Clifford Chance

Welcome to this month's global crypto round-up, summarising crypto regulatory developments that have happened around the world in January 2023 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.

If you would like to receive future Round-ups directly to your inbox, please complete this preferences form. You can sign up for the Global Crypto Round-up under the 'Briefings and regular newsletters' heading. 

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

• (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
• (12 Jan 2023) Bank for International Settlements (BIS) Bulletin on Addressing the risks in crypto: laying out the options, which summarises the lessons of the 2022 turmoil in cryptoasset markets and outlines three (non-mutually exclusive) lines of action to address the risks in crypto: a ban, containment and regulation, as well as their pros and cons. It also outlines complementary lines of policy action to address inefficiencies in traditional finance and curb the demand for crypto.
• (10 Jan 2023) International Institute for the Unification of Private Law (UNIDROIT) consultation on a set of draft principles and commentary on digital assets and private law. The consultation is intended to ensure that the draft principles are well suited to application in different contexts, including both civil law and common law jurisdictions as well as developing economies, emerging markets, and developed economies. The draft principles consider: private international law; control; custody; secured transactions; procedural law including enforcement; and insolvency. Deadline for comments: 20 February 2023 | Press release
• (4 Jan 2023) The Financial Stability Board (FSB) has published the responses it received to its October 2022 consultation on a proposed framework for the international regulation of cryptoasset activities.

AFRICA

Nigeria:         

• (10 Jan 2023) Central Bank of Nigeria (CBN) Payments System Vision 2025, which states that the CBN will continue to study and develop the enabling environment for the implementation of a central bank digital currency (CBDC) and to consider the development of a regulatory framework for potential implementation of stablecoin offerings.

South Africa:

• (23 Jan 2023) Advertising Regulatory Board Code of Advertising Practice, which has been updated to include a new section on cryptoassets. The Code requires advertisements to state expressly and clearly that investing in cryptoassets may result in the loss of capital as the value is variable and can go up as well as down. The Code also includes special requirements for situations where influencers or ambassadors are used to promote a cryptoasset product or service.

Tanzania:

• (14 Jan 2023) Bank of Tanzania public notice providing an update on its research on a CBDC to date. The Bank says it has adopted a phased, cautious and risk based approach to the adoption of a CBDC and that it will continue to monitor, research and collaborate with stakeholders, including other central banks, in an effort to arrive at a suitable and appropriate use and technology for the issuance of Tanzanian shillings in digital form. Upon conclusion of the research phase, the Bank will provide information to the general public on the way forward, which may include a roadmap for adoption of a CBDC.

Americas

El Salvador:

• (11 Jan 2023) The Legislative Assembly has approved a new law on the issuance of digital assets, with 62 votes in favour and 16 votes against. | Summary of Legislative Assembly plenary session (in Spanish)

United States 

• (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.
• (20 Jan 2023) Speech by Securities and Exchange Commission (SEC) Commissioner Hester Peirce, in which she proposed a number of lessons to be learnt from the events of 2022 by people within the crypto industry and those who regulate it. These lessons include that those involved in crypto should not wait for regulators to fix the problems that surfaced in 2022, and that crypto is primarily about offering new solutions to the problem of how you can interact and transact safely with people you do not know, a problem which has traditionally been left to centralised intermediaries or government to solve. Peirce also emphasised that each cryptoasset, blockchain, and project needs to be assessed on its own merits, that problems in the design of a protocol or at a centralised infrastructure provider can have sweeping, disastrous consequences, and that although crypto enables reduced reliance on centralised intermediaries, as long as companies are actively involved in crypto, people should take the same precautions as they would when dealing with any other company.
• ·(18 Jan 2023) The Digital Dollar Project (DDP) has issued an updated version of its white paper 'Exploring a US CBDC', offering a global perspective on developments in CBDCs. The white paper discusses ongoing CBDC projects in 114 countries, including DDP-initiated pilots and research, and revisits the concepts first proposed in the DDP's May 2020 inaugural white paper. It includes recommendations to the US Government and private sector and also looks ahead to the next stage in CBDC developments.
• (3 Jan 2023) The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) have issued a joint statement on cryptoasset risks to banking organisations. The statement sets out a number of key risks highlighted by events in 2022 and emphasises that the agencies are continuing to take a careful and cautious approach to current and proposed cryptoasset-related activities and exposures at banking organisations. | Press release

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

China:            

• (10 Jan 2023) People's Bank of China 2022 Financial Statistics Report (in Chinese), which indicates that the balance of digital renminbi in circulation at the end of December 2022 was 13.61 billion yuan (while the total balance of money in circulation was 10.47 trillion yuan).

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.

Nepal:           

• (8 Jan 2023) Nepal Telecommunications Authority public notice (in Nepali) reiterating that cryptocurrency transactions are illegal in Nepal and instructing all internet (including email) service providers to prevent access to websites, apps or online networks related to crypto.

Philippines:  

• (20 Jan 2023) Securities and Exchange Commission 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.

Thailand:             

• (17 Jan 2023) The Securities and Exchange Commission has issued regulations requiring digital asset business operators that provide custody of clients' digital assets to establish a digital wallet management system to accommodate efficient custody of digital assets and keys and ensure the safety of clients' assets. | Press release

EUROPE

EU:  

• (24 Jan 2023) The EU Parliament's Committee on Economic and Monetary Affairs (ECON) has adopted its position on changes to the Capital Requirements Regulation and the Capital Requirements Directive, which are intended to complete the EU's implementation of Basel III.  Amongst other things, the Committee members want banks to disclose their exposure to cryptoassets and cryptoassets services and to provide a specific description of their risk management policies related to cryptoassets. The changes still need to be approved by the Parliament's plenary and the EU Council before they can enter into force. The ECON Committee has also called on the EU Commission to submit a legislative proposal on a dedicated prudential treatment for exposures to cryptoassets by June 2023. | Press release
• (23 Jan 2023) The ECON Committee has held an exchange of views with Fabio Panetta, member of the European Central Bank (ECB) Executive Board and Chair of the Task Force on Central Bank Digital Currency, who informed ECON Members about the progress made regarding the digital euro. In his opening statement, Panetta told the Committee that the digital euro would never be programmable money and that the ECB would not set any limitations on where, when or to whom people can pay with a digital euro. | Video recording of the meeting, with Panetta's comments starting at 15:38:50
• (17 Jan 2023) The EU Commission has published its tentative agendas for meetings of the Commission in H1 2023. According to the document, the Commission expects to table its legislative proposal setting out the principles of a digital euro on 24 May 2023.
• (16 Jan 2023) EU Parliament Committee on Budgets' draft report on the European Union's own resources, 'a new start for EU finances, a new start for Europe', which suggests the introduction of a European tax on cryptoassets, the revenues of which would flow into the European budget as a new own resource. The draft report notes that several taxation options are conceivable for cryptoassets, such as a tax on capital gains resulting from cryptoasset activities (based on a uniform levy rate for all EU Member States), a tax on cryptoasset transactions or a tax on the mining and trading of cryptoassets determined according to their electricity consumption and environmental impact.
• (16 Jan 2023) Eurogroup statement on the digital euro project, which emphasises that the introduction of a digital euro as well as its main features and design choices require political decisions that should be discussed and taken at the political level. Amongst other things, the statement also calls for the environmental implications of the digital euro design to be considered and stresses that a digital euro should complement and not replace cash, and ensure a high level of privacy.
• (16 Jan 2023) The ECB digital euro – stocktake slides setting out a timeline for the digital euro project and upcoming deliverables.
• (11 Jan 2023) The EU Parliament has indicated that it expects 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 beginning 17 April 2023.
• (5 Jan 2023) Blog post entitled 'Caveat emptor does not apply to crypto' by Fabio Panetta, Member of the Executive Board of the ECB, in which he argues that trading in unbacked digital assets should be treated by regulators like gambling.
• (4 Jan 2023) EU Commission provisional request to the European Banking Authority (EBA) for technical advice on delegated acts under the Regulation on markets in cryptoassets (MiCA) concerning certain criteria for classification of asset-referenced tokens and e-money tokens as significant and the fees that are to be charged by the EBA to issuers of significant asset-referenced tokens and e-money tokens | Covering letter

France:          

• (17 Jan 2023) Speech by Denis Beau, First Deputy Governor of the Bank of France, on the opportunities and challenges of the tokenisation of finance.

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.

Portugal:      

• (1 Jan 2023) Portugal's budget for 2023 has entered into force, introducing a new framework for the taxation of cryptoassets. | State Budget for 2023 (in Portuguese)

UK:

• (25 Jan 2023) FCA feedback on the cryptoasset AML/CTF regime and good and poor quality applications made under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended. The feedback is intended to help applicants when they prepare their application for registration and help make the process as simple and efficient as possible. | FCA letter to Chair of House of Commons Treasury Select Committee | Treasury Select Committee press release: '85% of crypto firms failed to meet minimum standards, according to FCA'
• (23 Jan 2023) Regulatory Policy Committee (RPC) opinion on the FCA's prohibition of the sale to retail clients of investment products that reference cryptoassets. The measure, implemented in 2021, prohibits the sale, marketing, and distribution of derivatives and exchange-traded notes that reference particular types of unregulated, transferable cryptoassets to all retail clients by firms in or from the UK. The RPC has concluded that the FCA measure is 'not fit for purpose', noting that the business impact target assessment had not included sufficient evidence to support the assumptions made, or adequately explained the approach to the cost benefit analysis undertaken to produce the equivalent annual net direct cost to business seeking validation. The assessment had also failed to clearly establish what would happen to the market in the absence of the intervention, limiting the ability to determine the change resulting from the measure.
• (20 Jan 2023) House of Commons Library research briefing on the regulation of cryptocurrency, published ahead of a Westminster Hall debate on 25 January 2023.
• (16 Jan 2023) The Treasury Committee has held an oral evidence session with members of the Bank of England’s Financial Policy Committee, including Governor Andrew Bailey, on the latest Financial Stability Report, including the financial stability risks posed by cryptoassets. | Parliament TV recording of the session, with the discussion of crypto starting at 16:44:31
• (11 Jan 2023) New UK Forum for Digital Currencies (UK FDC) established by the City of London Corporation, the Digital Pound Foundation, TheCityUK, The Payments Association and UK Finance. The aim of the new alliance is to develop better policies, practice and regulation around digital currencies. | Joint policy statement | Press release
• (10 Jan 2023) The House of Commons Treasury Select Committee has held a further oral evidence session of its inquiry into the cryptoasset industry, taking evidence from Andrew Griffith, Economic Secretary to the Treasury, on cryptoassets and the Government's 'Edinburgh reforms' to financial services. | Parliament TV recording of the session
• (9 Jan 2023) HM Treasury answer to written question (tabled in the House of Lords on 21 December 2022) on the Government's assessment of the impact of cryptocurrency advertisements being targeted at young people and people from minority communities, including with the involvement of celebrities, sports stars and sports teams, and what plans it has, if any, to place restrictions on such advertising.
• (6 Jan 2023) Bar Council response to 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. The Bar Council's view is that the UK’s light-touch to NFT regulation is sufficient for current purposes, but that additional regulatory measures may need to be implemented in the future as the use of cryptoassets and blockchain becomes more widespread with the use of emerging technologies.
• (4 Jan 2023) HM Treasury answer to written question (tabled in the House of Lords on 16 December 2022) on what assessment the Government has made of the risks to crypto investors following the collapse of FTX.
• (1 Jan 2023) The Investment Manager (Investment Transactions) (Cryptoassets) Regulations 2022, which add 'designated cryptoassets' to the Investment Transaction List for the purposes of the Investment Manager Exemption, have entered into force. The regulations apply (i) to accounting periods which were current on the date the regulations were made (19 December 2022) and subsequent accounting periods for corporation tax, and (ii) to the 2022/2023 tax year and subsequent years for income tax.

MIDDLE EAST

Israel:

• (4 Jan 2023) Israel Securities Authority (ISA) proposal (in Hebrew) to amend the applicability of securities laws regarding digital assets. The proposals include new legal definitions and are intended to respond to risks associated with the investment in digital assets while preserving the potential advantages, by giving the ISA the authority to adapt regulations to the characteristics of digital assets in a flexible way. Deadline for comments: 12 February 2023.

Saudi Arabia:              

• (23 Jan 2023) The Saudi Central Bank (SAMA) has announced that it is continuing to experiment on a CBDC and that it is currently working on a phase of a project that focuses on domestic wholesale CBDC use cases in collaboration with local banks and fintechs, although it has also stressed that no decision has been made regarding the introduction of a CBDC in the Kingdom. | Press release