Archive:June 2022

Australia: ASIC Provides Practical Guidance as Long Awaited CCIV Arrives
Australia: New Greenwashing Guidance
United States: 10 Impactful Provisions of the Lummis-Gillibrand Bill
United States: CFTC Sues Crypto Exchange Gemini Trust Co.
Australia: Cybersecurity now a legal obligation for AFS Licensees
Australia: Eagerly Awaits Foreign Financial Service Providers’ Legislation

Australia: ASIC Provides Practical Guidance as Long Awaited CCIV Arrives

By Kane Barnett and Bernard Sia

ASIC has published Information Sheet 272 (INFO 272) and Report 728 (REP 728) on the eve of the corporate collective investment vehicle’s (CCIV) commencement.

With the commencement date for CCIVs being 1 July 2022, today ASIC released 7 regulatory guides relating to the registration and licensing requirements for CCIVs. We outline the key features of CCIVs in our previous update. INFO 272 provides much needed clarity on how both the CCIV itself and its initial sub-funds are to be registered.

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Australia: New Greenwashing Guidance

By Jim Bulling and Alex Morrison

ASIC has released Information Sheet 271 (INFO 271) to assist responsible entities of managed funds, corporate directors of CCIVs and trustees of registerable superannuation funds (Product Issuers) in avoiding ‘greenwashing’ when offering sustainability-related products (Products). INFO 271 describes greenwashing and provides a comprehensive overview of the current regulatory setting for communications about sustainability–related products.

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United States: 10 Impactful Provisions of the Lummis-Gillibrand Bill

By: Andrew M. Hinkes, Eden L. Rohrer, and Judie Rinearson

The “Lummis-Gillibrand Responsible Financial Innovation Act” lays out a bold agenda for legal reform related to digital assets. Although a detailed summary of Bill is still forthcoming, here’s an abbreviated summary of 10 impactful provisions.  For a more fulsome summary, see our full posting on the K&L Gates FinTech Law Blog.

  • Applies generally to incorporated and licensed entities, but  unincorporated DAOs, users of digital assets, and DeFi protocols would not be affected.
  • Excludes a gain or loss of $200 or less in transactions for “goods or services” from gross income for federal income tax purposes.
  • Requires regulated entities to make certain transaction-specific disclosures to consumers.
  • Introduces the “ancillary asset” concept that splits the digital asset from any promises made in an investment contract, and delegates jurisdiction over ancillary assets to the CFTC.
  • Authorizes spot crypto asset exchanges to register with the CFTC. 
  • Corrects the provision of the 2021 Infrastructure Investment and Jobs Act (HR 3684) that expanded the tax law definition of Broker to include any “person who… is responsible for … effectuating transfer of digital assets on behalf of another person.”
  • Clarifies that staking proceeds are not a part of gross income until the taxpayer “exercises dominion” over them.
  • Permits depository institutions to issue payment stablecoins subject to specific reserve and redemption requirements.
  • Prohibits banks from using reputation risk in its examination ratings and requires appropriate reasons for requesting the termination of a customer account.
  • Directs state regulators to adopt uniform money transmitter license requirements for digital asset transactions.

This Bill would radically change the way that regulated entities interact with digital assets in the U.S.. While the Bill is unlikely to pass this year, it is the product of significant bipartisan effort, and will likely lead to significant  regulation of digital assets in the coming years. 

Stay tuned for more in-depth coverage of the securities law and commodities law implications of amendments suggested in the Lummis-Gillibrand Bill.

United States: CFTC Sues Crypto Exchange Gemini Trust Co.

By: Clifford C. Histed, Cheryl L. Isaac, and Christine Mikhael

On 2 June 2022, the Commodity Futures Trading Commission (CFTC) filed a complaint against crypto exchange Gemini Trust Company, LLC (Gemini) in the U.S. District Court for the Southern District of New York for allegedly making false or misleading statements of material facts to the CFTC related to the bitcoin futures contract that Gemini launched on its exchange in 2017. If successful in this litigation, the CFTC would impose a derivatives trading and registration ban on Gemini and its employees, in addition to civil monetary penalties and profit disgorgement.

According to the CFTC’s complaint, Gemini intended to self-certify its bitcoin futures contract, and it engaged with CFTC staff between July and December 2017 in connection with the self-certification. The bitcoin futures contract was to be cash-settled by reference to the underlying bitcoin price, determined by the daily bitcoin auction that took place on the Gemini Exchange. In its complaint, the CFTC alleges that the Gemini bitcoin futures contract and related spot auction were readily susceptible to manipulation.

Specifically, the CFTC alleges that:

  • Gemini represented to the CFTC that Gemini required all transactions to be fully “prefunded”, despite the fact that Gemini was lending digital assets to traders on an unsecured basis at low rates;
  • Gemini made false or misleading statements relating to self-trading and did not effectively prohibit self-trading from occurring in the Gemini bitcoin auctions (with about 70% of the total auction trading volume resulted from one market participant trading with itself in December 2016);
  • Gemini entered into bespoke fee arrangements with certain market makers that were not available to all Gemini market participants and were not disclosed to the public; and
  • Gemini provided false or misleading statements to the CFTC regarding trading volume and liquidity on the Gemini Exchange.

The CFTC emphasized in its complaint that the bitcoin futures contract was particularly significant because it was to be among the first digital asset futures contracts listed on a U.S. derivatives exchange. This action makes clear regulators’ intense focus of crypto assets, and the stakes are high: If the CFTC is successful, Gemini and its employees and agents would effectively be banned from U.S. derivatives markets, in addition to being subject to civil monetary penalties and profit disgorgement. CFTC Chairman Rostin Behnam has previously warned that the agency’s recent crypto-related enforcement actions were just the “tip of the iceberg,” and the Gemini lawsuit is evidence that there are more enforcement actions to come.

Australia: Cybersecurity now a legal obligation for AFS Licensees

By Kane Barnett and Bernard Sia

As technology continues to drive change within the financial services industry, Australian courts and regulators have confirmed the need for Australian financial services (AFS) licensees to address the cybersecurity risks. On 5 May 2022, the Australian Federal Court ruled in favour of the Australian Securities and Investments Commission (ASIC), holding that AFS licensee RI Advice Group Pty Ltd (RI Advice) had breached its statutory obligations by failing to have adequate cybersecurity measures in place.

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Australia: Eagerly Awaits Foreign Financial Service Providers’ Legislation

By Jim Bulling

In February this year we provided an update on the introduction of the draft legislation providing relief to Foreign Financial Services Providers (FFSPs) in Australia.

As we discussed back in February the draft legislative pack provided three significant potential exemptions for FFSPs namely:

  • Professional Investor Exemption
  • Comparable Regulator Exemption
  • Fit and Proper Person Test Exemption
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