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Clifford Chance

Clifford Chance

Fintech

Talking Tech

Global Fintech Update

1 February 2023

Crypto Fintech Banking & Finance 1 February 2023

Welcome to this week's global fintech round-up, summarising fintech regulatory developments that have happened around the world along with our Clifford Chance fintech 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.

CLIFFORD CHANCE BRIEFINGS AND MATERIALS

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

  • (31 Jan 2023) Bank for International Settlements' Committee on Payments and Market Infrastructures (CPMI) Brief No. 1: Digital payments make gains but cash remains, which documents the extent to which the growth in digital payments over the past decade continued in 2021, while noting that digital payments have not yet fully replaced cash. | Webpage
  • (26 Jan 2023) The International Swaps and Derivatives Association (ISDA) has published new standard documentation for the trading of digital asset derivatives, alongside a whitepaper that addresses some of the legal issues raised by the recent bankruptcies of major crypto exchanges and market participants. The ISDA Digital Asset Derivatives Definitions initially cover non-deliverable forwards and options on Bitcoin and Ether, but could be expanded in future to cover additional product types, including tokenised securities and other digital assets executed on distributed ledger technology (DLT). The white paper, Navigating Bankruptcy in Digital Asset Markets: Netting and Collateral Enforceability, highlights a number of common features and challenges – as well as these assets' novel features – that will need to be considered and resolved by market participants seeking to implement digital asset-based collateral management solutions. | Press release

Americas

US:  

  • (27 Jan 2023) White House National Economic Council (NEC) blog post on the Biden Administration's roadmap to mitigate cryptocurrencies' risks, which calls on Congress to 'step up its efforts' by (i) expanding regulators' powers to prevent misuses of customers' assets and to mitigate conflicts of interest, (ii) strengthen transparency and disclosure requirements for cryptocurrency companies so that investors can make more informed decisions about financial and environmental risks, (iii) strengthen penalties for violating illicit-finance rules and subject cryptocurrency intermediaries to bans against tipping off criminals, (iv) fund greater law-enforcement capacity building, including with international partners, and (v) limit cryptocurrencies' risks to the financial system by following the steps outlined by the Financial Stability Oversight Council in its recent report, including addressing the risks of stablecoins.
  • (27 Jan 2023) Board of Governors of the Federal Reserve System policy statement interpreting section 9(13) of the Federal Reserve Act. Amongst other things, the policy statement sets out a rebuttable presumption that the Board will exercise its discretion under section 9(13) to prohibit state member banks from holding most cryptoassets, including bitcoin and ether, as principal in any amount. The Board believes this presumption is bolstered by safety and soundness concerns. The policy statement also addresses proposals from certain state member banks to issue dollar-denominated tokens using distributed ledger technology or similar technologies, stating that the Board generally believes that issuing tokens on open, public, and/or decentralised networks or similar systems is highly likely to be inconsistent with safe and sound banking practices.
  • (26 Jan 2023) Speech by Commodity Futures Trading Commission (CFTC) Commissioner Kristin Johnson on mitigating crypto crises and applying lessons learned in governance, risk management, and compliance. Amongst other things, Johnson urged Congress to give the CFTC statutory authority to conduct effective due diligence on any firm not already subject to the CFTC’s oversight that seeks to purchase 10% or more of the equity interest in a CFTC-registered exchange or clearinghouse.
  • (23 Jan 2023) New York State Department of Financial Services (NYSDF) virtual currency guidance on custodial structures for customer protection in the event of insolvency, which highlights sound custody and disclosure practices to better protect customers in the event of an insolvency or similar proceeding and emphasises the paramount importance of equitable and beneficial interest always remaining with the customer.

APAC

Hong Kong:

  • (31 Jan 2023) Hong Kong Monetary Authority (HKMA) consultation conclusion on cryptoassets and stablecoins, summarising the feedback received to the HKMA's January 2022 discussion paper and the HKMA's response. In the consultation conclusion, the HKMA proposes to bring certain activities relating to stablecoins into the regulatory perimeter, and indicates the expected regulatory scope and key regulatory requirements. A more detailed consultation, with more granular information about the regulatory regime, will be conducted in due course. The HKMA expects to implement the regulatory arrangements in 2023/24.| Press release

Kazakhstan:

  • (30 Jan 2023) Astana Financial Services Authority (AFSA) policy paper on proposed enhancements to its digital assets trading facility framework. The AFSA notes that the ongoing supervision of cryptoexchanges has revealed contradictions, inefficient provisions, and uncertain definitions within the regime. The policy paper also identifies a number of market factors that influence the level of risks originating from digital assets trading facilities. | Deadline for comments: 25 February 2023.

Philippines:  

  • (20 Jan 2023) Securities and Exchange Commission (SEC) request for comments on the Exposure Draft of the Implementing Rules and Regulations of Republic Act No. 11765, the Financial Products and Services Consumer Protection Act. The draft defines securities subject to the authority of the Market Securities and Registration Department as including 'tokenised securities products or those which grew with the abstraction of key characteristics from cryptocurrency’s underlying distributed ledger technology to apply in the traditional financial sector'. | Deadline for comments: 7 February 2023

Europe

EU:  

  • (31 Jan 2023) The European Banking Authority (EBA) has published three Q&As that, jointly with three other Q&As that the EBA had published previously, clarify the application of strong customer authentication (SCA) to digital wallets under the revised Payment Service Directive (PSD2). In particular, the six Q&As clarify the application of SCA to the enrolment of a payment card to a digital wallet and to the initiation of payment transactions with digitised versions of a payment card. They also clarify the requirements applicable to the outsourcing of the application of SCA to digital wallet providers. | Press release
  • (24 Jan 2023) European Economic Social Committee (EESC) opinion on the EU Commission's proposal for a directive on adapting non-contractual civil liability rules to artificial intelligence (AI Liability Directive). While the EESC is generally supportive of the AI Liability Directive, it is concerned that a directive could lead to divergent interpretations by those in the supply chain and the courts. Consequently, it insists that the Commission pursues a liability scheme as uniform in its application across the EU as possible. It calls for clear definitions (for example, of eligible damage and decisions made by machines using AI) and highlights the need to enhance the expertise of those who will apply the new law across the EU.

Italy:

  • (27 Jan 2023) The National Cybersecurity Agency and the Computer Emergency Response Team of the Italian financial sector (CERTFin), co-chaired by the Bank of Italy and the Italian Banking Association, have signed a memorandum of understanding (MoU) to consolidate their cooperation on financial infrastructures and cybersecurity services. In particular, the Bank of Italy has specified that, in line with the objectives set by the National Cybersecurity Strategy 2022-2026, the MoU is intended to strengthen the prevention, protection and response capacity of the financial sector to cyber threats and attacks, through the development of public-private cooperation and a culture of safety. | Press release (in Italian)

Poland:         

  • (27 Jan 2023) Polish Financial Supervision Authority (KNF) bulletin highlighting that the KNF does not license, register or supervise cryptocurrency exchanges or exchange offices. The bulletin also states that the KNF does not approve of this type of activity and is not equipped with the tools to help people harmed as a result of any collapse of a cryptocurrency exchange.

UK: