A pilot program, sanctioned by the Bank of Russia, was developed, and recently completed, by Russian mining industry giant, Nornickel.
This pilot, which took place within the bank’s regulatory sandbox was structured as a means to test the veracity of the benefits surrounding digital assets, and the potential role they can play in finance.
The pilot saw a platform developed by Nornickel, which provides its clients with various capabilities surrounding digital assets. Through the use of ‘hybrid tokens’ the platform provides, but isn’t limited to, tokenization of…
The goal hoped to be achieved through offering these services is two-fold, like most tokenization platforms.
- Provide companies easier access to financing opportunities
- Provide investors with an increase palette of investment choices.
The Bank of Russia did not embark on this endeavour for the fun of it. They have noted the potential role that digital assets will play in the future of finance, and are looking to prepare themselves accordingly.
As such, they have now submitted framework surrounding digital assets, in hopes of seeing new amendments made to Russia’s current laws governing crypto – Framework established during Nornickle’s time in the bank’s regulatory sandbox.
We have previously taken a look at a few of the laws governing blockchain in Russia, which the nation’s central bank hopes to see amended. Make sure to peruse the following article to see the areas which stand to, potentially, be altered.
As stated, the Bank of Russia, only today, released a statement on the successful completion of the pilot program. The following is a translation of commentary provide by the bank.
Ivan Zimin, Director of the Financial Technology Department of the Bank of Russia, states,
“It was one of the largest sandbox projects. We have studied in detail the new business model and its compliance with the needs of the market. An important part of the service is the use of hybrid tokens, which make it easy to adapt to the needs of business and consumers and provide flexible solutions to attract investment. As a result of the piloting, the Bank of Russia proposed to include in the draft federal law “On Digital Financial Assets” the provisions necessary for the introduction and development of such solutions in the emerging market of digital assets, which were supported by the government agencies and business.”
Seeking a Friendly Hand
Establishing a clear framework surrounding digital assets is clearly of importance when gauging industry development. As industry participants look to continue expanding their products and services, we have seen many begin seeking out nations which have had the foresight to implement such framework.
One company, recently covered, that is doing just that, is Smartlands – a UK based tokenization platform. Smartlands recently announced that they would be basing their future moves on the Liechtenstein Blockchain act.
While news of a potential implementation of government backed framework is, no doubt, welcome, Russia has remained skeptical of the cryptocurrency industry at large. Tokenization of assets and financial instruments in a regulated manner are one thing, but cryptocurrency transactions are another beast entirely.
Russia has taken a trepidatious stance towards trading cryptocurrencies, as they link them to potential money laundering schemes. This stance has been reiterated as recently as February 17, 2020 by the Bank of Russia, as they look to update ‘Directive 375-P’ – essentially a manual for identifying illicit financial activity.
Abra Fined $300K in Joint Effort by SEC and CFTC for ‘Security Swapping’
In a joint effort by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), cryptocurrency trading app Abra, and its partner, Plutus Technologies, have been fined $300,000. The total represents two $150,000 fines, with each being paid to the CFTC and SEC.
The fines were imposed by the two regulatory bodies for “offering and selling security-based swaps to retail investors without registration and for failing to transact those swaps on a registered national exchange”. For more information you can review the CFTC order and the SEC order.
A Brief Timeline
While there are instances where companies are blatantly in breach of regulations, the situation involving Abra and Plutus is not as simple.
The issue originally arose over a year ago, when Abra had their first run-in with the SEC. At the time, Abra offered its clients ‘synthetic exposure’ to U.S. based securities. This was achieved through Abra providing its clients access to investments, in the form of a contract which mimicked the securities, without actually purchasing the underlying asset.
As a result of offering this service, multiple events took place.
- SEC identifies Abra security-swapping service as being in violation of regulations
- Abra shuts down security-swapping, after found servicing U.S. based investors
- Abra moves various operations to the Philippines
- Security-swapping services re-launch, with access revoked to U.S. based investors.
Unfortunately for Abra and Plutus, regulators felt that ceasing service for U.S. investors, and moving a portion of their operations to the Philippines, was not enough. It was found that much of the design and operational aspects of the service, continued to occur within the U.S., making it subject to U.S. regulations.
Representatives from the CFTC and SEC, commented on this. They touched on how, despite investor restrictions, the rules still apply.
Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, stated,
“Businesses cannot ignore the registration requirements designed to provide investors with the information necessary to evaluate securities transactions…Further, businesses that structure and effect security-based swaps may not evade the federal securities laws merely by transacting primarily with non-U.S. retail investors and setting up a foreign entity to act as a counterparty, while conducting crucial parts of their business in the United States.”
While both the CFTC and the SEC, were involved in the issuance of these fines, their rulings were independent. In each case, Abra and Plutus were able to pay the fine, with no admittance to any wrongdoing. The following were the findings of the regulatory bodies.
CFTC – Abra/Plutus in violation by, “…entering into illegal off-exchange swaps in digital assets and foreign currency with U.S. and overseas customers and registration violations.”
SEC – Abra/Plutus in violation of, “…federal securities law provisions concerning unregistered offers and sales of security-based swaps and requiring that certain swap transactions occur on a registered national exchange.”
Money to Spare
Roughly two months ago, we reported on a $5M investment into Abra, by the Stellar Development Foundation (SDF). This move caught our attention at the time, because it marked the potential for Abra to eventually foray into the world of stablecoins and digital securities. The SDF has shown an interest in these types of investments, as evident through a similar past investment in security token platform, DSTOQ.
With this fine, it would appear as though Abra was dealing in securities all along – even if they didn’t realize.
Despite having to pay the fines discussed here today, Abra appears unlikely to be phased. Between the aforementioned investment from the SDF, and others, Abra has raised north of $45M since its creation.
Founded in 2015, Abra is a crypto-currency investment app, based out of Mountain View, California. Since its launch, Abra has gone on to become a popular platform for investors. It provides access and trading support for a bevy of digital assets.
CEO & Founder, Bill Barhydt, currently oversees company operations.
Supreme Court Reins in SEC on Disgorgement
While the SEC holds a huge amount of influence and power, they do not operate without oversight, themselves. This was on full display on Monday, as the U.S. Supreme Court issued a new ruling on SEC authority surrounding disgorgement.
Essentially, it was ruled that, while the SEC will retain the ability to seek disgorgement from offending parties, it will be limited to their profits. This means that if a company raises $50M through illegal means, the SEC can only seek to retrieve funds up to the $50M minus any genuine operating costs.
The purpose for this limit is a simple one – disgorgement is permitted as a remedial, rather than punitive, action. If the SEC were to seek funds exceeding what was raised, it would no longer represent a retrieval of funds, but a punishment for their actions.
Furthermore, the ruling indicates that funds, retrieved through these means, are to be used as compensation for victims that have lost money.
For those unfamiliar with disgorgement, it refers to the repayment of funds received/generated by parties which violated existing laws.
In recent years, disgorgement has been a commonly used method of the SEC, as made evident in various cases stemming from the 2017 ICO boom.
For those interested, the entirety of the U.S. Supreme Court’s ruling can be found HERE. While there are various intricacies involved, the court’s decision can be broadly summarized by their statement, as follows.
“The Court holds today that a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible under §78u(d)(5).”
As aforementioned, the SEC has turned to disgorgement on various occasions, as of late. The following articles are a few examples of it being used in crypto based cases.
Based in the United States, the SEC is a government run regulatory body. This outfit is tasked with fostering safe, and transparent, markets surrounding securities. This entails both the creation, and enforcement, of laws surrounding the sector.
SEC Chairman, Jay Clayton, currently oversees operations.
In Other News
While Jay Clayton may still be in charge at the SEC, his time at the helm may soon be coming to a close. We recently touched on a tricky situation, currently evolving, which would see Clayton depart the SEC for a position as an Attorney General in Southern New York.
SEC Chairman Jay Clayton Moving On?
Caught in the Middle
Jay Clayton, Chairman of the SEC, has found himself caught in the middle of a tricky situation. The story goes like this:
On June 19th, U.S. Attorney General, William Barr, announced the Trump administration’s intent to name Jay Clayton the new U.S. Attorney for Southern New York.
This announcement soon became a major point of contention, as Geoffrey Berman (the current U.S. Attorney for Southern New York) had refused to abandon his post. This stance was changed, however, when assured that his departure would not derail current investigations.
Replacing Geoffrey Berman for the interim is Deputy U.S. Attorney, Audrey Strauss.
While pure speculation at this point, many believe that these actions were taken due to ‘burnt bridges’ between Berman and the Trump Administration. More specifically, Berman was/is at the helm of various corruption inquiries into associates of the POTUS.
The situation has seen various senators weigh-in on the situation. Notably, Senator Chuck Schumer believes an immediate investigation should be launched into the situation. Furthermore, he had strong words for Clayton, himself, stating,
“Jay Clayton can allow himself to be used in the brazen Trump-Barr scheme to interfere in investigations by the U.S. Attorney for SDNY, or he can stand up to this corruption, withdraw his name from consideration, and save his own reputation from overnight ruin.”
Back to Roots
If this move were to happen, it would not necessarily mark a return to his roots. Prior to his tenure at the SEC, Jay Clayton was a seasoned corporate lawyer, with decades of experience. What he lacks, however, is experience as a prosecutor – typically a prerequisite for Attorneys Generals.
While his duties stretched far beyond regulating the burgeoning blockchain sector, Clayton developed a complex relationship with the community through his time at the SEC, thus far.
Clayton has many detractors from the crypto community, as he has had a hand in the denial of many Bitcoin ETF applications.
At the end of the day, however, the world of crypto remains rife with scams,y. Despite having massive potential, Clayton has, for the most part, made sound decisions in regulating the growth of crypto base endeavours.
Be Careful what you Wish For
While Clayton may not be pro-crypto, there are many examples throughout his tenure of openness towards these young markets.
Those excited to see his potential exit should be wary, as his successor may very well adopt a strong anti-crypto sentiment – something which could prove to be very harmful for a sector still in its infancy.
A Short Run
If opting to leave his post at the SEC, Clayton will have completed a roughly 3 year stint at its head. So far, no word has been given on a possible successor as the Chairman of SEC.
For decades, the position of Chairman at the SEC has been a revolving door. The last individual to serve longer than 4 years was Arthur Levitt, during the Clinton Administration.
Word of Clayton’s potential replacement comes 1 year after the CFTC saw their very own chairman, J. Christopher Giancarlo, step down. During their time spent at the helm of their respective organizations, both, Clayton and Giancarlo, were vocal on their approach towards blockchain. While Clayton has remained more conservative, to this date, Giancarlo was viewed as more progressive and welcoming to change.
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