About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

US Regulation Experts: Blockchain Could Require Exchange Registration

Subscribe to our newsletter

Could using blockchain require registration with US regulators as a broker or exchange?

That’s the caution sounded in a discussion of the legal and regulatory challenges for banks using new financial technology hosted by Polsinelli, a law firm with offices in 20 US cities, at its New York office on December 8.

The US Securities and Exchange Commission hasn’t yet issued a decision on proposed changes of Transfer Agent Rules (the comment period on the rule proposal closed in April). The proposal suggested that blockchain could replace the function of transfer agents, which maintain records of investors and balances. At the same time, Richard Levin, an attorney at Polsinelli, said the use of blockchain could require an entity to register as a transfer agent.

“If you’re in digital currency or blockchain, but what you’re doing looks an awful lot like the futures or derivatives market — or an equities market — you may need to register or at least talk with regulators and figure out if you need to register or there’s an exemption that can be had,” said Levin.

Although blockchain could conceivably be labeled a commodity, and as Brent Tomer, chief trial attorney at the US Commodities and Futures Trading Commission (CFTC), said, the definition of a commodity can be “quite broad,” the CFTC’s license requirements cover “a much more limited sphere.”

“We have asserted through enforcement action that bitcoin and other virtual currencies are commodities,” said Tomer. “Conceivably certain blockchain uses could become commodities as well if used in the right context.” The CFTC did issue enforcement actions against Coinflip in September 2015 and Bitfinex in June 2016.

New York-based transactions and exchange automation provider Consensys tries to “cover its bases from a regulatory perspective,” said Brent Xu, director of enterprise and head of structured finance at the company. To do so, Xu added, the company has to consider both its construction of “grass roots” technology, meaning “disruptive applications,” and integration of new technology into legacy systems.

The use of multiple operational systems for complex trading activity can make it more challenging to catch blockchain activity that could trigger a registration requirement, according to Obreahny O’Brien, business solution leader for blockchain and distributed infrastructure strategy at Ernst & Young in New York.

“We see a common theme of needing to minimize exposure when dealing with blockchain technology, because it is so pervasive and you may have multiple players outside your organisation running this software that you may be taking ownership of,” she said. “As a result, how do you minimise your exposure and take into account people participating on your network creating a filing obligation, whether for tax or other considerations, in various jurisdictions?”

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: The Role of Data Fabric and Data Mesh in Modern Trading Infrastructures

The demands on trading infrastructure are intensifying. Increasing data volumes, the necessity for real-time processing, and stringent regulatory requirements are exposing the limitations of legacy data architectures. In response, firms are re-evaluating their data strategies to improve agility, scalability, and governance. Two architectural models central to this conversation are Data Fabric and Data Mesh. This...

BLOG

Exegy and BMLL Expand Partnership to Streamline Access to Historical and Real-Time OPRA Options Data

Exegy and BMLL Technologies have expanded their partnership to deliver a unified OPRA options data solution, integrating real-time and historical datasets to support front-office trading and research functions. The collaboration builds on an agreement established in Q3 2023 and is aimed at addressing the data engineering challenges posed by the scale and complexity of OPRA...

EVENT

Data Management Summit London

Now in its 16th year, the Data Management Summit (DMS) in London brings together the European capital markets enterprise data management community, to explore how data strategy is evolving to drive business outcomes and speed to market in changing times.

GUIDE

The DORA Implementation Playbook: A Practitioner’s Guide to Demonstrating Resilience Beyond the Deadline

The Digital Operational Resilience Act (DORA) has fundamentally reshaped the European Union’s financial regulatory landscape, with its full application beginning on January 17, 2025. This regulation goes beyond traditional risk management, explicitly acknowledging that digital incidents can threaten the stability of the entire financial system. As the deadline has passed, the focus is now shifting...