Kiffmeister’s #Fintech Daily Digest (20230714)*

Progress on the investigation phase of a digital euro – fourth report

The European Central Bank (ECB) published a digital euro project update. It was made clear that a digital euro will offer basic services free of charge. To foster network effects, intermediaries will be compensated for the services they provide, as they are for comparable electronic payments, while legislative safeguards will prevent merchants from being overcharged by intermediaries. The Eurosystem would bear its own costs, as it does for banknotes.

Also, online and offline functionalities will be released simultaneously from the outset. Offline functionality will settle transactions using “secure hardware” to avoid hacking and forging, transactions will be settled immediately between devices, payments received will be transferable to another device without first connecting to the internet, and the Eurosystem will not see users’ personal details or their payment patterns. [Read more at the ECB]

Sale of XRP on exchanges not investment contracts, US court rules

Ripple’s sale of XRP tokens on exchanges and through algorithms did not constitute investment contracts, but the institutional sale of the tokens did violate federal securities laws, a U.S. federal court has ruled. The court published the conclusions in an order partially granting a motion for summary judgment in the U.S. Securities and Exchange Commission (SEC) lawsuit filed against Ripple in 2020. Also, Judge Analisa Torres of the Southern District of New York ordered a trial by jury for Ripple CEO Brad Garlinghouse and Executive Chairman Chris Larsen over whether they are liable for the illegal sales to institutional investors. [Read more at CoinDesk here and the summary judgment here]

An SEC spokesperson reportedly said that the agency will “continue to review the decision” (e.g., apeal the deicsion to a higher court) and touted other parts of the judge’s ruling that went in the agency’s favor, such as the agreement that the Howey test governs what constitutes an investment contract. Also, Stephen Palley of Brown Rudnick noted that the summary judgment is only partial and that the ruling by Torres does not set a precedent. The judge wrote that the “totality of circumstances” around the transaction would determine whether similar secondary market sales are an illegal securities offering or not. [Read more at the Block]

“The main reasoning [for the split decision] was that institutional investors were more likely to be aware of XRP’s securities-like traits when being pitched by Ripple, but so-called programmatic investors — those who buy XRP directly on a crypto exchange, like retail traders — weren’t as clued-in. But extrapolating the Ripple decision as a positive for the rest of the crypto market isn’t so simple. For starters, the decision was based on how well retail investors understood crypto years ago, during a period that ended in 2020.” [Read more at Bloomberg]

Also, a footnote to ruling made it clear that this was not a ruling on secondary sales of XRP, like those that take place on exchanges, “because that question is not properly before the Court.” More specifically, it ruled that Ripple’s XRP token does not immediately qualify as a security when it’s been offered through programmatic sales to the public or distributed to employees of Ripple Labs. [Read more at Decrypt]

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*For those interested in intra-day updates, check out my searchable Diigo Fintech developments database, which is also a good place to go to query for past developments: https://www.diigo.com/user/kiffmeister/ART.

Upcoming conferences, webinars and speaking engagements:

• I’ll be lecturing at the Digital Euro Association (DEA) Digital Money Academy on July 27, 2023. [Register here]

Kiffmeister’s central bank digital currency monthly monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So (only) if you work at a central bank, ministry of finance or international financial institution (e.g., the BIS, IMF, OECD, World Bank) and who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

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