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Clifford Chance

Clifford Chance

Fintech

Talking Tech

Global Fintech Update

15 March 2023

15 March 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.

SPOTLIGHT 

Is the decentralised governance of Bitcoin really a myth? Code is Law (unless the Court of Appeal says there is a realistic argument that it is not)

The recent Court of Appeal decision in Tulip Trading Limited v van der Laan and Others [2023] EWCA Civ 83 has generated significant interest in the Bitcoin community and the wider digital asset sector. The claimant asks the English court to order software developers alleged to control various Bitcoin blockchains to modify source code to restore the claimant’s control over Bitcoin for which its private key has been stolen. The case has generated unease in some quarters because the notion of a national court requiring the modification of a decentralised ledger is contrary to two of the key tenets of DLT, namely that the information recorded on the ledger is immutable and there should be no central governing authority. Undermine those principles, some say, and the value of digital assets, and Bitcoin in particular, may collapse.

Nothing has been finally decided yet (this was just an appeal of a jurisdiction challenge) but the case shows that the English courts are willing to engage fully with difficult legal issues arising from DLT and illustrates how the law is continuing to develop in this area

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

  • (13 Feb 2023) International Monetary Fund (IMF) report to the G20 on the macrofinancial implications of cryptoassets. The report argues that the purported benefits of cryptoassets include cheaper and faster cross-border payments, more integrated financial markets, and increased financial inclusion, but that these are yet to be realised. It also warns that a widespread proliferation of cryptoassets comes with substantial risks to the effectiveness of monetary policy, exchange rate management, and capital flow management measures, as well as to fiscal sustainability, and that banks may lose deposits and have to curtail lending.

Africa

Nigeria:         

  • (7 Mar 2023) Central Bank of Nigeria circular setting out operational guidelines for open banking in Nigeria. The adoption of open banking is intended to foster the sharing of customer-permissioned data between banks and third-party firms to enable the building of customer-focused products and services. It is also intended to enhance efficiency, competition and access to financial services in Nigeria.

Americas

US:  

  • (13 Mar 2023) Speech by Vice Chair for Supervision of the Board of Governors of the Federal Reserve System, Michael S. Barr, on the lessons to be learnt from the recent turmoil in the crypto sector and what role supervision and regulation should play in helping banks manage their engagement with the sector and the innovative technologies that support it.
  • (13 Mar 2023) The Commodity Futures Trading Commission (CFTC) has announced the newly constituted Technology Advisory Committee, which has been tasked with advising the CFTC on its work to protect markets from cyber attacks, to ensure responsible development of digital assets in a way that protects customers, and to ensure that the implications of emerging technologies like artificial intelligence are well understood. | Press release
  • (9 Mar 2023) US Treasury General Explanations of the Administration's Fiscal Year 2024 Revenue Proposals, which include a proposal to impose a digital asset mining energy excise tax. Firms engaged in digital asset mining would be required to report the amount and type of electricity used as well as the value of that electricity, if purchased externally. The excise tax would be effective for taxable years beginning after 31 December 2023 and be phased in over three years at a rate of 10% of the costs of electricity used in digital asset mining in the first year, 20% in the second, and 30% thereafter.

APAC

India:             

  • (7 Mar 2023) Ministry of Finance notification that certain specified activities relating to virtual digital assets are to be categorised as relevant activities under the Prevention of Money-laundering Act 2002, meaning that crypto businesses will need to comply with anti-money laundering obligations.

Thailand:

  • (8 Mar 2023) Securities and Exchange Commission (SEC) consultation on a draft regulation prohibiting digital asset business operators from providing or getting involved with crypto saving (deposit taking) and lending services. The proposed regulation aims to provide greater protection to investors, reduce associated risks, and prevent a misunderstanding that deposit taking and lending services are under the same supervision as regulated digital asset businesses. Deadline for comments: 7 April 2023. | Press release

Europe

EU:  

  • (14 Mar 2023) The EU Parliament's plenary session has adopted its position on the proposed regulation on harmonised rules on fair access to and use of data (Data Act). The Data Act sets out new rules regarding the use of data generated by Internet of Things (IoT) devices. The Parliament is now ready to enter into negotiations with the EU Council to agree on the final text.
  • (10 Mar 2023) Speech by European Securities and Markets Authority (ESMA) Chair, Verena Ross, on digital finance and capital markets. Ross discussed some key technological developments and the benefits and risks they bring, particularly cyber risk, and set out how ESMA, the other European Supervisory Authorities and national competent authorities are working to promote a secure and resilient environment as far as possible.
  • (8 Mar 2023) ESMA guidelines on standard forms, formats and templates to apply for permission to operate a DLT market infrastructure.
  • (8 Mar 2023) Speech by Fabio Panetta, Member of the Executive Board of the European Central Bank, on building up cyber resilience in the financial sector.

Germany:

  • (8 Mar 2023) German Federal Financial Supervisory Authority (BaFin) article (in German) on non-fungible tokens (NFTs). Amongst other things, BaFin notes that it is not currently aware of any NFTs that would be classified as securities in the regulatory sense.

Italy:

  • (10 Mar 2023) The Italian Council of Ministers has approved a legislative decree intended to adapt national legislation to the provisions of Regulation (EU) 2020/1503 on crowdfunding service providers for businesses. | Press release (in Italian)
  • (10 Mar 2023) Speech by Deputy Governor of the Bank of Italy, Paolo Angelini, on digital finance and markets infrastructures, in which he discussed technological innovation in payments, securities clearing and settlement systems.

UK:

  • (8 Mar 2023) The Treasury Committee has held an oral evidence session on the work of the Financial Conduct Authority (FCA), hearing from the Chief Executive, Nikhil Rathi, and the Chair, Ashley Alder, about, amongst other things, the FCA's regulation of cryptoassets, including the new powers the FCA will be given under the Financial Services and Markets Bill. | Parliament TV recording of the session

EVENTS

  • Global Financial Markets Perspectives Series: Distributed Ledger Technology and European financial services – the impact of the new EU Pilot Regime (online, 30 March 2023): Our panellists will discuss the new EU Pilot Regime (which takes effect from 23 March 2023) for distributed ledger technology (DLT), and the extent to which its success or failure will impact the adoption of DLT in financial services in Europe. We will compare it with the UK’s financial market infrastructure sandbox proposal, as well as consider digital bond issuances and the link between the development of DLT market infrastructures and the tokenisation of financial products both in the EU and UK. | To register, please see the event series registration form.
  • Global Financial Markets Perspectives Series: How to navigate crypto distress (online, 18 April 2023): Our panellists will discuss the new EU Pilot Regime (which takes effect from 23 March 2023) for distributed ledger technology (DLT), and the extent to which its success or failure will impact the adoption of DLT in financial services in Europe. We will compare it with the UK’s financial market infrastructure sandbox proposal, as well as consider digital bond issuances and the link between the development of DLT market infrastructures and the tokenisation of financial products both in the EU and UK. | To register, please see the event series registration form.
  • Global Financial Markets Perspectives Series: Digital assets and private law (hybrid, 23 May 2023): Louise Gullifer, who is the first woman to be appointed to the prestigious role of Rouse Ball Professor of English law at Cambridge University, will talk to us in her capacity as a member of the UNIDROIT working group on Principles on digital assets and private law, and the implications for English law. | To register, please see the event series registration form.