Law Decoded: Of ICBMs, BTC and ETFs, Feb. 5–12

Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.

Editor's note

A wise man once said, "there's security and there're securities," and if he didn't, he should've.

In modern English, it seems a quaint coincidence that the word "security" refers to both safety and a broad class of investments. But as pending arguments about, say, meme-propelled trading in securities are set to take place in forums reserved for national security, it's a good reminder that money precedes weapons as vehicles for national power.

In some sense, it's obvious that financial security is part of national security. It's why different nations have different standards of scrutiny over their markets in general and their securities in particular. In some cases, these are just to protect domestic investors from home-grown shysters, but in others, it’s to prevent bad money from getting into or out of the country via opaque trading mechanisms. In still others, it’s simply a means of making companies accountable to regulators.

Fortunately for us, the week has been replete with crossover concerns between securities regulators and national security entities globally. We will, indeed, be taking a journey from Toronto to Pyongyang, via Beijing.

Canada: ETF in YYZ

The Ontario Securities Commission has approved the first Bitcoin exchange-traded fund in North America, clearing the way for Accelerate Bitcoin ETF to trade on the Toronto Stock Exchange.

Accelerate Financial Technologies is a Calgary-based alternative asset manager. Other Canadian firms like Arxnovum Investments and Evolve ETFs also filed prospectuses with the OSC in January, but have not yet received the same go-ahead.

The subject of a Bitcoin ETF has been hotly contested for years, with the U.S. Securities and Exchange Commission being notoriously hard to please under former Chairman Jay Clayton.

The first Bitcoin ETF to formally “launch” was Hashdex’s Nasdaq Crypto Index ETF on the Bermuda stock exchange. The details surrounding that fund, however, remain murky. Combined with Bermuda Monetary Authority’s general apathy to investigating financial malfeasance — hence the island’s reputation as a haven for money laundering — that ETF should give any investor pause. The OSC is somewhat more diligent a regulator and, consequently, Accelerate’s ETF is somewhat more promising for the market.

China: 10-4 from the SAMR

China’s financial regulator has issued its finalized rules on pursuing monopolies in the internet platform economy.

The State Administration for Market Regulation announced its draft rules just three months ago. Not particularly distinctive among antitrust regimes, they are interesting in the definitions they give to tech behaviors that allow anti-competitive practices to flourish behind proprietary algorithms. Moreover, they are symbolically a major step in China’s efforts to corral its local tech industry, with particular focus on TenCent and the Alibaba empire, who are especially concerning in that they have concentrated the great bulk of Chinese payments into their hands. Alongside the payments, they also have data on the payments.

All of which is pretty familiar by this point, in theory. The new codification may, however, accelerate overt action from the SAMR against tech firms — many of which are very engaged in what the new rules classify as anti-competitive activities.

North Korea: USDT for ICBM

Citing a confidential UN sanction monitoring report, Reuters said that North Korean hackers were behind September’s KuCoin hack. Furthermore, the investigation said the funds were bound for North Korea’s nuclear ballistics program.

Observers have, for years, noted that North Korea’s hacking raids — most infamously, by Lazarus Group — have been growing in importance as a source of revenue for a cash-strapped regime. Analysts were attributing the $281 million KuCoin attack to North Korean actors months ago. But obviously, the UN’s purview is fairly wide, so a UN investigation into the matter may be a step towards change.

A pariah state, North Korea is subject to one of the most aggressive sanctions blockades in the world. Consequently, Pyongyang is always on the lookout for creative revenue flows, especially when it’s building an industry that requires foreign materials. Beyond discreet trading relationships with China and Russia, Lazarus Group has proved remarkably lucrative. They have been linked to the breach at Bangladesh’s central bank, 2017’s outbreak of WannaCry ransomware, and the CoinCheck hack, which, at over half a billion dollars, remains the largest hack of any crypto exchange in history.

Further reads

Attorneys for Wilkie Farr & Gallagher, including former CFTC Chair J. Christopher Giancarlo, argue that crypto is ready for self-regulation.

The WEF’s Sheila Warren speaks to the future of blockchain and digital asset regulation with the Brookings Institution.

The Wall Street Journal’s Bob Davis writes on the role that Biden’s Commerce Secretary will play in defining the tech trade war between China and the U.S.