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Capital Markets / Blockchain

Blockchain technology and initial coin offerings (ICO) have spawned innovative and technologies and breakthrough financial products. Companies operating in this field face complex and cross-border legal issues, while regulators around the world are grappling with solutions for the challenges this new technology poses.

We represent leading players in the blockchain and cryptocurrency industry. The team advises blockchain startups, companies looking to set up crypto trading platforms, and established companies developing blockchain-based products. We also advise investment funds in the crypto industry and companies seeking regulatory licenses. 

 

Our services include providing legal counsel on coin/token offerings, including those classified as securities token offerings (STO), initial exchange offerings (IEO), the implications of securities laws on digital currency classification, taxation, privacy protection, and compliance with anti-money laundering and know your client (KYC) procedures.

 

Our legal assistance extends throughout the offering process, including whitepaper drafting and regulatory compliance. The legal services we provide encompass issues pertaining to tax, commercial law, corporate law, banking, and intellectual property.

 

Our firm works with an extensive network of expert advisors and service providers, in both Israel and abroad, enabling us to maximize legal protection for our clients in the technology and marketing fields as well.

 

As part of our practice, we also advise companies on how to establish digital currency trading platforms, on how to set up and use exchanges and e-wallets, and on how to launch funds for investing in digital tokens and blockchain technology ventures.

 

Local legal guide Dun’s 100 ranks the firm in the first tier of the Blockchain and Cryptocurrencies field.

 

Dr. Zvi Gabbay, a former regulator, leads the team. Zvi served as head of enforcement and a member of management of the Israel Securities Authority. His experience with the Israel Securities Authority enables him to provide solutions for clients’ regulatory challenges in the area.

 

 

News and updates - Capital Markets / Blockchain:


July 20, 2022

Crypto Custody Services and Regulation – A Review

Institutional investors, corporations, exchanges, individuals, and crypto miners all have strong demand for crypto custody services, as provided by special market participants. These services intend to safeguard customers’ crypto assets and prevent them from loss or theft. Such services are subject to various local regulations. Distinguished from traditional custodial services, crypto custody occurs through safe key management.

 

US Regulations

 

In the United States, the regulatory environment for digital assets is developing. Under the US Investment Advisor’s Act, investment advisors must register with the SEC and hold client funds or securities with a qualified custodian in segregated accounts. Qualified custodians include financial institutions or specialist custody providers (sub-custody). In July 2020, the Office of the Comptroller of the Currency (OCC) issued a letter stating that national banks and federal savings associations may provide cryptocurrency custody services for their customers. In 2021, for example, a large US bank launched a cryptocurrency custody service for investment managers.

 

EU Regulations

 

In 2020, the European Union proposed a regulatory framework known as the Markets in Crypto-Assets (MiCA). This landmark law will require cryptocurrencies to meet the same transparency, licensing, compliance, and oversight as other financial products.

 

The bill will likely take effect in 2024, although there are concerns the rapidly evolving nature of the crypto space will result in the bill’s scope not properly addressing new crypto services.

 

Moreover, the UK regulates custodian services in such a way that an entity holding private cryptographic keys on behalf of its customers may be subject to custodian provider regulation.

 

The Israeli Market

 

In Israel, under the Control of Financial Services Law, management or custody of virtual currency requires a "service provided in a financial asset" license. The Israeli Capital Market, Insurance and Savings Authority is responsible for issuing such licenses and monitoring licensees. In addition, provisions of the Israeli Trust Act may apply to custodian providers.

 

In Case of Insolvency

 

The issue of whether a party is or is not a custodian may have far-reaching implications, especially in light of recent developments in the crypto space. Recently, some market actors that acted quite similarly to "crypto banks" announced the cessation of withdrawals of all crypto funds held by them due to market meltdown. For these actors, their T&Cs included some warning as to the fact some of their services would include transfer of title in the assets. This thus made these assets part of the assets available to creditors and the original owner of the assets just another unsecured creditor. Apparently, this should not affect digital assets held in pure custodian accounts. However, it is still unclear if during current insolvency proceedings these assets will be safe.

We believe trustworthy and regulated custodial services are key to the continuing development and growth of digital assets.

 

***

Barnea Jaffa Lande’s regulation and blockchain teams are at your service for further blockchain technology and compliance issues.

 

 

June 22, 2022

First US Indictment for NFT Insider Trading Offenses

A few days ago, the DOJ has charged a former employee of OpenSea (the largest NFT marketplace) In the first-ever digital asset indictment. The DOJ charged him with wire fraud and money laundering in connection with a scheme to commit insider trading with non-fungible tokens (NFTs). The employee allegedly used confidential information about which NFTs were to feature on OpenSea’s homepage for his personal financial gain. 

 

Asset as Security

 

The indictment (US v. Chastain) marks the first time federal prosecutors have brought charges alleging insider trading with digital assets. Since NFTs are not necessarily considered “securities”, such assets do not seem to be protected by the Securities Exchange Act of 1934, which bars insider trading in stock and other financial securities. The obstacles in classifying this form of asset have not stopped federal prosecutors from taking action to prevent conventionally illegal practices in the digital asset space, as the charges go around the question of whether or not the asset is a security. InsteadExchange Act of 1934, the Department of Justice has broader discretion to bring charges under the wire fraud statute, the general statute protecting against deprivation of money or property through a fraudulent scheme. 

 

A Significant Expansion of Regulation

 

The indictment may prompt an answer to the longstanding and heavily debated question of whether and how to apply laws designed to protect consumers in conventional financial markets to the digital asset space. Importantly, it has shown the digital asset community that the Department of Justice will do what is necessary to protect consumers in this space and punish rogue actors. US v. Chastain may mark the start of significant expansion of regulation and enforcement actions applicable to digital assets and marketplaces. In fact, the charges alone create a clear path for future indictments regardless of whether these assets are classified as securities or not.

 

New reports show the SEC has launched a probe to discover how crypto exchanges are working to prevent insider trading. Reports have surfaced of the SEC communicating with major crypto exchanges to request information on internal practices and policies in place protecting against insider trading. 

 

The Importance of an Internal Compliance Policies

 

As such, market participants, including, but not limited to, crypto exchanges, digital asset marketplaces, investors, digital asset service providers, platforms, and firms, should use this as an opportunity to assess their compliance policies and practices. In the wake of this development, it is important for all market participants, especially those dealing with tokens, to limit their legal exposure by adopting internal compliance policies. Compliance policies are traditionally used in public companies as a means to mitigate legal risks and prevent potential violations. However, they are becoming increasingly important, and even critical, also for companies operating in the digital asset ecosystem, as evidenced by this recent indictment.

 

***

Barnea Jaffa Lande’s regulation and blockchain teams are at your service for further blockchain technology and compliance issues.

***

June 13, 2022

Bank of Israel Continues to Regulate Use of Cryptocurrencies

The risk of money laundering is one of the main risks involved in using and trading cryptocurrencies. This amendment to Proper Conduct of Banking Business Directive 411 addresses how banks should manage money laundering and terror financing risks.

Capital Markets / Blockchain

Blockchain technology and initial coin offerings (ICO) have spawned innovative and technologies and breakthrough financial products. Companies operating in this field face complex and cross-border legal issues, while regulators around the world are grappling with solutions for the challenges this new technology poses.

We represent leading players in the blockchain and cryptocurrency industry. The team advises blockchain startups, companies looking to set up crypto trading platforms, and established companies developing blockchain-based products. We also advise investment funds in the crypto industry and companies seeking regulatory licenses. 

 

Our services include providing legal counsel on coin/token offerings, including those classified as securities token offerings (STO), initial exchange offerings (IEO), the implications of securities laws on digital currency classification, taxation, privacy protection, and compliance with anti-money laundering and know your client (KYC) procedures.

 

Our legal assistance extends throughout the offering process, including whitepaper drafting and regulatory compliance. The legal services we provide encompass issues pertaining to tax, commercial law, corporate law, banking, and intellectual property.

 

Our firm works with an extensive network of expert advisors and service providers, in both Israel and abroad, enabling us to maximize legal protection for our clients in the technology and marketing fields as well.

 

As part of our practice, we also advise companies on how to establish digital currency trading platforms, on how to set up and use exchanges and e-wallets, and on how to launch funds for investing in digital tokens and blockchain technology ventures.

 

Local legal guide Dun’s 100 ranks the firm in the first tier of the Blockchain and Cryptocurrencies field.

 

Dr. Zvi Gabbay, a former regulator, leads the team. Zvi served as head of enforcement and a member of management of the Israel Securities Authority. His experience with the Israel Securities Authority enables him to provide solutions for clients’ regulatory challenges in the area.

 

 

P. Banking & Finance, Capital Markets, FinTech, Regulation

News and updates - Capital Markets:


July 20, 2022

Crypto Custody Services and Regulation – A Review

Institutional investors, corporations, exchanges, individuals, and crypto miners all have strong demand for crypto custody services, as provided by special market participants. These services intend to safeguard customers’ crypto assets and prevent them from loss or theft. Such services are subject to various local regulations. Distinguished from traditional custodial services, crypto custody occurs through safe key management.

 

US Regulations

 

In the United States, the regulatory environment for digital assets is developing. Under the US Investment Advisor’s Act, investment advisors must register with the SEC and hold client funds or securities with a qualified custodian in segregated accounts. Qualified custodians include financial institutions or specialist custody providers (sub-custody). In July 2020, the Office of the Comptroller of the Currency (OCC) issued a letter stating that national banks and federal savings associations may provide cryptocurrency custody services for their customers. In 2021, for example, a large US bank launched a cryptocurrency custody service for investment managers.

 

EU Regulations

 

In 2020, the European Union proposed a regulatory framework known as the Markets in Crypto-Assets (MiCA). This landmark law will require cryptocurrencies to meet the same transparency, licensing, compliance, and oversight as other financial products.

 

The bill will likely take effect in 2024, although there are concerns the rapidly evolving nature of the crypto space will result in the bill’s scope not properly addressing new crypto services.

 

Moreover, the UK regulates custodian services in such a way that an entity holding private cryptographic keys on behalf of its customers may be subject to custodian provider regulation.

 

The Israeli Market

 

In Israel, under the Control of Financial Services Law, management or custody of virtual currency requires a "service provided in a financial asset" license. The Israeli Capital Market, Insurance and Savings Authority is responsible for issuing such licenses and monitoring licensees. In addition, provisions of the Israeli Trust Act may apply to custodian providers.

 

In Case of Insolvency

 

The issue of whether a party is or is not a custodian may have far-reaching implications, especially in light of recent developments in the crypto space. Recently, some market actors that acted quite similarly to "crypto banks" announced the cessation of withdrawals of all crypto funds held by them due to market meltdown. For these actors, their T&Cs included some warning as to the fact some of their services would include transfer of title in the assets. This thus made these assets part of the assets available to creditors and the original owner of the assets just another unsecured creditor. Apparently, this should not affect digital assets held in pure custodian accounts. However, it is still unclear if during current insolvency proceedings these assets will be safe.

We believe trustworthy and regulated custodial services are key to the continuing development and growth of digital assets.

 

***

Barnea Jaffa Lande’s regulation and blockchain teams are at your service for further blockchain technology and compliance issues.

 

 

June 22, 2022

First US Indictment for NFT Insider Trading Offenses

A few days ago, the DOJ has charged a former employee of OpenSea (the largest NFT marketplace) In the first-ever digital asset indictment. The DOJ charged him with wire fraud and money laundering in connection with a scheme to commit insider trading with non-fungible tokens (NFTs). The employee allegedly used confidential information about which NFTs were to feature on OpenSea’s homepage for his personal financial gain. 

 

Asset as Security

 

The indictment (US v. Chastain) marks the first time federal prosecutors have brought charges alleging insider trading with digital assets. Since NFTs are not necessarily considered “securities”, such assets do not seem to be protected by the Securities Exchange Act of 1934, which bars insider trading in stock and other financial securities. The obstacles in classifying this form of asset have not stopped federal prosecutors from taking action to prevent conventionally illegal practices in the digital asset space, as the charges go around the question of whether or not the asset is a security. InsteadExchange Act of 1934, the Department of Justice has broader discretion to bring charges under the wire fraud statute, the general statute protecting against deprivation of money or property through a fraudulent scheme. 

 

A Significant Expansion of Regulation

 

The indictment may prompt an answer to the longstanding and heavily debated question of whether and how to apply laws designed to protect consumers in conventional financial markets to the digital asset space. Importantly, it has shown the digital asset community that the Department of Justice will do what is necessary to protect consumers in this space and punish rogue actors. US v. Chastain may mark the start of significant expansion of regulation and enforcement actions applicable to digital assets and marketplaces. In fact, the charges alone create a clear path for future indictments regardless of whether these assets are classified as securities or not.

 

New reports show the SEC has launched a probe to discover how crypto exchanges are working to prevent insider trading. Reports have surfaced of the SEC communicating with major crypto exchanges to request information on internal practices and policies in place protecting against insider trading. 

 

The Importance of an Internal Compliance Policies

 

As such, market participants, including, but not limited to, crypto exchanges, digital asset marketplaces, investors, digital asset service providers, platforms, and firms, should use this as an opportunity to assess their compliance policies and practices. In the wake of this development, it is important for all market participants, especially those dealing with tokens, to limit their legal exposure by adopting internal compliance policies. Compliance policies are traditionally used in public companies as a means to mitigate legal risks and prevent potential violations. However, they are becoming increasingly important, and even critical, also for companies operating in the digital asset ecosystem, as evidenced by this recent indictment.

 

***

Barnea Jaffa Lande’s regulation and blockchain teams are at your service for further blockchain technology and compliance issues.

***

June 13, 2022

Bank of Israel Continues to Regulate Use of Cryptocurrencies

The risk of money laundering is one of the main risks involved in using and trading cryptocurrencies. This amendment to Proper Conduct of Banking Business Directive 411 addresses how banks should manage money laundering and terror financing risks.

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