The massive ripple debate: FinCEN Ruling Labels XRP a forex, not a safety

The US SEC has ruled that Bitcoin and Ethereum will not be regulated as securities, but the debate over Ripple, the third largest cryptocurrency by market capitalization, continues. Some argue that US FinCen has already set a precedent for Ripple’s definition, meaning the SEC will have to follow suit at some point.

In June, the US Securities and Exchange Commission (SEC) clarified that Bitcoin (BTC) and Ethereum (ETH) are not securities and are not regulated as such. However, the classification of Ripple (XRP) is still up for debate – or is it?

Some believe that a 2015 decision by the U.S. Financial Crimes Enforcement Network (FinCEN) sets a definition for the Ripple network’s native coin, XRP, within the U.S. federal government that cannot be superseded by the SEC. As a Twitter user, Richard Holland (@codetsunami) notes:

FinCEN has already signed an agreement with Ripple Inc. that will allow them to continue their XRP sales. If XRP is an unlicensed security, FinCEN must now explain why they have signed an agreement allowing these unlicensed securities to be sold. That will never happen. XRP is not a security

– Richard Holland (@codetsunami) June 17, 2018

In a civil law enforcement by FinCEN in 2015, Ripple Labs was accused of violating the Banking Secrecy Act (BSA) by acting as a money service provider (MSB) and selling XRP without registering with FinCEN. It has also failed to implement and maintain an adequate anti-money laundering (AML) program.

A settlement agreement was reached, criminal charges were resolved, and Ripple was fined $ 450,000. Crucial to the debate was trading in XRP:

Through a registered MSB: Implement and maintain an effective AML program: Adhere to the rules for money transfer and fund travel: Conduct a three year “look back” to report suspicious activity for previous suspicious transactions and a requirement for the company to use outside independent auditors to review compliance with the BSA every two years up to and including 2020.

Ripple Labs has also been asked to improve the Ripple protocol to monitor future transactions. The then US attorney Melinda Haag commented on the deal, hoping that it would set an “industry standard” in the field of digital currencies.

Holland continues to share part of the introduction and background of the FinCEN ruling, which it believes is the most critical point:

These are the agreed facts of the settlement where FinCEN agrees with the prejudice that XRP is a currency and therefore not a security. That debate is over.

– Richard Holland (@codetsunami) June 17, 2018

While not an expert on US law and relatively unknown in the Twitter arena, Holland is an entrepreneur and the creator of an open source XRP wallet. He says:

They have already put the US Fed government in a position where $ XRP is a currency according to the agreed facts of settlement. Something cannot be currency and security at the same time. The agency’s substantive jurisdiction does not affect its ability to bind the entire government.

Not everyone in the cryptocurrency community agrees that FinCEN set the bar for XRP, but the argument certainly drives the debate, and no one can deny that precedents are a major factor in law and regulation.

Proponents of Ripple argue that XRP does not meet the definition of a security:

Ripple Labs has worked hard to portray XRP as a digital currency rather than a security. Brad Garlinghouse, CEO of Ripple recently told CNBC:

Whether or not XRP is a security is not determined by a lawsuit. The SEC is the governor of that. I think it’s very clear that XRP is not a security. The company exists independently of Ripple. If Ripple, the company, shuts down tomorrow, XRP will remain.

Cory Johnson, Ripple’s chief marketing strategist, declared Ripple absolutely “no security” and that Ripple does not meet the standards for what a security is based on the history of court law.

Is Ripple (XRP) a security or not? Will FinCEN’s 2015 decision make any difference to the SEC’s final decision? Let us know in the comments below.

Images courtesy of Twitter / @ codetsunami, Shutterstock

Comments are closed.