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SEC Litigation Update
What happened?
Coinbase
The US Securities and Exchange Commission (SEC) will present its response to Coinbase's legal defense on July 13, following a request for an extension. The SEC requested additional time to prepare a response to Coinbase's letter, which urged the SEC to adopt new rules and provide further clarity on the laws governing crypto. The court granted the SEC an extension by moving the deadline from July 3 to July 13. Furthermore, the court changed the pre-trial conference to a pre-motion conference, which will now take place on July 13 instead of the original date of August 24.
Bittrex
Bittrex, a US-based cryptocurrency exchange, has recently filed a motion to dismiss its legal dispute with the SEC. Originally, Bittrex and its co-founder and former CEO, William Shihara, were charged for operating an unregistered national securities exchange, broker, and clearing agency. Similarly to Coinbase, the filing called for a regulatory framework reflective of the underlying digital asset technology and highlighted the SEC’s lack of authority to regulate cryptocurrencies as securities.
What does this mean?
In the Coinbase litigation, the shift to a pre-motion conference means that the prosecutor or defense attorney can seek a ruling on a specific matter before the trial begins. This gives Coinbase's legal team a chance to present arguments and seek a favorable decision from the court that could potentially impact the course of the trial.
With regards to Bittrex, seeking to dismiss the case against the SEC, Bittrex deployed a strategic move that capitalizes on Coinbase’s legal efforts and aims to demonstrate that the SEC lacks the authority to regulate digital assets unless explicitly granted by Congress.
Kraken’s Battle for User Privacy
What happened?
This week, a federal court ordered the cryptocurrency exchange Kraken to turn over account and transaction information of their users to the Internal Revenue Service (IRS)—this includes users’ name, birthdate, taxpayer ID, and home address, as well as a host of blockchain addresses and transaction hashes if the user transacted with more than $20,000 in a calendar year. However, not all of the IRS' requests were upheld by the court.
According to CoinDesk, Judge Joseph Spero rejected the IRS’ ability to receive a wider breadth of information that included employment information, net worth, and sources of wealth. The rejection of certain IRS requests can be attributed to the overreach of the IRS’s authority: the information beyond basic holder IDs is far broader than necessary to achieve the IRS’s purpose.
What does this mean?
This case emphasizes the need for regulatory agencies to adhere to the legal boundaries within which they operate, and respect the privacy rights for individuals engaging in cryptocurrency transactions. U.K. Crypto Landscape Redefined: Royal Assent Granted to the Financial Services and Markets Act 2023 What happened? On June 29, in the United Kingdom, the Financial Services and Markets Act 2023 received Royal Assent from King Charles, transforming it from a parliamentary bill into law. This groundbreaking legislation seeks to subject “cryptoassets” to the same regulatory mechanisms that govern traditional financial assets. Discussions on the bill commenced in 2022, marking nearly a year-long deliberation in the British Parliament. The law's enactment will introduce a sense of clarity to the legal status of cryptoassets, potentially paving the way for their wider adoption within the country.
Initially, the legislative bill encompassed a proposal for regulating stablecoins as per the nation's payment regulations. However, as the bill advanced in Parliament, it was amended to incorporate all cryptoassets under regulated activities. Furthermore, provisions for overseeing promotional activities related to cryptoassets were added later on.
It is also worth noting that in the bill, the legislators are using the term "digital settlement assets" (DSAs), which include stablecoins and potentially other digital assets, and are defined as "a digital representation of value or rights." Unlike cryptocurrencies or crypto assets primarily utilized for speculative investments like Bitcoin and Ether, DSAs are mainly employed for payments or settlements and are not necessarily cryptographically secured.
The legislation empowers key financial institutions such as His Majesty's Treasury, the Financial Conduct Authority (FCA), the Bank of England, and the Payments Systems Regulator with the authority to devise and enforce regulations on businesses operating within the crypto space. Furthermore, the legislation's potential to attract more crypto firms to the U.K. is evident from Andreessen Horowitz (A16z)'s decision to establish their first international office in London. The venture capital firm cited the predictability of the business environment as a key factor behind their move. What does it mean?
The assent of the Financial Services and Markets Act 2023 indicates a pivotal moment in the evolution of the U.K.'s crypto industry. By bringing cryptocurrencies under the same regulatory framework as traditional assets, the law aims to clarify legal ambiguities and stimulate the growth of the crypto sector.
Concerning the DSA definition, the HM Treasury has the authority to modify this broad definition to keep pace with technological advances. The bill's provision to extend regulatory oversight to stablecoins used predominantly for trading and investment activities in unbacked crypto assets will be revisited by the HM Treasury in the future.
The new legislation marks the U.K.'s commitment to harness the potential of cryptocurrencies and blockchain technology. The anticipated legal clarity and supportive regulatory environment may foster the growth and wider adoption of digital assets in the country. Yet, the full impact of the law on the DeFi sector and the broader crypto industry is yet to unfold. With the world watching, the U.K. is positioning itself at the forefront of defining the legal landscape for cryptocurrencies.
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