Clifford Chance
Global Crypto Roundup
December 2022
Welcome to this month's global crypto round-up, summarising crypto regulatory developments that have happened around the world in September 2022 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
Hong Kong announced several fundamental virtual asset-friendly changes to the city's regulatory stance towards virtual assets, including the relaxation of rules surrounding retail access.
The Hong Kong Government issued a policy statement on 31 October 2022 in conjunction with the city's flagship Hong Kong Fintech Week conference, which unveiled several key changes to the city's regulatory stance towards virtual assets (VA), in particular allowing retail access to VA futures ETFs, and launching consultation on the degree of retail access to VA, among other updates.
Ready to issue? Long-awaited publication of requirements for German electronic securities registers
On 28 October 2022, the German Regulation on requirements for electronic securities registers (Verordnung über Anforderungen an elektronische Wertpapierregister, eWpRV) was published in the Federal Gazette, and entered into force on the next day. The eWpRV specifies certain requirements for electronic securities registers maintained under the German Electronic Securities Act (Gesetz über elektronische Wertpapiere, eWpG) increasing legal certainty for registrars and participants.
Cryptoassets - considerations for market participants in times of distress
The cryptoasset markets are facing an extended period of volatility and uncertainty following the bankruptcy filings of significant market participants. Liquidity and solvency concerns are increasing across the market as the fallout from such insolvencies is felt. As a result, crypto market participants would be well advised to review and consider the terms of their existing agreements, the position of their counterparties and steps that can be taken to protect themselves in all relevant jurisdictions in the event of future price fluctuations, further distress among market participants, and potential insolvency proceedings.
On 10 November 2022, the European Parliament voted to adopt a new EU regulation on digital operational resilience for the financial sector (DORA). With obligations under DORA coming into effect late in 2024 or early 2025 at the latest, in this article we take a closer look at its impact and consider what the regulation will mean for firms, their senior managers and operations and what firms should be doing now in preparation for day one compliance.
Global Legal And Regulatory Updates, Industry Guidance And Publications
International
- (24 Nov 2022) Bank for International Settlements paper on central bank digital currencies (CBDCs) in Africa, which is based on a survey of African central banks and analyses the development, motivations and concerns around CBDCs in Africa relative to other emerging and developing regions.
- (22 Nov 2022) International Monetary Fund blog post which argues that Africa's growing crypto market needs better regulations.
- (10 Nov 2022) Speech by Steven Maijoor, Executive Director of Supervision of the Dutch Central Bank and Chair of the Financial Stability Board working group on cryptoassets, in which he argued that successful financial innovations must be underpinned by public trust if they are to stand the test of time. Maijoor warned that the rapid growth of cryptoasset markets, in the presence of structural vulnerabilities and incomplete regulation and supervision, mean that they could soon reach a point where they represent a threat to the stability of the global financial system.
- (10 Nov 2022) The FSB Regional Consultative Group for Europe has held a meeting in Lisbon to discuss global and regional economic and financial market developments, including recent work to address vulnerabilities in non-bank financial intermediation and to promote consistent and effective regulation of cryptoassets and markets as well as stablecoin arrangements. Amongst other things, the group stressed that, in light of recent developments, decentralised finance, trading platforms and crypto conglomerates and exchanges that vertically integrate multiple functions deserve urgent regulatory attention. | Press release
- (10 Nov 2022) Financial Stability Board (FSB) Chair, Klaas Knot, has written to G20 Leaders ahead of their Summit in Bali on 15-16 November. Amongst other things, the letter indicates that finalising its recommendations for the effective regulation of cryptoasset activities, including stablecoins, and monitoring their effective implementation will be a priority for the FSB's work. | Letter
- (2 Nov 2022) The Bank for International Settlements (BIS) Innovation Hub has launched a new project around central bank digital currencies (CBDCs) and Decentralised Finance (DeFi) protocols as part of its 2022 work programme. Project Mariana will explore automated market makers for the cross-border exchange of hypothetical Swiss franc, euro and Singapore dollar wholesale CBDCs. It will seek to examine the potential between financial institutions to settle foreign exchange trades in financial markets. The project involves the Eurosystem, Singapore and Switzerland BIS Innovation Hub Centres together with the Bank of France, Monetary Authority of Singapore and Swiss National Bank. | BIS press release | Banque de France press release
Americas
Canada:
- (3 Nov 2022) Canada Federal Government 2022 Fall Economic Statement, which includes a section on the digitalisation of money and announces consultations with stakeholders on digital currencies, including cryptocurrencies, stablecoins, and CBDCs. | Press release
US
- (22 Nov 2022) New York Senate Bill 6486, which has been signed by the New York Governor, Kathy Hochul. The bill introduces a two-year ban on all new proof-of-work cryptocurrency mining facilities that use a carbon-based fuel to power their operations.
- (18 Nov 2022) The Financial Industry Regulatory Authority (FINRA) is conducting a targeted exam of firm practices regarding retail communications concerning cryptoasset products and services between 1 July and 30 September 2022. | Press release
- (17 Nov 2022) Federal Reserve Board paper providing an overview of the literature examining how the introduction of a central bank digital currency would affect the banking sector, financial stability, and the implementation and transmission of monetary policy in a developed economy such as the United States.
- (15 Nov 2022) California's Attorney General, Rob Bonta, has issued guidance warning Californians to stay informed and protect their money when investing in the cryptocurrency market. | Press release
- (15 Nov 2022) The Federal Reserve Bank of New York has announced that its New York Innovation Center will participate in a proof-of-concept project with a group of private sector organisations to explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger. The US proof-of-concept project will experiment with the concept of a regulated liability network and will test the technical feasibility, legal viability, and business applicability of distributed ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank liabilities. | Press release
- (11 Nov 2022) The Federal Reserve Bank of New York’s New York Innovation Center and the Monetary Authority of Singapore have announced Project Cedar Phase II x Ubin+, a joint experiment to investigate how wholesale central bank digital currencies could improve the efficiency of cross-border wholesale payments involving multiple currencies. | Press release
- (4 Nov 2022) Federal Reserve Bank of New York report on the Phase I results of Project Cedar, the inaugural project of its New York Innovation Center. Project Cedar is a multiphase research effort to develop a technical framework for a theoretical wholesale CBDC in the Federal Reserve context through exploration of fundamental design choices and modular technical features. | Press release
- (4 Nov 2022) Speech by Executive Vice President and Head of Markets of the Federal Reserve Bank of New York, Michelle Neal, on advances in digital currency experimentation, in which she discussed some of the ways that the Federal Reserve System is engaging in research and experimentation that support ongoing innovation, including the New York Innovation Center and Project Cedar.
APAC
Australia
- (7 Nov 2022) Australian Securities & Investments Commission press release warning consumers of the key signs of a crypto scam and advising what to do if they have been scammed.
Hong Kong
- (21 Nov 2022) Hong Kong Monetary Authority research memorandum providing an assessment of the volatility spillover from crypto to traditional financial assets and the role of asset-backed stablecoins.
India
- (29 Nov 2022) The Reserve Bank of India (RBI) has announced that it will launch the first pilot for the retail digital rupee on 1 December 2022. The pilot will cover select locations in closed user groups comprising participating customers and merchants. The digital rupee will be in the form of a digital token that represents legal tender and will be issued in the same denominations that paper currency and coins are currently issued. The pilot will test the robustness of the entire process of digital rupee creation, distribution and retail usage in real time. The RBI has indicated that different features and applications of the token and architecture will be tested in future pilots, based on the lessons from this pilot. | Press release
- (1 Nov 2022) The Reserve Bank of India has launched the first pilot in the Digital Rupee – Wholesale segment. The use case for this pilot is settlement of secondary market transactions in government securities. | Press release
Singapore
- (28 Nov 2022) Reply by Tharman Shanmugaratnam, Senior Minister and Minister in charge of the Monetary Authority of Singapore (MAS), to a Parliamentary Question on the prudential treatment of Singapore banks' cryptoasset exposure. The Minister noted that Singapore-incorporated banks' exposures to cryptoassets are insignificant, contributing less than 0.05% of their total risk weighted assets, but that the MAS requires Singapore-incorporated banks to apply a 1250% risk weight for exposures to 'riskier' cryptoassets such as Bitcoin and Ether, which is the highest risk weight under the Basel Committee's capital framework.
- (11 Nov 2022) The Monetary Authority of Singapore and the Federal Reserve Bank of New York’s New York Innovation Center have announced Project Cedar Phase II x Ubin+, a joint experiment to investigate how wholesale central bank digital currencies could improve the efficiency of cross-border wholesale payments involving multiple currencies. | Press release
- (3 Nov 2022) The Monetary Authority of Singapore (MAS) has launched Ubin+, an expanded collaboration with international partners on cross-border foreign exchange settlement using wholesale CBDCs. | Press release
- (3 Nov 2022) Speech by MAS Managing Director, Ravi Menon, in which he discussed five desired outcomes the MAS wants to achieve through its collaborative fintech projects – instant remittance, atomic settlement, programmable money, tokenised assets, and trusted sustainability data.
- (2 Nov 2022) Clifford Chance has advised JP Morgan and SBI Digital Asset Holdings on the successful first industry pilot under the Monetary Authority of Singapore's (MAS) Project Guardian, which explores potential decentralised finance (DeFi) applications in wholesale funding markets. Under the pilot, a live cross-currency transaction involving tokenised Japanese Yen and Singapore Dollar deposits was successfully conducted. In addition, a simulated exercise was performed involving the buying and selling of tokenised government bonds. Two further industry pilots have now been launched to explore the issuance of tokens linked to trade finance assets and enable native digital issuance of wealth management products respectively. | Clifford Chance Press Release | MAS Press release
EUROPE
EU
- (29 Nov 2022) Clifford Chance has advised the European Investment Bank (EIB) on the issuance of its first euro-denominated digital bond on a private blockchain. The landmark transaction is the EIB's second euro-denominated digitally native bond issuance and its first under Luxembourg law. The EUR 100 million, two-year bond was issued, recorded and settled using private blockchain-based technology, via Goldman Sachs' tokenisation platform – GS DAPTM. The transaction is also the first syndicated bond issued by a public institution to be admitted to the Luxembourg Stock Exchange’s Securities Official List. | Clifford Chance press release | EIB press release | Banque de France press release | Banque centrale du Luxembourg press release
- (28 Nov 2022) The EU Council has formally approved the Digital Operational Resilience Act (DORA) and the DORA Amending Directive. This follows the EU Parliament formally adopting the two pieces of legislation on 10 November 2022. DORA is intended to establish a uniform set of requirements for the security of network and information systems of companies and organisations operating in the financial sector (including cryptoasset service providers) and any critical third parties which provide information communication technologies services to them. The texts still need to be published in the Official Journal, which is expected in December 2022 or January 2023. DORA will come into effect on the twentieth day following the day on which it is published in the Official Journal. It will apply, with direct effect, 24 months from the date on which it enters into force. Therefore, it is expected that DORA will apply to in-scope firms from late 2024 or early 2025 at the latest. | Press release
- (15 Nov 2022) Interview with Andrea Enria, Chair of the Supervisory Board of the European Central Bank, in which he discusses issues around banks' exposure to crypto platforms, crypto trading and cryptoassets, as well as banks outsourcing critical functions to third-party cloud providers, amongst other things.
- (14 Nov 2022) The EU Parliament is expected to vote on the Markets in Cryptoassets Regulation (MiCA) and the recast Regulation on information accompanying transfers of funds and certain cryptoassets at a plenary session during the week commencing 13 February 2023. | Procedure file – MiCA | Procedure file – Regulation on transfers of funds
Belgium
- (22 Nov 2022) Financial Services and Markets Authority communication on the classification of cryptoassets as a security, investment instrument or financial instrument. Amongst other things, the communication clarifies that, if there is no issuer, as in cases where instruments are created by a computer code and this is not done in execution of an agreement between issuer and investor (for example, Bitcoin or Ether), then in principle the Prospectus Regulation, the Prospectus Law and the MiFID rules of conduct do not apply.
Netherlands
- (7 Nov 2022) Dutch Central Bank (DNB) occasional study on cryptoassets – evolution and policy response, which considers the opportunities and risks cryptoassets pose for society and how policymakers can ensure that societal risks will be mitigated while leaving room for innovation
Russia
- (7 Nov 2022) The Bank of Russia has launched a consultation on the evolution of the digital asset market in Russia. Deadline for comments: 7 December 2022 | Consultation report (in Russian) | Press release
Switzerland
- (10 Nov 2022) Financial Market Supervisory Authority Risk Monitor for 2022, which includes an analysis of risks derived from decentralised finance applications operating on open-access blockchain infrastructures, ranging from potential losses due to severe market fluctuations to input errors, bugs in the applications, hacking or fraud. | Press release
- (2 Nov 2022) The Swiss Financial Market Supervisory Authority (FINMA) has partially revised the FINMA Anti-Money Laundering Ordinance, including to clarify the calculation of the threshold for transactions with virtual currencies and extend the Ordinance to cover distributed ledger trading facilities. | Press release
UK
- (21 Nov 2022) Speech by Bank of England (BoE) Deputy Governor, Jon Cunliffe, in which he reflected on recent crypto market developments and discussed the work that authorities are doing on the regulation of stablecoins and a potential central bank digital currency.
- (16 Nov 2022) Law Commission call for evidence requesting information on how decentralised autonomous organisations (DAOs) can be characterised and how the law might accommodate them. Following the feedback received, the Law Commission intends to produce a scoping report considering how DAOs can operate under the existing law of England and Wales and identifying any areas of law or regulation in need of further consideration and potential reform. Deadline for comments: 25 January 2023 | Press release
- (14 Nov 2022) The House of Commons Treasury Select Committee has held the first session of its inquiry into the cryptoasset industry, taking evidence from Susan Friedman, Head of Policy at Ripple; Ian Taylor, Executive Director at CryptoUK; Daniel Trinder, Vice President Government Affairs, Europe and MENA at Binance; and Tim Grant, Head of Europe, Middle East and Africa at Galaxy Digital. | Parliament TV recording of the session
- (12 Nov 2022) The House of Lords Fraud Act 2006 and Digital Fraud Committee has published its report, 'Fighting Fraud: Breaking the Chain', which warns that digital technology has led to new opportunities for fraudsters and that the people in charge of these new technologies are not doing enough to prevent the exploitation of their services. Amongst other things, the report argues that the Government should work with the private sector to integrate better know-your-customer checks into the cryptoasset account set-up process, which should include designing systems that ensure cryptoassets and crypto-wallets can be traced to an identified individual. It also calls on the Government to bring forward the measures in the Financial Services and Markets Bill to enable the FCA to regulate cryptoassets, as well as its forthcoming consultation on other types of cryptoassets, and to bring forward the measures in the Economic Crime and Corporate Transparency Bill to allow the seizure of cryptoassets using civil recovery powers as well as the existing criminal powers.
- (4 Nov 2022) House of Commons Digital, Culture, Media and Sport Committee inquiry into the operation, risks, and benefits of non-fungible tokens (NFTs) and the wider blockchain. MPs are expected to consider whether NFT investors, especially vulnerable speculators, are put at risk by the market. The inquiry may also look into the wider benefits that NFTs and the blockchain could provide the UK economy. | Call for evidence deadline: 6 January 2023 | Press release
Ukraine
- (28 Nov 2022) The National Bank of Ukraine has presented a draft concept for its CBDC, the digital hryvnia or e-hryvnia. | Statement (in Ukrainian)
MIDDLE EAST
Dubai:
- (1 Nov 2022) The Dubai Financial Services Authority (DFSA)'s crypto token regime has come into force. The regime forms the second phase of the DFSA’s work in this area, following the introduction of a regime in the Dubai International Financial Centre (DIFC) for the regulation of investment tokens in October 2021. | Press release
Israel
- (28 Nov 2022) Report submitted to the Minister of Finance by the Chief Economist at the Ministry of Finance, Shira Greenberg, with recommendations regarding the regulation of digital assets in Israel. The report contains an overview of the digital assets market in Israel and worldwide, in particular the cryptocurrency market, and assesses the risks and the main barriers to the proper development of the market. | Report (in Hebrew) | Press release (in Hebrew)
EVENTS
Cryptoasset regulation in Europe & the UK - What are the latest updates? (Zurich and online, 5 December 2022):
Clifford Chance are delighted to be joining legal experts from the Crypto Valley Association and MLL for a discussion on the latest European and UK regulatory developments in the fast-moving areas of cryptoassets and digital securities. The panel discussion in Zurich at 6pm CET on 5 December will include updates on a range of relevant legislation across the EU, Switzerland and the UK. This is a hybrid event with online attendance also available. For more information and to register, please click here.
Insights on Financial Regulation: MiCA for stablecoin issuers (online, 15 December 2022):
In this call we will outline the new requirements that potential issuers of cryptoassets and stablecoins should be aware of, including the introduction of licensing for issuers and location, disclosure and governance requirements. | To register, please see the event series registration form
Insights on Financial Regulation: MiCA for exchanges, brokers and other venues (online, 5 January 2023):
In this call we will outline the new requirements that exchanges and brokers for digital assets should be aware of, including disclosure and governance requirements. | To register, please see the event series registration form