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Q&As with Orrick and Greenberg Traurig

Published onAug 03, 2020
Q&As with Orrick and Greenberg Traurig
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Q and A with Orrick 


Q: Could you describe your Firm’s capabilities in blockchain and digital currency-related matters?

A: Orrick’s well-known strengths in the Finance and Technology sectors position the firm as a top legal advisor to companies in the blockchain and virtual currency industries. Orrick advises enterprise-level companies, startups and financial institutions on corporate law, securities law, M&A and finance transactions. Orrick also represents blockchain and virtual currency firms on intellectual property, technology contracting, corporate governance, and venture capital financing transactions. In addition, Orrick’s strong regulatory and litigation practices provide representation on securities enforcement, litigation, employment, regulatory and compliance matters. Orrick also contributes to legal and regulatory developments in this area through its active participation in blockchain organizations that drive business innovation, including the Global Legal Blockchain Consortium, the Global Legal Blockchain Hackathon, the Mobility Open Blockchain Initiative (MOBI) and the Wall Street Blockchain Alliance, as well as through its blockchain blog, On the Chain.

Q: How did you first become involved in the blockchain space?

A: Orrick’s depth and breadth of finance and technology offerings created a natural opening to begin working on blockchain and cryptocurrency transactions. For example, Orrick’s corporate department began representing Hedera Hashgraph at a very early stage of the company’s development, as well as Compound Labs, whom we have also represented since inception, advising on its incorporation, SAFT financing, SAFE financing, Series A Preferred Stock financing, general corporate matters, a Token distribution and COMP token. Several years ago, Orrick also entered the regulatory area when its White Collar, Securities Litigation and Enforcement practice group attorneys advised a major cryptocurrency exchange about coming into compliance with the broad range of federal and state statutes that were implicated by its business, including the federal securities laws, the federal commodities laws, the Bank Secrecy Act and cybersecurity requirements.

Q: Any predictions as to how the regulatory environment will evolve for the blockchain space?

A: In Europe, where our transactional and regulatory attorneys have a robust blockchain practice, we are seeing a number of different approaches to the regulatory environment for the blockchain space. Unlike other areas of financial regulation, there is currently no EU harmonized approach. However, we are beginning to see the start of regulation of blockchain with the new AML rules, which affect cryptoasset exchanges and issuers. Some jurisdictions have implemented laws requiring all cryptoasset and blockchain businesses to register with the regulatory authority. Currently, the UK is taking a technology neutral approach, although this has been tested with recent rules including the AML rules and potential crypto-derivatives retail ban. As cryptoassets and blockchain become more mainstream, we will likely see more consumer protections put in place and eventually regulation. With Brexit, it isn't clear whether the UK will implement this separately or will follow the EU, if and when it implements a harmonized approach. We may also see the regulators begin to utilize this new technology in their own supervision of these entities, allowing blockchain firms to comply with the regulatory rules, many of which are currently not appropriate for this technology. Smaller, nimbler and more technologically advanced regulators will likely get there before more traditional and less flexible regulators.


Q and A with Greenberg Traurig (Barbara Jones, Carl Fornaris)

 

Q: Could you describe your Firm’s capabilities in blockchain and digital currency-related matters?

A: Greenberg Traurig’s global Blockchain Group is comprised of more than 80 attorneys across multiple legal disciplines in key financial hubs around the world. Our attorneys advise clients on a wide array of matters in the fintech and blockchain sector, including token structuring, fund formation, investment strategies, financial regulation and registration, international tax planning and structuring, stable coins and asset-backed digital assets, infrastructure applications, technology licensing and development, securities compliance, cryptocurrency exchanges and trading, and blockchain-as-a-service. We work closely with regulators in the United States and around the world to assist our clients in structuring and operating their platforms, offerings, and services within the ever-evolving regulatory and legal regimes.

Our multidisciplinary approach enables our team to readily anticipate, recognize, and address challenges that our clients may face with respect to blockchain and digital asset development or utilization. Our dedicated response team consists of experienced attorneys with diverse backgrounds in securities, commodities and broker-dealer regulations, entity and fund formation, financing, exchange formation, federal and state financial services regulation, technology and intellectual property licensing, privacy concerns, cybersecurity issues, and taxation. We also utilize resources from our robust government, law and policy practice, which regularly advises governments and municipalities on evolving or model regulatory standards and other pertinent matters relating to blockchain.

We also recently launched the Overheard on the Block(chain) blog which provides timely updates on the regulatory and legal developments in the blockchain and cryptocurrency sector.
blockchain and cryptocurrency sector.

Q: How did you first become involved in the blockchain space?

A: In 2017, Greenberg Traurig formed its global Blockchain Group after recognizing a need from clients for guidance and advice in this nascent and ever-evolving sector of the market. Considered high risk in legal and regulatory arenas due to the nature of its components and geographic scope, blockchain is an atypical law firm practice, but we knew we had the right experience to help our clients address and navigate the legal and regulatory challenges they faced as well as the geographic platform to work with regulators and governments worldwide. We saw this as an opportunity to not only help our clients, but to also collaborate with regulators on novel structures and provide them with a better understanding of the broad uses and applications of this new technology.

Over these last three years, we’ve been able to capture a leading position globally in the industry through our work with clients and regulators, our involvement with some of the leading organizations in the blockchain industry, like the Stanford Journal of Blockchain Law & Policy and the Chamber of Digital Commerce. We also were recently ranked among the leading law firms in the Legal 500 United States 2020 Guide and Chambers and Partners’ 2020 FinTech Guide.

Q: Any predictions as to how the regulatory environment will evolve for the blockchain space? 

A: This is an interesting question given these challenging times. Certainly, the current environment has slowed focus on regulatory changes for blockchain in many parts of the world, including the United States.  Whereas certain countries, particularly China, appear to be capitalizing on the opportunity to fill the void and expand its role with blockchain platforms and services.  As you know, in late July China announced that its government-backed blockchain infrastructure would be opened up to global Dapp developers in August 2020. According to reports, China seeks to be the only blockchain infrastructure provider globally.  The development of China’s Blockchain-Based Services Network, or BSN, is led by the State Information Center and, to date, BSN has integrated its data centers with six major decentralized blockchains (Tezos, NEO, Nervos, IRISnet, Ethereum and EOS).  This will be important to watch over the next 18 months, especially in light of the current deterioration of the U.S.-China relationship and the upcoming U.S. election.  SEC Commissioner Hester Pearce continues to be a primary advocate for moving blockchain regulation forward at the Commission.  Her earlier rule proposal for a token safe harbor (proposed as new Rule 195 under the Securities Act) has yet to be rolled out by the Commission in a formal rule proposal for public comment.  Meanwhile the SEC Enforcement staff continues to be very active in this space.  We consider that the recent proceedings against and settlement with the Telegram Group provides significant insight as to the fervent commitment the Commission has maintaining the current regulatory landscape, despite the activities of its FinHub task force.  We expect little meaningful progress on the U.S. legislative and regulatory front in terms of any token safe harbor or similar initiative over the next 18 months given the pressing socio-economic and political challenges that are likely to dominant the agenda for the foreseeable future.


The G7’s Financial Stability Board is continuing to consider the feasibility of digital fiat currencies and stable coins, as similar studies are ongoing within the United States, the EU, Bermuda and other countries.  We expect to see more movement towards digital fiat currencies to operate side-by-side with the current paper/coin currencies, particularly in response to commercial initiatives and a desire to mitigate the risks posed to existing national and global payment frameworks. This will be particularly important as questions continue about reserve currencies as the global macro-economic experiences shifts and fractures resulting from geo-political and other influences.

On the U.S. money services business (“MSB”) licensing front, fintechs continue to lack a one-stop licensing solution short of a bank license.   Over the last 5 to 7 years, as fintechs have developed, many U.S. state regulators have determined that some fintechs falls under the MSB licensing umbrella, subject to state regulation, supervision and examination.  The problem with this approach is that its lack of efficiency, because many fintechs, depending on their business model can be subject to licensing in almost every U.S. state.  This results in burdensome state-by-state regulation. 

In 2016, the federal government through the U.S. Department of the Treasury’s Office of the Comptroller of the Currency (“OCC”) attempted to solve this by declaring that MSB- and consumer-lending fintechs could apply for a single “special purpose national bank” charter.  An OCC-licensed fintech would be exempt from state licensing and regulation.   Unfortunately for the OCC, its special purpose national bank charter was quickly attacked in the courts by several state MSB authorities.  In 2019, a federal court ruled that the OCC lacked authority to grant its fintech charter, and that decision is currently subject to an appeal by the OCC which has been opposed by those state MSB authorities. 

The lack of progress on a national MSB or fintech charter has caused the banking regulators of several states (acting through the Conference of State Bank Supervisors or CSBS) to work on a model modernized MSB law for states to adopt that would prescribe uniform definition, exceptions and exemptions to a variety of business models, including fintechs.   In 2018, the CSBS announced that seven state bank regulatory authorities would  be part of a joint licensing program that would facilitate the state licensing process for fintechs.  Currently, the joint state licensing program consists of over a dozen states which provide for streamlined licensing to those fintech applicants seeking multi-state licenses.  The CSBS believes that, eventually, all 50 states will adopt some type of integrated joint licensing program for fintechs. 


These comments reflect the opinions of the authors, and not of Greenberg Traurig, LLP. This is presented for informational purposes only and it is not intended to be construed or used as general legal advice nor as a solicitation of any type.

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