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Global Regulators Issue Proposals and Enforcement Actions Surrounding Digital Assets

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As digital assets grow in popularity, so does the scrutiny imposed upon them by world regulators.  Over the past year we have seen a plethora of framework proposals, enforcement actions, and rule changes involving digital assets.  This past week was no different, with developments coming from each of the following countries.

United States

Many have criticized the Securities and Exchange Commission in the past for its perceived excessive use of enforcement as a teaching tool.  This week, LBRY, a blockchain oriented company, experienced this first hand as it was charged with various securities related offenses.

These charges surround the sale of at least $11 million worth of ‘LBRY Credits’ over a 5 year span.  The SEC notes that not only have unregistered securities been sold, but that the company has continually taken part in misleading marketing tactics, which would indicate it was working to increase the price of its LBRY Credits.  It would appear as though the SEC is leaving no stone unturned, as it provides examples such as the following when making its case.

“In a website post in February 2021, LBRY updated readers about changes it recently made and promised future evolutions in its applications.  LBRY concluded the update with its prediction that the ‘best is yet to come”.  LBRY punctuated the sentence with a rocket ship icon signifying to readers that LBC was going to rocket to higher prices.”

For the time being, LBRY maintains its innocence, insisting that LBRY Credits are NOT securities.

Canada

While LBRY may have its hands full with the SEC right now, companies dealing with digital assets within Canada were recently addressed by the Canadian Securities Administrators (CSA).  In a newly released guidance letter, companies serving Canadian citizens were informed of the need to register as ‘investment dealers’ with regulators.

In Canada’s most populous province – Ontario – companies have been given a mere 3 weeks to register, or else risk enforcement actions.

The CSA state that, “The overall goal of the approach outlined in this Notice is to ensure there is a balance between needing to be flexible in order to foster innovation in the Canadian capital markets and meeting our regulatory mandate of promoting investor protection and fair and efficient capital markets.”

This move comes only days after Coinsquare was forced to hand over troves of consumer data to the Canada Revenue Agency.  Clearly, those in positions of authority have begun to take digital assets seriously in Canada, requiring services providers to adhere to much more stringent regulations.

United Arab Emirates

The Dubai Financial Services Authority (DFSA) has just published a consultation paper as it seeks public commentary on a newly proposed framework surrounding the treatment of security tokens and their derivatives.

“The DFSA is proposing a comprehensive and innovative regulatory framework for regulating Security Tokens, a new and growing area of interest for many industry participants”

In this new proposal, the DSFA lists the following as key changes to existing regulations.

  • allowing facilities that trade Security Tokens to have direct access members, including retail clients;
  • enhanced systems and controls requirements to address risks associated with the use of DLT or similar technology;
  • enhanced disclosure in prospectuses; and
  • enhanced requirements for those providing custody of Digital Wallets.

The DFSA consultation paper can be found HERE in its entirety.

While its attention is currently on that of security tokens, the DFSA has indicated that later this year, it will be releasing similar proposals for both exchange and utility tokens as well.

Joshua Stoner is a multi-faceted working professional. He has a great interest in the revolutionary 'blockchain' technology. In addition to this, he is a licenced Paramedic in Nova Scotia, Canada. As such, he can provide emergency care/medicine to any situation necessitating it.

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