the AML/CFT legislation May result in criminal prosecution.

For questions regarding the organization of work on the implementation of Law No. 115-FL and training, write to This email address is being protected from spambots. You need JavaScript enabled to view it. or  This email address is being protected from spambots. You need JavaScript enabled to view it..

On September 11, 2019, the Swiss financial market supervision authority FINMA published an addendum to the ICO manual, which outlined its position on stablecoin1 under the Swiss supervision legislation. Observing the steady growth of stablecoin projects since 2018, in the context of a request from the Libra Association, FINMA in the initial directions provides information on how the Swiss supervisory will apply the relevant rules for the assessment and supervision of stablecoins.

According to FINMA, the supervisor considers stablecoin in accordance with the law on supervision of an existing approach to blockchain-based tokens: the main focus is on the economic nature and purpose of the token (“substance over form”). When making decisions on specific projects, FINMA will “follow the proven principle of“ same risks, same rules ”, and also take into account the features of each project.

The requirements under the supervision law may vary depending on which assets (e.g. currencies, goods, real estate or securities) are supported by stablecoin and how the legal rights of its owners will be protected (see the Overview in the Appendix to the Guidelines ICO, Appendix 2).

FINMA provided the legal assessment and indicative classification of the Libra project in accordance with Swiss supervisory law based on the available information. It is worth noting that FINMA focused on the fact that the classification may change during the implementation of the project.

Here are a few key points:

- The project falls under the regulation of Swiss financial market infrastructure. The project, as it is currently envisioned, will require a FINMA payment system license.

- The regulatory requirements for payment systems in Switzerland are based on prevailing international standards, in particular, on the Principles for Financial Market Infrastructures (PFMI). These requirements also apply to cyber risk management.

- The Swiss payment system is automatically covered by the Anti-Money Laundering Act. The highest international anti-money laundering standards must be ensured throughout the project’s ecosystem. Such an ecosystem must be protected from the increased risks of money laundering.

- According to the Financial Market Infrastructure Act (FMIA), all additional services that increase the risks of the payment system must comply with the relevant additional requirements. This means that all potential risks of the Swiss payment system, including banking risks, can be eliminated by introducing the relevant requirements in accordance with the principle of “same risks, same rules”. In connection with the release of Libra payment tokens, the services planned by the Libra project will clearly go beyond a purely payment system and, therefore, will be the subject of such additional requirements.

- These additional requirements will relate in particular to the distribution of capital (for credit, market and operational risks), concentration of risk and liquidity, as well as the management of the Libra reserve.

- Additional requirements will be based on generally accepted standards for similar activities in financial markets and should reflect the scope of the project. For example, for similar banking risks, banking regulatory requirements will apply. Thus, the license of the Swiss payment system will allow you to combine the strengths of banking and infrastructure regulation.

A prerequisite for obtaining a license as a payment system would be that the revenues and risks associated with the management of the reserve are fully covered by the Libra Association, and not by the providers of funds - stablecoin holders.

The planned international scope of the project requires an internationally coordinated approach. In particular, the definition of requirements for reserve management and management, as well as for combating money laundering, should be developed in the framework of international coordination.

Matters beyond supervisory law.

A possible licensing procedure under Swiss supervision legislation will only begin after FINMA receives a specific licensing application. In accordance with its practice, FINMA will not provide public information on the status of any existing licensing procedures and will not speculate on when it may be completed.

Other issues raised in the context of the Libra project, such as those related to tax law, competition law or data protection law, are outside the scope of supervisory law and therefore are not within the competence of FINMA.

In the next message, we will analyze in detail the documents posted below.

Source: FINMA.

Orlando, FL, United States – 21 June 2019. Financial innovation has drastically changed the financial landscape. New technologies, services and products offer efficient alternatives to classic financial products and can improve financial inclusion. At the same time, the speed and anonymity of some of these innovative products can attract criminals and terrorist who wish to use them to launder the proceeds of their crimes and finance their illicit activities.

This guidance will help countries and virtual asset service providers understand their anti-money laundering and counter-terrorist financing obligations, and effectively implement the FATF’s requirements as they apply to this sector.

This guidance follows revisions to the FATF Recommendations in October 2018 and June 2019 in response to the increasing use of virtual assets for money laundering and terrorist financing. The FATF strengthened its standards to clarify the application of anti-money laundering and counter- terrorist financing requirements on virtual assets and virtual asset service providers. Countries are now required to assess and mitigate their risks associated with virtual asset financial activities and providers; license or register providers and subject them to supervision or monitoring by competent national authorities. Virtual asset service providers are subject to the same relevant FATF measures that apply to financial institutions.

The guidance addresses the following:

- How do virtual assets activities and virtual asset service providers fall within the scope of the FATF Recommendations? (Section II)
- How should countries and competent authorities apply the FATF Recommendations in the context of virtual assets or virtual asset service providers? (Section III)
- How do the FATF Recommendations apply to virtual asset service providers, and other entities (including banks, securities broker-dealers) that engage in or provide virtual asset covered activities?

The guidance, which benefited from dialogue with the private sector, also includes examples of national approaches to regulating and supervising virtual asset activities and virtual asset service providers to prevent their misuse for money laundering and terrorist financing.

Source: Financial Action Task Force (FATF).

On May 9, 2019, FinCEN released guidelines for applying the rules to some of the Business Models for Attracting Convertible Virtual Currencies. To remind individuals under the Banking Secrets Act (BSA) about how FinCEN rules relating to companies providing monetary services (MSBs) apply to certain business models related to the transfer of money denominated in value, which replaces currency, in particular, convertible virtual currencies (CVCs).

This guidance does not establish any new regulatory expectations or requirements. Rather, it consolidates current FinCEN regulations, and related administrative rulings and guidance issued since 2011, and then applies these rules and interpretations to other common business models involving CVC engaging in the same underlying patterns of activity.

This guidance is intended to help financial institutions comply with their existing obligations under the BSA as they relate to current and emerging business models involving CVC by describing FinCEN’s existing regulatory approach to the issues most frequently raised by industry, law enforcement, and other regulatory bodies within this evolving financial environment. In this regard, it covers only certain business models and necessarily does not address every potential combination of facts and circumstances. Thus, a person working with a business model not specifically included in this guidance may still have BSA obligations.

The overall structure of this guidance is as follows:

Section 1 defines certain key concepts within the context of the guidance. Although the titles or names assigned to these key concepts may coincide with terms customarily used by industry and share similar attributes, for purposes of the guidance their meaning is limited to the definition provided in the guidance.

Section 2 consolidates and explains current FinCEN regulations, previous administrative rulings, and guidance involving the regulation of money transmission under the BSA. By consolidating and summarizing rules and interpretation in a single Section, this guidance provides a resource to help financial institutions comply with their existing obligations under the BSA as they relate to current and emerging activities involving CVC.

Section 3 summarizes the development and content of FinCEN’s 2013 guidance on the application of money transmission regulations to transactions denominated in CVC.

Sections 4 and 5 describe FinCEN’s existing regulatory approach to current and emerging business models using patterns of activity involving CVC. This approach illustrates how FinCEN fits existing interpretations about certain activities to other activities that at first may seem unrelated, but conform to the same combination of key facts and circumstances.

Finally, Section 6 contains a list of resources to which interested parties may refer for further explanation about the content of the guidance, or to assist in evaluating facts and circumstances not expressly covered in this guidance.

Source: United States Department of the Treasury Financial Crimes Enforcement Network | FinCEN.gov

On March 27, 2019, training for students of the 7th stream of the BCL (Blockchain Lawyers) supplementary education program was completed at the Federation Council. 

As part of that, the audience in a round table format along with the first deputy chairman of the Federation Council Committee on Economic Policy, the founders and teachers of the course, as well as invited experts discussed the regulation of the digital economy and modern technologies in Russia.

Natalya Manuilova paid special attention to the following issues: that the Bank of Russia had several new and important documents aimed at fulfilling the requirements of the legislation in the area of countering the legalization (laundering) of proceeds from crime and the financing of terrorism (AML/CFT). Important on the approach to the organization of work in this direction.

Thus, one of these documents is Directive No. 5083-U of 02/27/2019 “On Amendments to the Regulation of the Bank of Russia of March 2, 2012 No. 375-P“ On the Requirements for the Rules of Internal Control of a Credit Organization to Counter Legalization (Money Laundering) criminal proceeds and the financing of terrorism. ” In accordance with the changes that will come into force on 04/05/2019, the ML/TF risk management systems in credit institutions will have to take into account the results of a national risk assessment of transactions (transactions) in order to legalize (launder) proceeds from crime, and the financing of terrorism, posted on the official website of the authorized body on the Internet information and telecommunications network.

The possibility for credit institutions to install in the Risk Management Programs “other factors independently determined by the credit organization” scares many, but these factors must be fixed, fixed in the Rules of the credit organization. And no one has canceled a systematic approach - why are some requirements for some, and others for others? “Documentary fixation” will compel to substantiate certain AML/CFT measures.

In accordance with the Bank of Russia Newsletter No. IN-014-12/27 of 03/27/2019 “On Approaches to the Procedure for the Implementation of Credit Rights by Credit Institutions Provided by Sub-clause 1.1 of Clause 1 of Article 7 of Federal Law No. 115 “On Counteracting Legalization (Laundering) of Revenues criminal proceeds and the financing of terrorism” the Bank of Russia draws the attention of credit institutions to the need to follow the results of their assessment of the extent (level) of the risk of a client’s operations for AML/FT when implementing these powers in accordance with its own rules of internal control in order to counter the legalization (laundering) of proceeds from crime and the financing of terrorism.

Will high-risk transactions (deals) with digital assets be added to the list? Definitely! Companies need to start preparing letter templates - explanations about the sources of funds received to the account, etc.

The Bank of Russia still had to pay attention to the not quite adequate measures of credit institutions regarding blocking accounts under federal law 115, inquiries about the source of clients funds, whose operations in principle do not bear and cannot bear the risks of ML/FT and the risk of involvement credit organization in the scheme of ML/FT.

Let's hope for positive changes, because for a long time, the “struggle” of a number of banks on AML/CFT issues has discredited the AML/CFT system as a whole, and only the one who has not come to the bank does not care about 115-FL.

At the same time, the information letter of Rosfinmonitoring dated March 1, 2019 No. 59 “On Methodological Recommendations for Assessing ML/TF Risks by Organizations that Operate with Monetary Funds or Other Property and individual entrepreneur” was discussed.

From which it was seen that there are three types of risks:

- risks associated with countries and individual geographic territories (country risks);

- customer related risks (customer risks);

- risks associated with products, services, operations (transactions) or supply chains made by the customer (operational risks), a high level for operations with digital assets.

April 3, 2019. Public Statement. Bill Hinman, Director of Division of Corporation Finance; Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation.

Blockchain and distributed ledger technology can catalyze a wide range of innovation. They have seen these technologies used to create financial instruments, sometimes in the form of tokens or coins that can provide investment opportunities like those offered through more traditional forms of securities.  Depending on the nature of the digital asset, including what rights it purports to convey and how it is offered and sold, it may fall within the definition of a security under the U.S. federal securities laws.

As part of a continuing effort to assist those seeking to comply with the U.S. federal securities laws, FinHub is publishing a framework for analyzing whether a digital asset is offered and sold as an investment contract, and, therefore, is a security.  The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.  Also, the Division of Corporation Finance is issuing a response to a no-action request, indicating that the Division will not recommend enforcement action to the Commission if the digital asset described in the request is offered or sold without registration under the U.S. federal securities laws.

This framework represents Staff views and is not a rule, regulation, or statement of the Commission.  The Commission has neither approved nor disapproved its content.  This framework, like other Staff guidance, is not binding on the Divisions or the Commission.  It does not constitute legal advice, for which you should consult with your own attorney.  It does not modify or replace any existing applicable laws, regulations, or rules.  Market participants are encouraged to review all the materials published on FinHub...

Source: SEC.gov

Washington D.C., Dec. 20, 2018 - The Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE) today announced its 2019 examination priorities. OCIE publishes its exam priorities annually to promote transparency of its examination program and provide insights into the areas it believes present potentially heightened risk to investors or the integrity of the U.S. capital markets. This year, particular emphasis will be on digital assets, cybersecurity, and matters of importance to retail investors, including fees, expenses, and conflicts of interest.

OCIE is steadfast in its commitment to protect investors, ensure market integrity and support responsible capital formation through risk-focused strategies that improve compliance, prevent fraud, monitor risk, and inform policy. They believe our ongoing efforts to improve risk assessment and maintain an open dialogue with market participants advance these goals to the benefit of investors and the U.S. capital markets.

This year, OCIE's examination priorities are broken down into six categories:

1. compliance and risk at registrants responsible for critical market infrastructure;
2. matters of importance to retail investors, including seniors and those saving for retirement;
3. FINRA and MSRB;
4. digital assets;
5. cybersecurity; and
6. anti-money laundering programs.

The published priorities for 2019 are not exhaustive and will not be the only issues OCIE addresses in its examinations, Risk Alerts, and investor and industry outreach. While the priorities drive OCIE’s examinations, the scope of any examination is determined through a risk-based approach that includes analysis of the registrant’s operations, products offered, and other factors.

The collaborative effort to formulate the annual examination priorities starts with feedback from examination staff, who are uniquely positioned to identify the practices, products, and services that may pose significant risk to investors or the financial markets. OCIE staff also seek advice of the Chairman and Commissioners, staff from other SEC divisions and offices, and the SEC's fellow regulators.

OCIE is responsible for conducting examinations of entities registered with the SEC, including more than 13,200 investment advisers, approximately 10,000 mutual funds and exchange traded funds, roughly 3,800 broker-dealers, about 330 transfer agents, seven active clearing agencies, 21 national securities exchanges, nearly 600 municipal advisors, FINRA, the MSRB, the Securities Investor Protection Corporation, and the Public Company Accounting Oversight Board, among others. The results of OCIE’s examinations are used by the SEC to inform rule-making initiatives, identify and monitor risks, improve industry practices, and pursue misconduct...

Source: SEC.gov

FATF public statement of February 22, 2019...

Democratic People's Republic of Korea (DPRK). The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies, financial institutions, and those acting on their behalf. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures, and targeted financial sanctions in accordance with applicable United Nations Security Council Resolutions, to protect their financial sectors from money laundering, financing of terrorism and WMD proliferation financing (ML/FT/PF) risks emanating from the DPRK. Jurisdictions should take necessary measures to close existing branches, subsidiaries and representative offices of DPRK banks within their territories and terminate correspondent relationships with DPRK banks, where required by relevant UNSC resolutions.

Iran. Country will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.

Sanctions against Iran prohibit the export to Iran of nuclear, missile and a significant part of military products, foreign direct investment in Iran’s oil and gas and petrochemical industries, export of refined petroleum products, as well as any contacts with the Islamic Revolutionary Guard Corps (IRGC), banks and insurance companies, financial transactions and cooperation with the Iranian navy.

Source: FATF-GAFI.ORG - Financial Action Task Force (FATF).

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