Kiffmeister’s #Fintech Daily Digest (12/23/2020)

U.S. Securities and Exchange Commission Sues Ripple

The U.S. Securities and Exchange Commission (SEC) is suing Ripple over $1.3 billion of unregistered sales of XRP. The SEC alleges that Ripple failed to register its offers and sales of XRP or satisfy any exemption from registration as a securities offering. If the SEC proves that XRP is a security, U.S. exchanges that list XRP may have to register as securities exchanges. SEC officials have previously said that Bitcoin and Ethereum are not securities, because no person or company controls them. By contrast, 100 billion XRP were issued in 2012 to Ripple which has been selling them to the market in scheduled allotments.

According to CEO Garlinghouse, a securities designation by the SEC isn’t the end of the world for Ripple or XRP because more than 90% of RippleNet customers are outside of the United States. Nevertheless, such a designation would require that U.S-based investors complete broker-dealer registeration with the SEC in order to hold XRP, which is a possible hindrance to adoption. 

However, Messari’s Ryan Watson differs. “Many cryptocurrency exchanges would be forced to delist it, so liquidity would dry up, and XRP’s price would “crash hard” if the SEC proves in court that XRP is a security. Exchanges that continue listing XRP would run the risk of being asked to register as securities exchanges, or face penalties for allowing retail consumers to trade an unregistered security. 

In fact, three small exchanges have already de-listed XRP, and two large crypto-asset investment funds have liquidated their XRP holdings (Bitwise and reportedly Grayscale) as the price crashed.

The SEC shows some mercy to broker-dealers handling security tokens

The U.S. SEC also set forth for comments the circumstances under which broker-dealers can custody digital assets in compliance with Rule 15c3-3 and mitigate the risks of loss or theft. Rule 15c3-3 requires a broker-dealer to obtain and maintain physical possession or control of all fully-paid and excess margin securities it carries for the account of customers. The draft measures basically boil down to keeping security tokens the primary focus of the operation and doing due diligence in terms of cybersecurity and disclosures to clients, including making sure every potential customer is aware that the broker-dealer in question is handling digital asset securities. 

The Oyster Card & CBDCs

Can the London Underground Oyster Card help us sort out privacy issues with CBDCs? With it you need to register for an account, and all journey and transaction history is held for only 8 weeks. That’s so you can replace your lost card when needed and give the police and transit people the ability to track who was in a station to investigate crime, but just for a limited time. 

IOSCO publishes report on education of retail investors regarding risks of crypto-assets

The International Organization of Securities Commissions (IOSCO) published a report titled Investor Education on Crypto-Assets that seeks to help regulators inform retail investors about the risks and characteristics of crypto-assets. The risks include such things as lack of market liquidity, volatility, partial or total loss of the invested amount, insufficient information disclosure and fraud.