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Cryptocurrency Securities Market in Ghana: The Need for Securities and Exchange Commission and Allied Institutions to Create a Legal Framework for This Industry.(Part 4 of six)

Securities and Investment law

Cryptocurrency Securities Market in Ghana: The Need for Securities and Exchange Commission and Allied Institutions to Create a Legal Framework for This Industry.(Part 4 of six)

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From my previous submissions,[1] I have established that bitcoin is a security. The paper now drifts on to assess the possible infractions between bitcoin as a security and the laws of Ghana. The securities and exchange industry in Ghana is governed by the Securities Industry Act, 2016, Act 929, Foreign Exchange Act 2006 (Act, 723), and Securities and Exchanges Regulations 2003 (Li 1728) and Unit Trust and Mutual Fund Regulations (LI 1695). I will further proceed to discuss bitcoin trading and how its users use it as a tool to infringe the Anti-Money Laundering (Amendment) Act 2014, Act 174, The Payment System Act 2003 (Act 662) and Electronic Transactions Act 2008, Act 772.

The Securities and Exchange Commission (SEC), regulates securities and exchanges in Ghana and it was established by the Securities Industry Act 929, with the object of regulating and promoting the growth and development of an efficient, fair and transparent. The Bank of Ghana has statutory responsibility over payment and settlement systems in Ghana per the Bank of Ghana Act 2002, Act 612. This mandate has further been broadened by the Payment Systems Act 2003, Act 662. Thus, under the Act the Bank is clothed with authority to license institutes and agents to perform activities with respect to payment and settlement systems. These Acts were still inadequate to meet the ever-emerging sophisticated payment platforms, so the Bank went ahead to introduce the Payment Systems and Services Bill 2018 and further issued a guideline for electronic payments. We should not forget that bitcoin trading and exchanges are paid digitally and as such these laws must capture them. Cryptocurrency is not directly dealt with in the aforementioned bill. The challenge further continues.

The Bank of Ghana released notices to Banks and Specialised Deposit-taking Institutions (SDIs) and the general public per its notice number BG/GOV/SEC/2018/02  titled “Digital and virtual currencies operations in Ghana”. The Bank per this notice indicated that it has with keen interest taken notice of the holding and trading of virtual or digital currencies such as bitcoin Ghana. The Bank further went on to point out to the public that the activities in these digital currency trading are not licensed under the Payments Systems Act 2003(Act 662) and that the general public should be weary in trading over such platforms and with such enterprises as well. The Bank therein indicated that it will take steps to include a digital form of payment and further provide cybersecurity guidelines to protect users.

Inasmuch as I commend the efforts of the Bank in putting out this notice and many others, the Bank has not taken any meaningful legal steps to introduce strict and practical regulatory framework to deal with bitcoin trading in the interim or medium to long term regulation of bitcoin trading in Ghna. The vacuum created is my biggest concern as there is indeed an urgent action to be taken by SEC. Any operation of the sort in an unregulated market is chaotic and subject to illicit activities. It is just not enough for SEC and BoG to caution the public when the market is still rife, but a call to duty.

Since bitcoin is a type of security, the Securities and Exchange Commission of Ghana, on the other hand, could also have issued legal guidelines in respect of trading of the bitcoin on the capital market in Ghana. It followed the steps of Bank of Ghana and on March 29, 2019 per its notice “Public Warning on Investment and Trading in Cryptocurrencies and their Digital Platforms”, SEC/PN/003/03/2019. The main issues remain unresolved even though this is a securities problem and falls directly at the doorstep of the Ghanaian SEC.

On the contrary to the lackluster posture by the Ghanaian SEC, the Swiss Financial Authority released a set of guidelines in February 2017 to help regulate cryptocurrencies, blockchain technologies and Initial Coin Offering (ICO) (in bitcoin) in Switzerland to regulate the market. Further to this, Zuckerman 2018[2], indicated that the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), the Treasury Department and the Federal Resource of US worked together to create a regulatory framework with the strictest regulations for ICOs and blockchain and digital ledger technology. This should inform readers and the financial markets enthusiast that the Ghanaian SEC is not doing much to accentuate the emerging technology. The fact is that it is not going away but rather it has come to stay and be part of securities and exchange trading. I by this article call for serious and pragmatic steps to be taken by SEC. I have nonetheless, made recommendations below.

In the light of my call for regulation and not for caution statements by the Ghana SEC, further drawing from experiences in other countries, Crypto UK was formed in February 2018, when seven large cryptocurrency companies globally joined forces aiming to self-regulate their activities with the UK crypto industry. The Association is made up of trading platforms and services providers such as Coinbase, Etoro, and Crypto Compare, BlockEx, Coinshare and CommenceBlock per Alexander 2018[3]. This formed Association addressed the UK parliamentarians on the need for regulation and set out in writing a proposal to the Treasury Select Committee (TSC) to examine the role of cryptocurrency in the UK including risks connected to their usage by consumers, business and government.

This phenomenon is being repeated around the world. There is no doubt that even industry players are calling for legislation and self-regulation. It is really not enough for the SEC Ghana only to issue caution statements. In fact, the institution is not doing enough as compared to other jurisdictions. One important thing to note is that technological growth calls for adoption else it will overtake you especially where SEC, Ghana fails to match up to these crypto trading which is already on the Ghanaian market.

Infractions of Bitcoin Trading against the Law in Ghana

It is apparent for the Securities and Exchange Commission and the Bank of Ghana to do more in terms of regulations as already mentioned to safeguard users and businesses against risk. I will proceed to consider the infraction of bitcoin trading in Ghana starting my argument from the four main key players in the bitcoin market namely: miners, developers, exchanges and services providers and continue with other legal issues.

  1. MINERS

As already described in this paper, mining bitcoin is the process by which transactions for various forms of cryptocurrency are verified and added to the blockchain digital ledger. This is done with specialized hardware (computers). Thus, the miners do the work of verifying each of the transactions with the blockchain, and in the process extract “mine” which is bitcoin directly from the system, Thomas 2017. Further to the above, according to Stroud 2018[4], blockchain is a type of data structure that enables identifying and tracking transactions digitally and sharing this information across a distributed network of computers. The distributed network ledger technology offered by the blockchain provides a transparent and secured means for tracking the ownership and transfer of assets.

Noteworthy is that under this process bitcoin is extracted directly from the system hence, the production of virtual currency, bitcoin and users can choose to buy or trade in it. Also to this process, is the recording and verification of transactions of users. The activities on the blockchain takes the Central Bank or government authority out in the sphere of events.

First and foremost the production of virtual currency takes out the role of the Central Bank. In any given state the Central Bank is responsible for the production of fiat currency. This not worth standing, modernity as in technology has created digital currency and this has the feature of producing bitcoins or other cryptocurrencies for trading without the Central Bank. Ghana is not an exception. The Central Bank has the sole monopoly of issuing fiat currency in any country and it secures control over the volume of currency and credit in a particular country. The notes (fiat currency) circulates as legal tender money[5]. This gives the Central Bank the power to control liquidity in the financial system. I call on the Bank of Ghana together with SEC to issue a clear and strict regulatory framework in addition to the Payment System Act 662 to cover the operation of the miners on the blockchain in the production of bitcoins.

The under-listed are the activities that take place by miners on the blockchain:

  1. Accounting of digital activities.

  2. Virtual money transfer in cryptocurrencies

  3. It also records arbitrary data.

The accounting of digital activities feature by miners on the blockchain, has put users at risk to privacy violations. Thus, unlike in the situation of fiat currency, the bank is enjoined to maintain the privacy and confidentiality of all transactions by the customer. More so, where the bank comprises the privacy of its customer means a breach of its fiduciary duty and the customer may sue the bank for damages. Trading on the blockchain means that all the block (computers) record the transactions of a user in the quest to ensure that same transaction is reflected across the network for security purposes. This makes the users’ transactions reflect across the network. By this, there is no privacy for the user. The user or the platform of the system can be subject to cyber-attacks by hackers. On 26th July, 2011 Poland based Bitomat, the world’s third-largest bitcoin exchange, lost its wallet file and 17,000 bitcoins it was holding for clients. Further to this on August 5th, 2011 Mybitcoin Company explained how its bitcoin processor lost over 150,000 bitcoins worth over US$ 2 million at a time. Also on February 13th 2012 the second-largest bitcoin exchange in the world Trade-Hill shutdown citing regulatory problems and further lost US$ 100,000 following a dispute with users on its payment processor as contributing factors[6]

Finally, and further on this point, on 2nd October, 2013 Bitcoin Talk.org was hacked and users personal messages, emails, and passwords data were exposed.

In conclusion, the work of miners on the blockchain is prone to cybersecurity problems as well as privacy violations, malware and copyright violations. This occurs because bitcoin transactions and transfer of funds between a payee and a payer are identified by the public-private key pairs. Thus, payers announce their transaction to the bitcoin network and the miners then publish these transactions in a new block using their computational power in exchange for a fee.

Since all bitcoin participants maintain a complete local copy of the blockchain to ensure covertness of blockchain updates, these designed and virtual features put all users at risk when objectionable content is irrevocably stored on the blockchain. Recommendations to SEC on this can be found below on my recommendation submission.

  • EXCHANGES

Another cardinal feature of bitcoin is exchanges. The practice of bitcoin trading infringes on many provisions of the Securities Industry Act, 2016 Act 929. Under bitcoin trading, the exchanges provide a platform for buyers and sellers to trade in bitcoin. Examples of such bitcoin exchange companies are: Coinbase, Krakeu, Gemini, etc. I have already demonstrated that bitcoin is a security and thus the Act defines exchange per section 216 as a facility for the trading of securities, commodities or derivatives.

Again I have explained the various forms of securities such as futures, contact options all under derivatives of which bitcoin or any other type of cryptocurrency can be traded in. With the fast-moving crypto digital technology around the world and particularly in Ghana, SEC must act fast by pushing for the promulgation of new legislation and regulations in this area. Where there is the absence of legal regime over  the bitcoin exchange market in Ghana, the inevitable market forces will create an illegal exchange market for trading leaving the regulator out.

My concern is that the laws of Ghana particularly SEC, does not grant crypto companies license to trade in exchanges and therefore any purported exchange within the jurisdiction of Ghana is illegal. But the question remains, if SEC fails to modernize its rules and regulations then it will give impetus to illegal trading in Ghana. The regulation must come in and fast to regulate and streamline affairs rather than occasional caution statements to the public. Act 929 mandates the grant of licenses to persons i.e. artificial[7] or natural persons to establish or provide or maintain securities exchange in Ghana[8]. But this licensure does not cover cryptocurrency.

Currently, in Ghana, there exist many online platforms operating as exchange companies. Now some of these companies are incorporated, others are not. Even those incorporated as security exchange companies are  not licensed by SEC to operate as exchanges within the jurisdiction. Further to this some of these companies are incorporated outside Ghana but yet operate within the Ghanaian jurisdiction as securities exchange platforms for users without license. A company cannot operate in cryptocurrency on the exchange market without licensure from the US SEC. These tradings are either in cryptocurrencies to fiat or trading in options, future etc.

I am by this paper calling on SEC for immediate regulation on trading involving bitcoin. It will interest you to note that according to Liebkind 2018, there are three main types of bitcoin securities exchange scams.

  1. Hardware Wallet Theft

Here users on such exchange platforms who are concerned with security and privacy are issued with a hardware wallet. The hardware wallet stores the user’s or investor’s private keys in a second hardware device[9]. The hardware wallet is a type of bitcoin wallet where a collection of private keys (password) is used for transactions on the bitcoin network[10].

What readers should note is that the hardware wallet is a physical device used to store all the private keys during bitcoin securities exchanges. According to Liebkind 2018[11] these physical devices normally comes in the form of a USB device and offer offline help to crypto investors to protect their bitcoin. Even though these devices are relatively safe there are in-built vulnerabilities which open them to hackers who easily steal all of the user’s investments.

  • Exchange Scams:

According to Liebkind 2018[12], this is where there is the promise of unrealistic price during trading to investors as well as representation of heavy discount on bitcoin trading. This is an employed strategy to lure investors and rip them off. The point to note is that because the SEC does not regulate the exchanges industry in Ghana, the parties to this trading are not bound, in fact, they need not and do not even register the bitcoin securities transacted together with notice of the transaction particulars to SEC as required law within seven days per sections 126 and 127 of the Securities and Industry Act 929.

This is because the person selling in bitcoin security is not licensed to trade in securities so how then can he comply with the rules. It is not possible. He will operate illegally.

But per my argument, one can imply that at common law they are operating securities and it ends there. But once they are not licensed under the Act they cannot be prosecuted.

The Act requires makes registration as a mandatory procedural requirement under the securities laws of Ghana but this does not cover crypto trading even though at common law and the Act it is securities. But does not make provisions for crypto.

The Securities and Exchange Commission cannot just sit aloof and watch on by issuing a caution statement it must take a positive act. As a result of this, there is also the rise in lawsuits against securities exchange. An example is where a law firm Taylor-Copeland Law filed a class-action suit against Ripple Labs for the sale of unregistered securities as against the securities law of the U.S[13]. These things phenomenon are on-going in Ghana and until SEC takes positive steps to lead the introduction of legislation the black market of exchanges will forever exist.

My position is not for a ban on cryptocurrency trading but regulation of the industry to ensure a sanitized bitcoin securities industry. According to Pauw 2017, the Finance Services Agency in Japan approved 11 Companies to operate cryptocurrency exchanges in the Country[14]. This is aimed at balancing the need to protect investors with the need to support financial technology innovations as an eye-opener to SEC Ghana.

  • FRAUDULENT MISREPRESENTATION IN INITIAL COIN OFFERING (ICOS)

Initial Coin Offering (ICOs) is similar to Initial Public Offering (IPOs) but with the former, the equity raised is in bitcoins rather than fiat currency. The ICOs is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalist, Companies or Banks etc. So by this trading, the issuers offer or sell a percentage of their prospectus in exchange for bitcoin. The problem here is that these security instruments are not registered and unregulated by SEC. It is very interesting how SEC has closed its eyes yet trading in this nature and other forms are carried out every day.  These Companies (whether registered or not) are taking advantage of the legal vacuum created by SEC to their benefit. With the absence of legislation or any form of regulatory framework to cub the bitcoin industry in Ghana, there remains unverified representations to the public which fall short of the law. Since bitcoin security is issued through an ICO and same is not registered with SEC(a comma sould be inserted here) its offering is mostly associated with fraud. On the contrary, IPOs are issued through fiat currency but the IPO itself is registered with SEC and SEC regulates the process to the end. By law a company cannot issue an unregistered IPO.

The Commission reviews the prospectus filed to it and call for any possible amendment of the prospectus. The IPO is then priced at closing after all reviews are done with the registration statement by the Company or issuer will print the “reds”. This becomes the preliminary prospectus and it sets forth an anticipated offering size and anticipated price range. This stage is called the roadshow where the Company managers to meet prospective investors to raise capital through fiat and not bitcoin. Note that, when the review process is completed with the Commission as well as the underwriters, the IPO prospectus is thereafter consolidated. The Board of Directors of the issuing company and the underwriters set the share price at closing.

It is at closing because the price usually occurs after the close of the markets on the final day of the roadshow and thereafter begin to trade on the exchange. The pendency of completing the offering is about 25 days within which the Company together with its brokers-dealers must raise capital with the public at the pricing set. Further to this, during the period, the issuing company must be mindful of what it communicates to the public such that the information shared must not be a misstatement to the public to raise capital else it is illegal. On the contrary, and concerning ICOs there is no procedural requirement because the crypto securities and exchanges industry in Ghana is not regulated, unlike the IPOs. Moreover, since the bitcoin exchanges are unregulated, misrepresentations or misstatements are inevitable to be communicated to the public to raise more capital. I have already stated that bitcoin trading is a security and thus where same is traded in ICOs and the prospectus misrepresented to the public the issue further sins against section 149 of  Act 929 on false or misleading statements to induce the sale or purchase of securities by any person or is likely to influence the market price of the securities[15].

According to Liebkind 2018,[16] these fraudulent issuers create websites and call on investors to deposit bitcoin coins into a compromised wallet. A typical example is the Company Centra Tech which has been sued in the USA and accused of portraying fake team members, misleading investors and lying about their products. More so, in Ghana, the operations of the online Company Global Dynamic Marketing 2.0 (GDM 2.0) which is not registered with the registrar Generals Department as a registered Company is another example. This Company had promoters who sold bitcoin investments at conferences to convince investors that they are doing genuine issue business. Unknowing to investors it was all a scam when they suddenly shut down locking up investors funds. I was personally involved in this case prosecuting claims for my clients.

c.  DEVELOPERS:

The third key feature in the bitcoin layout is the developers. As already explained the developers develop or design the bitcoin software protocol. The language of the design is in C++ (a type of coding language) and runs on the blockchain technology. It is worth noting that bitcoin is a free software and any developer can contribute to the project. This is where the problem stems from and the biggest question that remains even in advanced jurisdiction is how we can secure and monitor the blockchain. Controlling the blockchain technology space is almost impossible, should there ever be laws in place. Blockchain technology is what the bitcoin is built on, thus it is designed to be decentralized, with no central government, or financial institutions as an electronic payment system. This electronic payment is through a distributed ledger called the “blockchain”. The blockchain records all payment transactions and proof of ownership of every bitcoin in circulation is like an open book everybody can see. This is effectuated by a network of computers and this takes out the role of intermediaries like the Central Bank or any third party institution. By this, the miners in the process verify each transaction with the blockchain. The miners are then rewarded in the form of bitcoin per the services they offer the system.

  • WALLET PROVIDERS.

This is the fourth and final player in the bitcoin ecosystem and is referred to as the digital wallet provider. It is a kind of software that connects the blockchain to the users. This is a software platform created normally by registered companies and renders services to allow users to send and or receive bitcoin payments or store and manage their balances. Wallet providers’ services include exchange and conversion of bitcoin into fiat or other cryptocurrencies.

The wallet is a digital file which the addresses and keys (password) for the currencies users own are stored. The problem with this digital wallet is that if the wallet file is lost the bitcoins contained therein as stored are also lost and may not be recovered. Most digital wallets are managed as commercial wallet accounts. Thus, a company registered with a jurisdiction creates an online platform. Noteworthy is that this operation by the company is a cross-jurisdictions. That is, a company may be registered in Germany but has an online presence in Ghana. The question is why cannot SEC license such a company to operate in Ghana then? Another problem associated with the digital wallet provider’s operations is that there are no regulations by SEC to monitor activities. More so, some companies may not be registered as companies not to mention license but yet still create a technological platform to attract users and trade over that platform.


[1] That is, part 1, 2 and 3 of the series.

[2] Molly Jane Zuckerman, “US: Republican & Democrat officials calling for Cryptocurrency Regulation in Rae Show of Unity”. Retrieved on February 19, 2018.

[3] Aria Alexander, “Crypto Trade Association call on MPs to Regulate Cryptocurrency Sector in UK”. Retrieved on May 2, 2018.

[4] Forest Stroud, “Blockchain”, https://www.webopedia.com/TERM/B/blockchain.htmlstround retrieved June 2018. 

[5] J. Singh, “Top 9 Functions of Central Bank” http://www.economicsdiscussion.net/banks/top-9-functions-of-central-bank-explained/613 retrieved on June 1st, 2018.

[6] See  www.historyofbitcoin.org

[7] Companies or bodies corporate

[8] Section 42 of Act 929

[9] Hardware wallet. https://en.bitcoin.it/wiki/Hardwarewallet

[10] Wallet. https://en.bitcoin.it/wiki/Hardware_wallet

[11] Supra.

[12] Supra.

[13] Priyanka Babu. “Class action lawsuit against Ripple Labs will Stay in Federal Court” https://cryptodawn.com/class-action-lawsuit-against-ripple-will-stay-in-federal-court/2138/ retrieved on march 18th, 2020.

[14] Christian Pauw, “Japan Issues Cryptocurrency Licenseshttps://cointelegraph.com/news/japan-issues-cryptocurrency-exchange-licenses retrieved on September 30, 2017.

[15] Section 149 of Act 929

[16] Supra.

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