Clifford Chance

Welcome to this month's global crypto round-up, summarising crypto regulatory developments that have happened around the world in February 2024 along with our Clifford Chance crypto publications and upcoming events. 

Details of these and previous developments can also be found on our Fintech Topic Guide on the Clifford Chance Financial Markets Toolkit.

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CLIFFORD CHANCE PUBLICATIONS

• Webinar:  CBDCs: Policy and Legal Considerations" with Clifford Chance and R3: Diego Ballon Ossio and Jack Hardman joined R3's Chief Economist, Alisa DiCaprio, to delve into a comprehensive overview of how central bank digital currency (CBDC) projects have evolved over the past year, and highlighted the interaction between policy decisions, legal considerations and technical designs in CBDCs. Through this presentation, Clifford Chance and R3 offer insights into how CBDCs can contribute to broader economic objectives, including the impact of CBDCs on financial stability and their potential role in promoting financial inclusion, as well as the legal structures necessary for successful CBDC deployment

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

• (26 Feb 2024) The Chair of the Financial Stability Board (FSB), Klaas Knot, has written a letter to G20 finance ministers and central bank governors ahead of their meeting on 28-29 February 2024. The letter sets out the work the FSB will undertake in 2024 to monitor and address vulnerabilities in the financial system, including analysing the financial stability implications of tokenisation and artificial intelligence, and designing and consulting upon a format for cyber incident reporting exchange. | Press release
• (25 Feb 2024) International Monetary Fund (IMF) paper which provides an overview of the development of digital money and payment systems in Pacific Island Countries (PICs), assessing potential benefits and risks, with a focus on how they can harness digital technology to enhance financial inclusion and payment efficiency while minimising risks. To this end, the paper also examines the prerequisites for successfully adopting various forms of digital money and proposes a strategic framework for policy decisions. | Webpage
• (12 Feb 2024) The University of Cambridge has launched the Cambridge Digital Money Dashboard (CDMD), a new online resource intended to provide interactive visual representations of up-to-date data on stablecoins, central bank digital currencies, tokenised bank deposits, and cryptoassets. The CDMD is envisaged to be a one-stop platform that brings together relevant digital asset adoption and risk indicators, allowing for multi-stakeholder uses and comparison. Its initial focus is on stablecoins as a first phase.
• (31 Jan 2024) The Basel Committee on Banking Supervision October 2023 consultation on disclosure of cryptoassets exposures, which proposed a standardised disclosure table and set of templates for banks' cryptoasset exposures with a proposed implementation date of 1 January 2025, has now closed. Published responses to date include: Global Financial Markets Association (GFMA), Institute of International Finance (IIF), International Swaps and Derivatives Association (ISDA), and International Capital Markets Association (ICMA) joint response | Digital Token Identifier Foundation response | Independent Community Bankers of America (ICBA) response

Americas

US

•  (26 Feb 2024) A group of Republican Senators have introduced the CBDC Anti-Surveillance State Bill, which would prohibit the Federal Reserve from issuing a CBDC directly to anyone, or indirectly to individuals through financial institutions or other third parties, and prevent the Federal Reserve from using a CBDC as a tool to implement monetary policy and control the economy. Finally, the bill would require authorising legislation from Congress for the issuance of any CBDC. | Press release
• (13 Feb 2024) US Treasury Financial Crimes Enforcement Network (FinCen) Financial Trend Analysis, which provides threat pattern and trend information on the use of convertible virtual currency (CVC) associated with online child sexual exploitation (OCSE) and human trafficking based on Bank Secrecy Act (BSA) data filed with FinCEN between January 2020 and December 2021. Amongst other things, FinCen’s analysis found that the total number of OCSE- and human trafficking-related BSA reports involving CVC increased from 336 in 2020 to 1,975 in 2021, with these BSA reports representing 6% of overall human trafficking-related BSA reports in 2020, but 29% of human trafficking-related BSA reports in 2021. Of the 2,311 BSA reports received during the review period, 2,157 reports specifically referenced bitcoin as the primary CVC used for purported OCSE- and human trafficking-related activity.
• (6 Feb 2024) The Securities and Exchange Commission (SEC) has adopted two rules that require market participants who engage in certain dealer roles, in particular those who take on significant liquidity-providing roles in the markets, to register with the SEC, become members of a self-regulatory organisation (SRO), and comply with federal securities laws and regulatory obligations. | Fact sheet | Press release

APAC

Hong Kong

• (20 Feb 2024) Hong Kong Monetary Authority (HKMA) circular setting out its supervisory standards for authorised institutions in the sale and distribution of tokenised products
• (20 Feb 2024) Hong Kong Monetary Authority (HKMA) circular providing guidance to authorised institutions on the provision of digital asset custodial services
• (8 Feb 2024) Hong Kong Government consultation to seek views on its legislative proposals to regulate over-the-counter (OTC) trading of virtual assets (VA) through the introduction of a licensing regime for providers of VA OTC services under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). Deadline for comments: 12 April 2024 | Press release
• (7 Feb 2024) HKMA consultation on proposals to implement new regulations on the prudential treatment of cryptoasset exposures. The HKMA intends to put new standards into effect no earlier than 1 July 2025. Deadline for comments: 6 May 2024
• (7 Feb 2024) HKMA circulars to authorised institutions and stored value facility licensees providing an update on the progress of its AML/CFT Surveillance Capability Enhancement Project (AMLS Project). The AMLS Project is part of the broader digital transformation under the HKMA’s Fintech 2025 strategy and is intended to respond to the need, as advocated by the Financial Action Task Force, to modernise anti-money laundering (AML) supervision in light of the risks and opportunities from new and emerging technologies, and the increasingly borderless and fast-moving nature of financial crime.
• (2 Feb 2024) Financial Services and the Treasury Bureau (FSTB) blog post on a new phase in virtual asset regulation, which indicates that the Hong Kong Government intends to consult on its proposed regulatory framework for OTC virtual asset trading platforms in the very near future

Japan

• (16 Feb 2024) The Japanese Cabinet has approved the 'Bill to partially amend the Act on Strengthening Industrial Competitiveness, etc. to promote the creation of new businesses and investment in industry,' which includes measures to add cryptoassets to the list of assets that can be acquired and held by investment limited partnerships. The Bill will be submitted to the 213th Ordinary Session of the Diet, which is currently in session. | Press release (in Japanese)
• (14 Feb 2024) Japan Financial Services Agency (FSA) statement (published in Japanese on 7 February 2024), issued in collaboration with the National Police Agency (NPA), calling on financial institutions to strengthen their customers’ protection against unlawful money transfers to cryptoasset exchange service providers by, for example: (i) stopping transfers to cryptoasset exchange service providers if the sender's name is different from the account name and (ii) strengthening monitoring of unlawful transfers to cryptoasset exchange service providers.

EUROPE

EU

• (22 Feb 2024) The EU Commission has adopted four Delegated Regulations setting out additional criteria on the supervision of cryptoassets under the Markets in Cryptoassets Regulation (MiCA). The Delegated Regulations cover:
• §  the procedural rules for the exercise by the European Banking Authority (EBA) of its power to impose fines or periodic penalty payments on issuers of significant asset-referenced tokens (ARTs) and e-money tokens (EMTs) (C(2024)898);
• §  the supervisory fees that can be charged by the EBA to issuers of significant ARTs and EMTs (C(2024)897);
• §  the criteria for classifying ARTs and EMTs as significant (C(2024)906); and
• §  the criteria and factors to be taken into account by the EBA, the European Securities Markets Authority (ESMA) and competent authorities when exercising their product intervention powers under MiCA (i.e. their powers to restrict or ban the sale of cryptoassets or related activities) (C(2024)907).
• (22 Feb 2024) European Central Bank (ECB) blog post entitled 'ETF approval for bitcoin – the naked emperor’s new clothes'
• (19 Feb 2024) ECB article and blog post on the debate around the impact of a digital euro on bank funding since the announcement of the likely design features and the EU Commission published its draft regulation on a digital euro. The authors argue that earlier concerns should be reassessed now that they have been effectively addressed by design choices which need to be incorporated into the analysis.
• (13 Feb 2024) ECB working paper on managing the transition to CBDC
• (9 Feb 2024) ECON draft reports on the proposed regulation on the establishment of the digital euro and on the proposed regulation on the provision of digital euro services by payment services providers incorporated in Member States whose currency is not the euro
• (2 Feb 2024) ESMA has updated its questions and answers (Q&A) on the MiCA with new answers on the provision of services by cryptoasset service providers established before (and after) 30 December 2024, passporting rights for entities benefiting from grandfathering, the prohibition of monetary and non-monetary benefits, the provision of cryptoasset services by credit institutions, and notifications under Article 60 of MiCA. | Press release
• (2 Feb 2024) EU Parliament briefing which provides an initial analysis of the strengths and weaknesses of the EU Commission’s impact assessment accompanying its June 2023 digital euro proposals | Webpage

Isle on Man

• (13 Feb 2024) Isle of Man Financial Services Authority discussion paper on the current approach to the oversight of certain cryptoasset activities for anti-money laundering and countering the financing of terrorism (AML/CFT) purposes, potential approaches to the regulation of such activities, and how the cost of such regulation should be funded. Deadline for comments: 9 April 2024 | Press release

Poland

• (23 Feb 2024) The Polish Ministry of Finance has submitted a draft act for public consultation, which sets out the organisation and exercise of supervision over offerors, persons applying for admission to trading, issuers of asset-linked tokens and e-money tokens, and cryptoasset service providers. The act is intended to ensure the application of MiCA and of the Regulation on information accompanying transfers of funds and certain cryptoassets. 

UK

• (26 Feb 2024) UK Finance blog post assessing the proposals for the UK’s stablecoin regulation
• (22 Feb 2024) Law Commission consultation on digital assets as personal property, including draft clauses to confirm the existence of a third category of personal property into which cryptotokens and other assets could fall. Deadline for comments: 22 March 2024 | Webpage | Press release
• (22 Feb 2024) Law Commission call for evidence on private international law in the context of digital assets and electronic trade documents. Deadline for comments: 16 May 2024 | Webpage | Press release
• (14 Feb 2024) Financial Conduct Authority (FCA) financial promotions data 2023, which shows that the FCA issued 450 consumer alerts relating to illegal cryptoasset promotions to UK consumers between 8 October 2023 and 31 December 2023. | Press release
• (12 Feb 2024) The deadline for responding to the FCA’s November 2023 discussion paper (DP23/4) on its proposed regulation around the issuing and holding of fiat-backed stablecoins and the Bank of England (BoE)’s related discussion paper on systemic payment systems using stablecoins and related services providers has now passed. Publicly available responses to date include:
• §  responses to FCA DP23/4 from CryptoUK | Global Digital Finance | The Institute of Chartered Accountants in England and Wales (ICAEW) | The International Regulatory Strategy Group (IRSG) | UK Finance
• §  responses to the BoE discussion paper from The Crypto Council for Innovation | Digital Pound Foundation | Global Digital Finance | ICAEW | IRSG | The Payments Association | UK Finance

EVENTS

Clifford Chance International Festival of Fintech – Virtual (online, 12-14 March 2024): We are delighted to invite you to the third Clifford Chance International Festival of Fintech, which will take place virtually on Tuesday 12 to Thursday 14 March 2024. We will be joined by leading international fintech industry experts to discuss a range of hot topics ranging from fintech M&A, funding and partnerships, to AI and quantum to crypto policy and regulation, tokenisation and digital bonds. | To register, please click here.

Clifford Chance International Festival of Fintech – Hong Kong (in person, 14 March 2024): This event will feature a lively discussion on the latest fintech developments, including cross-border payment projects, stablecoin regulation, and developments in relation to the e-HKD pilot programme, with speakers including William Courtenay, Managing Director at HSBC and Global Head of Digital Legal; Sean Lee, Senior Advisor and APAC Policy Lead for the Crypto Council for Innovation; Rocky Mui, Partner at Clifford Chance and Andre Da Roza, Counsel, at Clifford Chance| To register, please click here.

Clifford Chance International Festival of Fintech – London (in person, 14 March 2024): We are delighted to invite you to an exclusive in-person gathering as part of the third Clifford Chance International Festival of Fintech. This event will be hosted at our London offices and promises to be an evening of engaging discussions and valuable networking. Our in-person event will provide an opportunity to connect with industry leaders, engage with our expert speakers, and discuss the latest trends and challenges on B2B Collaboration and Culture. Speakers will include Elizabeth Fullerton-Rome, Independent Chair of the Board for Vocalink Limited, a Mastercard company, Mary O'Connor, Non-Executive Director at Carne Group and Executive Chair, Howden Capital Advisory and Placement and Nicole Pavitt, Lead International Counsel at Plaid. | To register, please click here.