Proposed rule would be implemented by statute and would give primacy to parties’ choice of governing law and jurisdiction.

By Stuart Davis, Nell Perks, and Matthew Unsworth

There is at least a tentative consensus in English law that cryptocurrencies and other digital assets are capable of giving rise to property rights.[1] However, there remains considerable uncertainty around which laws should govern proprietary disputes about digital assets and which courts should have jurisdiction over those disputes.

The Financial Markets Law Committee (FMLC) explained the crux of this problem in their initial report on digital assets in 2018.[2] Traditionally, a question as to rights or entitlement to personal property is governed by the law of the place where the property is situated (lex situs).  But this rule is ill-suited to digital assets which, by their nature, are intangible, digitised, and constituted on a decentralised ledger shared across a network of participants in potentially any number of jurisdictions.

The centralized repository would assist the CFPB and law enforcement in detecting patterns of misbehavior and recidivism adversely affecting consumers.

By Arthur S. Long, Barrie VanBrackle, and Deric Behar

On June 3, 2024, the Consumer Financial Protection Bureau (CFPB) finalized a rule (Registry of Nonbank Covered Persons Subject to Certain Agency and Court…

FIT21 would provide regulatory certainty for the US digital asset ecosystem, balancing support for innovation with consumer protection.

By Yvette D. Valdez, Stephen P. Wink, Adam Fovent, and Deric Behar

On May 22, 2024, the US House of Representatives (the House) passed H.R. 4763, the Financial Innovation and Technology for the 21st…

Professional investors will benefit from increased exposure to cryptoassets via traditional financial instruments, though retail investors’ exposure remains limited.

By Stuart Davis, Gabriel Lakeman, and Ivan Pizeta*

In the fast-paced world of cryptocurrency, regulatory clarity is essential for both investors and market participants. In March this year, the Financial Conduct Authority (FCA) made a significant announcement regarding listing cryptoasset-backed Exchange Traded Notes (cETNs) in the UK. This decision marks an important step towards greater regulatory clarity in the crypto industry and presents new opportunities for professional investors.

What Is the FCA’s Updated Position?

Traditionally, cryptoassets have posed challenges for regulators due to their decentralised and often volatile nature. However, now that cryptoassets have a more established trading history, the FCA determined that exchanges and professional investors should be able to understand whether cETNs meet their specific risk appetite. Consequently, the FCA updated its position and allowed the Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cETNs. Notably, these products will be available exclusively to professional investors such as authorised investment firms and regulated credit institutions — the ban on the sale of cETNs to retail consumers remains in place.

Despite this approval, the FCA requires that stringent controls remain a prerequisite for exchanges seeking to list cETNs. These controls ensure cryptoasset trading remains orderly, that professional investors are adequately protected, and that the market segment is accessible to professional investors only. Additionally, cETNs must meet all requirements of the UK Listing Regime to maintain transparency and accountability, including provisions on prospectuses and ongoing disclosure.

What Does This Mean for Cryptoasset Regulation in the UK?

The FCA’s decision opens the door to further exploration of cryptoasset regulation. As RIEs consider creating new UK listed market segments, the FCA will assess applications on a case-by-case basis, ensuring adequate protection for professional investors. Moreover, RIEs must ensure that they fully understand the risks of admitting crypto-linked instruments to trading, and that their admission to trading criteria and trading controls will adequately mitigate those risks.

While the FCA is allowing exposure to cryptoassets through cETNs only to professional investors with certain protections in place, the regulator maintains that cETNs and cryptocurrency derivatives are unsuitable for retail consumers because of the potential harm they present. This stance introduces tension between limiting retail investors’ exposure to cETNs and crypto derivatives in order to protect those retail investors, and allowing those same retail investors exposure to cryptoassets via spot trades through cryptoasset businesses registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.

With the FCA catching up on global regulatory developments and introducing further regulatory clarity, it will be interesting to observe future progress on retail investors’ exposure to cryptoassets and the complete ban on sale of cETNs and crypto derivatives to retail investors.

Latham & Watkins will continue to monitor regulatory developments in the cryptoassets industry.

* Admitted to practice in New York only.

The bipartisan bill seeks to foster innovation and promote US dollar dominance while protecting consumers and mitigating illicit finance risks.

By Jenny Cieplak, Arthur Long, Yvette D. Valdez, Stephen P. Wink, Adam Fovent, and Deric Behar

On April 17, 2024, US Senators Cynthia Lummis from the Senate Banking Committee and Kirsten Gillibrand from the Senate Agriculture Committee introduced proposed legislation to create a US regulatory framework for stablecoins. The bipartisan Lummis-Gillibrand Payment Stablecoin Act (the Bill) seeks to promote responsible innovation and preserve US dollar dominance, while protecting consumers and digital asset market participants.