NYDFS Establishes Separate Division for Crypto-Related Businesses

The New York State Department of Financial Services (NYDFS) – the state’s financial regulator – is establishing a new division that will be in charge of licensing as well as regulating crypto-related businesses, and moving its in-house team supervising cryptocurrency businesses to the new division.

In an official statement, the NYDFS introduced the new division at the Department of Financial Services, which will be named the Research and Innovation Division, and it will be responsible for assessing emerging financial technologies as well as licensing and supervising virtual currencies.

The agency further confirmed that the division will also be responsible for licensing approvals made under the state’s BitLicense, a regulatory body system that manages firms buying, selling or issuing cryptocurrencies to consumers within the New York state.

In addition to that, the report brought attention to a number of appointments to the division. Particularly, the new division will be led by Matthew Homer, who previously served as the head of policy and research a fintech firm called Quovo as well as had worked at the Federal Deposit Insurance Corporation and the United States Agency for International Development.

Matthew Siegel and Olivia Bumgardner – two deputy superintendents – will serve under Homer. Prior to this, Siegel was a trial attorney at the Antitrust Division of the U.S. Department of Justice, and had worked at the Assistant Attorney General in the Antitrust Bureau of the New York State Office of the Attorney General.

At the moment, Bumgardner is the director of research at NYDFS and has previously led initiatives and projects related to cybersecurity, financial inclusion and digital currencies. Andrew Lucas, who was previously senior counsel at the New York City Law Department, will be counsel to the new division.

Linda Lacewell, the newly appointed superintendent has stated:

“This new division and these appointments position DFS as the regulator of the future, allowing the Department to better protect consumers, develop best practices, and analyze market data to strengthen New York’s standing as the center of financial innovation.”

Lacewell strongly believes that “the financial services regulatory landscape needs to evolve and adapt as innovation in banking, insurance and regulatory technology continues to grow.”

Meanwhile, the NYDFS has been regulating crypto-related businesses since 2015, when its BitLicense program came into effect. Seemingly, the financial regulator had only granted eight BitLicenses in the first three years of operating. At the moment, there have been over 20 licenses granted to cryptocurrency firms.

Most recently, Lacewell had approved two subsidiaries of the crypto exchange Seed CX to operate in the state under the BitLicense.

Poloniex Moves Abroad Due to Uncertain US Regulation Framework

Due to increasing regulatory pressures in the United States, crypto platform Circle has announced that it is expanding its global offerings with the launch and regulatory licensing of a new subsidiary in Bermuda.

The company announced on Monday via their official blog, stating that from now they will serve non-US Poloniex customers with the new Bermuda operations, and will expect to offer many new digital asset services from Bermuda over time.

Poloniex – the Boston-based exchange Circle purchased for $400 million in the height of the initial coin offering boom – has struggled to pick up market share over the past year, according to data, with a staggering difference from its today’s 1% market share and the 58% it had just two years ago.

For now, non-US customers will use Poloniex through the new Circle International Bermuda subsidiary. The company plans to release in the coming months new services including new crypto asset listings, advanced trading products, and other innovations, which will be available to all non-US customers.

Unfortunately, due to US regulatory limitations, the firm will not be able to offer many of these new services to US clients for now. However, the company will continue to serve US clients to the best of its abilities. Circle will also continue its existing operations in the US, Ireland, the UK, and Hong Kong.

After working closely with the Bermuda government, the subsidiary has been granted the Digital Assets Business Act of 2018 license (“DABA”).  Class F DABA provides a comprehensive framework for the regulation and oversight of crypto financial services including digital asset issuance, sale and redemption, exchange operations, and custodial services.

Due to the license, Circle is also required to comply with strict international standards, including anti-money laundering (AML) and combating the financing of terrorism (CFT) in ways that are compliant with Financial Action Task Force (FATF) standards.

Circle CEO Jeremy Allaire has stated that the lack of regulatory frameworks significantly limits what can be offered to individuals and businesses in the U.S.

He further added:

“The project to establish a new international operations hub for our market, exchange and wallet services, was a major project. […] It took a long time working with the Bermuda government and the Bermuda Monetary Authority.”

Looking forward, Allaire claimed more diverse assets will be soon available to global customers, and that Poloniex might also expand to financial services, which the startup previously couldn’t offer in the U.S.

The expansion into Bermuda follows its roll-out of fiat-to-crypto trading.  Meanwhile, insiders claim that the firm is hoping recent additions to its platform will save its market share from deteriorating further, like its recent relaunch of the Trollbox trader forum.

They believe this is less about Circle adhering to strict regulations and more about the firm looking for an avenue to list more tokens as it walls off U.S. clients from certain assets and regulatory pressure in the U.S. mounts. Recently, different state and federal regulators have launched investigations into exchanges including BitMEX and Bitfinex. Likewise, Bittrex has delisted a number of cryptocurrencies trading in the U.S.

KPMG, Microsoft, R3 and TOMIA Partnership for Telecom Blockchain Settlements

The blockchain industry has been on the radar for many big corporations, which has taken the technology from the realm of skepticism to development of real world applications. In its latest announcement KPMG, the multinational accounting firm, is partnering with software firms TOMIA, Microsoft, and R3 to develop a blockchain for telecom settlements.

KPMG has had some forays in the industry, but this is probably the biggest move. Until now, it acquired a few pilot blockchain solutions related to its industry, aimed at addressing complex cross-border, or cross-network tasks. The recent partnership with Microsoft and K3 will allow the company to tackle data-related issues expected to arise after the launch of 5G networks.

The company states that international mobile data roaming revenues are expected to reach $31 billion in 2022, with an average annual growth rate of eight percent.

It’s that accelerating use of international data that Arun Ghosh, Blockchain Leader at KPMG, addressed in a blog post:

While we will be able to consume more data more quickly and across more locations than ever before in this next wave of telecom advancement, it is becoming increasingly complex for telecom companies to track and settle interchange fees.

KPMG has been working closely with the telecom industry for a long time. The blockchain being piloted aims to reduce the costs, number of disputes, and time involved in telecom settlements caused by “billions of mobile interactions flow[ing] through hundreds of connected networks managed by dozens of customers and suppliers.”

Settlements and reconciliations are currently handled manually, and can take up to a month to complete, according to Ghosh. Most of the data is generated via mobile devices, which needs authentication from at least two parties – a process that has potential for efficiency improvements. He further added that three pillars of cellular settlements are the customers, amount of data generated, and the contract between the two. This makes a blockchain-based solution a good fit for achieving quick settlement times.

While Microsoft acts as the principal architect, R3’s Corda acts as the backbone of the operation, and TOMIA brings a layer of telecom expertise by representing around 40 global operators.

KPMG has previously advised telecom operators on capital-efficient deployment of 5G networks, cyber security, privacy, and data protection, and revenue recognition and lease accounting.

Leveraged Trading Platform BitMEX is Being Investigated by the CFTC

The U.S. Commodity Futures Trading Commission (CFTC) is reportedly investigating Seychelles-based crypto exchange BitMEX to determine whether it broke rules by allowing U.S traders onto its platform.

According to a Bloomberg report on Friday, citing anonymous sources, it would take months to investigate the issue as BitMEX is not registered with the CFTC and has allowed U.S. traders to use the platform.

BitMEX was co-founded in 2014 by Hayes along with Samuel Reed and British national Ben Delo. The exchange is widely used in Asia and reports overseeing as much as $10 billion in trading a day.

Officially, BitMEX offers trading of cryptocurrencies with up to 100-times leverage and other products such as futures and swaps. However in 2018, the exchange platform was compelled to close North American users’ accounts following a letter from Canadian regulators stating the company was in breach as an unlicensed institution.

As many already know, the agency considers cryptocurrencies like Bitcoin commodities and has jurisdiction over derivatives such as futures based on cryptocurrencies. Hence, the crypto derivatives exchange would need to be registered with the CFTC to allow U.S. traders to trade such products in the U.S.

The report further noted that “regulator’s investigations often don’t lead to allegations of misconduct.” Yet in March, bitcoin derivatives platform 1Broker had settled a lawsuit with the CFTC for selling security-based swaps to U.S. investors.

The investigation is currently ongoing and the CFTC has yet to officially comment on the matter. A BitMEX spokeswoman stated that the exchange does not comment on media reports about investigations conducted by governmental agencies.

BitMEX recently came under fire as noted economist and crypto skeptic Nouriel Roubini stated the platform “may be openly involved in systematic illegality.”  He cited research that counts liquidations of customer savings comprise as much as half of BitMEX’s revenue. In addition to that, according to his sources inside the company, he claimed that the exchange trades against its own clients and “skirts” anti-money laundering regulations and therefore exposing traders to high risks.

BitMEX CEO Arthur Hayes has stated this week that the company will continue to monitor all legal and regulatory developments globally and will comply with the law. He further added that the company denies any allegations of criminal activity, manipulation or unfair treatment of its clients.

Meanwhile, US regulators has become more stringent on crypto trading firms in recent months. For reference, U.S.-based Bittrex and Poloniex delisted tens of tokens earlier this year due to concerns they could be deemed securities by the SEC. Despite planning to open a regulated fiat-to-crypto exchange for U.S. users, Binance also announced last month it was withdrawing from the U.S.

Japan Reportedly Working on Payments Network to Replace SWIFT

The Japanese government is leading a global project to create a new international network for cryptocurrency payments, similar to the SWIFT network used by banks.

According to a Reuters report published on July 18th, ‘a person familiar with the plan’ claimed that Japan’s new project is motivated by the intention to combat money laundering.

SWIFT is the international payments messaging system used by banks for money transfers around the world. However, at the moment no other details of the project have been disclosed and it remains unclear how the cryptocurrency network would work.

The person further added that the government hopes to launch the network in the next few years and it would be monitored by the Financial Action Task Force (FATF)— a G7-initiated intergovernmental organization that promotes legal, regulatory and operational measures that aim to fight money laundering on a global scale.

Seemingly, the FATF has already approved the plan for setting up the network in June, which was initially proposed by Japan’s Ministry of Finance and the country’s financial regulator – the Financial Services Agency (FSA).

At the moment, it remains unclear whether this initiative would meet resistance from users. The lack of regulation of cryptocurrencies is what mostly worries governments and central bankers.

Most recently, Facebook’s announcement of plans to launch a digital coin was met with stern comments from regulators as well as central banks and governments insisting the social media giant must respect anti money-laundering rules and ensure the security of transactions and user data.

Ahead of this week’s meeting of G7 finance ministers in France, Japan had set up a national liaison conference — involving the Bank of Japan, the Ministry of Finance and the FSA — assigned with the task of investigating the impact of Libra on monetary policy and financial stability.

Meanwhile, Japan has taken several initiatives to ensure the security of the cryptocurrency industry, hoping to leverage the fintech industry to stimulate economic growth.

In 2017, the country passed a law that recognized Bitcoin (BTC) as a legal method of payment, as well as bringing cryptocurrency exchanges under anti-money laundering (AML)/know-your-customer (KYC) rules. It became the first country in the world that regulated digital currencies at a national level.

This spring, the Japanese House of Representatives officially approved a new bill to amend national laws that govern crypto regulation. The revised acts, which include specific AML measures focused on privacy coins, are to come into effect in April 2020.