SEC issues statement reminding virtual exchanges to register Also warns other parties to transactions

US regulators are catching-up
Last night’s statement from the SEC is another in a line of sequentially increasing announcements from US regulatory and tax authorities showing that after several years of a wait-and-see posture, the US is now moving to catch-up enforcement of activities in the virtual marketplace.

SEC statement of 7 March 2018 regarding virtual exchanges
The SEC’s Divisions of Enforcement and Trading and Markets has issued a statement stating that online trading platforms trading virtual assets that qualify as securities under US securities law must either (1) register with the SEC as an exchange and meet the regulatory requirements of such status, or (2) qualify for an explicit exemption.

The statement addresses parties other than exchanges
Platforms that offer digital wallet services may also need to register with the SEC and meet the regulatory requirements of such status. Finally, other market participants such as promoters, broker-dealers, transfer agents, and clearing agencies may also have a registration requirement.

Coming enforcement efforts
Although not expressly mentioned in the statement, this is another step in the SEC and other US regulatory and tax authorities signalling that they intend to regulate the virtual assets world as aggressively as they do the traditional financial one. The statement of 8 March comes on the heels of highly publicized enforcement actions by the SEC and the launch of investigations by the IRS. This activity will only increase from now on.

Jurisdictional considerations
What the statement does not explain is when an online activity falls under the jurisdiction of the SEC as a geographical matter (as opposed to purely a question of subject matter jurisdiction). Exceptions are provided for under US law and the SEC regulations for parties that are not US Persons. Here, unlike under the US tax system, US Persons are usually limited to people or entities present in the US (there are a few exemptions to this rule). The SEC has not expressly stated that this general physical presence principle also applies to virtual currency activities, so any forthcoming US regulations could prove challenging in navigating what crypto activity does and does not fall under US jurisdiction.

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Günther Dobrauz 
Partner & Leader, PwC Legal Switzerland
+41 58 792 14 97

Martin Liebi
Director, PwC Legal Switzerland
+41 58 792 28 86

Thomas Plank
US Lawyer & Senior Manager, Financial Services Tax
+41 75 413 18 06

Published by

Guenther Dobrauz

Guenther Dobrauz

Guenther Dobrauz
Leader PwC Legal Switzerland
Birchstrasse 160
Postfach, 8050 Zurich
+41 58 792 14 97

Guenther leads PwC Legal in Switzerland and the Legal FS Regulatory & Compliance Services department. He is a PwC Partner since 2015 and a global expert on legal advisory, specializing in supporting the structuring, authorization and ongoing lifecycle management of financial intermediaries and their products. He in particular also focuses on leading large scale regulatory change and compliance alignment projects.

Guenther is the author of books on investment selection, FinTech Regulation and European, Swiss and Liechtenstein investment law. He also wrote 80+ publications in international expert magazines and has to date been speaking at more than 60 conferences worldwide.

Guenther Dobrauz received his Masters and PhD degrees in law from Johannes Kepler University (Linz, Austria). He holds an MBA from the University of Strathclyde Graduate School of Business (Glasgow, UK) and has participated in Harvard Business School’s Executive Education Program.

Guenther Dobrauz was Legal Counsel of an international hedge fund group and served as Managing Partner and Legal Counsel of a Swiss Venture Capital firm. He has practiced in court and with a leading business law firm.