Global Crypto Round-Up May 2023

Global Crypto Round-Up

May 2023

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.

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GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

(14 Apr 2023) Financial Action Task Force (FATF) press release on the meeting of its Virtual Assets Contact Group in Tokyo to discuss global progress and challenges in regulating virtual assets. The group stressed that countries worldwide urgently need to implement the FATF standards to effectively regulate and supervise this sector. The discussions from the meeting will feed into the 2023 FATF targeted update on global implementation of the FATF standards, including the 'travel rule', and responses to emerging risks such as DeFi and peer-to-peer transactions. The FATF expects to finalise the report in June 2023.
(12 Apr 2023) Speech by International Monetary Fund (IMF) Deputy Managing Director Bo Li on the IMF's approach to central bank digital currency (CBDC) capacity development. Li indicated that, by the end of February 2023, over 40 countries had approached the IMF to request technical assistance on CBDC. He noted that the IMF is working on a CBDC handbook, which is intended to be the basis for capacity development and to help countries make as well-informed decisions as possible when designing and issuing their own CBDC.
(11 Apr 2023) BIS research paper providing a primer on tokenisation and its key elements. The paper notes that tokenisation can reap gains through transaction automation and new types of asset transfer, but that it raises economic, legal and technical issues. These challenges span a 'tokenisation continuum', which describes the feasibility of tokenising traditional assets; gains are modest where tokenisation is easiest but the most valuable gains would involve the largest challenges. | Webpage
(11 Apr 2023) BIS research paper on stablecoins versus tokenised deposits and the implications for the singleness of money. The paper concludes that (i) private tokenised monies that circulate as bearer instruments, like stablecoins, may entail departures in their relative exchange values away from par in violation of the 'singleness of money', (ii) in contrast, tokenised deposits that do not circulate as bearer instruments but rather settle in central bank money are more conducive to singleness, and (iii) tokenised deposits may enable expanded functionality by building on the capacity of programmable ledgers to introduce contingent execution and composability of transactions. | Webpage
(11 Apr 2023) IMF Global Financial Stability Report, which notes that the collapse of multiple entities in the cryptoasset ecosystem has made the call for comprehensive and consistent regulation and adequate supervision more urgent, with an emphasis on the fundamentals of consumer (and customer fund) protection, financial integrity, and corporate governance. The report argues that: (i) the regulatory framework should cover all critical activities and entities, including activities related to the storage, transfer, exchange, and custody of reserves, (ii) entities carrying out multiple functions should be subject to additional prudential requirements, and (iii) stablecoin issuers should be subject to strict prudential requirements. | Webpage | Executive summary
(5 Apr 2023) International Organization of Securities Commissions (IOSCO) work program for 2023-2024, which includes work on cryptoassets, digital assets, and DeFi. Amongst other things, IOSCO plans to issue a consultation report with recommendations for the regulation of DeFi in Q3 and to issue its final policy recommendations by year-end 2023. | Press release
(4 Apr 2023) Bank for International Settlements (BIS) working paper which analyses the crypto carry observed for the two major digital assets, Bitcoin and Ethereum, sheds light on its economic drivers, and studies how these are connected to the boom-and-bust dynamics often seen in crypto markets. | Webpage
(3 Apr 2023) BIS working paper on CBDC policies in open economies, which considers the macroeconomic gains and risks associated with CBDC, particularly if it could be transferred across borders, and how the central bank should set its CBDC policy in light of these potential benefits and costs. | Webpage

Americas

(11 Apr 2023) The National Securities Commission (CNV) has authorised the launch of bitcoin index-based futures contracts on the Bitcoin Matba Rofex Index, with negotiation and settlement in Argentine pesos and without delivery of the underlying asset. | Press release (in Spanish)

(24 Apr 2023) Crypto exchange Coinbase has filed a narrow action in relation to a Administrative Procedure Act challenge against the U.S. Securities and Exchange Commission (SEC), asking for regulatory guidance on how existing securities laws apply to digital assets | Press release
(20 Apr 2023) SEC staff bulletin on the standards of conduct for broker-dealers and investment advisers in addressing their care obligations when they are providing investment advice and recommendations to retail investors. The bulletin lists cryptoasset securities as an example of a product where heightened scrutiny may be necessary in the context of making recommendations or providing advice.
(19 Apr 2023) Speech by Michelle W Bowman, Member of the Board of Governors of the Federal Reserve System, on considerations for a CBDC and the potential future of a CBDC in the United States.
(18 Apr 2023) Letter from the Republicans on the US House Financial Services Committee, led by Chairman Patrick McHenry, the SEC Chair Gary Gensler, in which they criticise the SEC's approach to digital asset regulation. In particular, the letter accuses Gensler of pushing for digital asset trading platforms to ‘come in and register’ under the national securities exchange framework, while failing to provide a path that allows digital asset trading platforms to register. | Press release
(17 Apr 2023) The New York State Department of Financial Services (NYDFS) has adopted a final regulation establishing how companies holding a NYDFS-issued Bitlicense will be assessed for costs of their supervision and examination. The adopted regulation effectuates a provision in the New York State FY23 Budget giving the NYDFS new authority to collect supervisory costs from licensed virtual currency businesses, similar to other licensees regulated by the NYDFS. | Press release
(15 Apr 2023) The US House Financial Services Committee has published a draft bill to provide requirements for payment stablecoin issuers and research on a digital dollar, ahead of a Subcommittee on Digital Assets, Financial Technology and Inclusion hearing on 19 April 2023 on understanding stablecoins' role in payments and the need for legislation. The draft bill includes a moratorium on crypto-backed stablecoins and calls for a study on CBDCs.
(6 Apr 2023) US Department of the Treasury 2023 DeFi Illicit Finance Risk Assessment, which considers risks associated with DeFi services. The report warns that actors like the Democratic People’s Republic of Korea, cybercriminals, ransomware attackers, thieves, and scammers are using DeFi services to transfer and launder their illicit proceeds, and that they are able to exploit vulnerabilities, including the fact that many DeFi services that have anti-money laundering and countering the financing of terrorism (AML/CFT) obligations fail to implement them. The report also includes recommendations for US Government actions to mitigate the illicit finance risks associated with DeFi services, which include (i) strengthening US AML/CFT regulatory supervision, (ii) considering additional guidance for the private sector on DeFi services’ AML/CFT obligations, and (iii) assessing enhancements to address any AML/CFT regulatory gaps related to DeFi services. | Press release

Europe

(17 May 2023) Upcoming online event: European Banking Authority (EBA) Workshop on the EU Commission’s Call for Advice on the Markets in Cryptoassets Regulation (MiCA) delegated act on significance criteria for ARTs and EMTs (online): The EBA is hosting a virtual workshop to engage in a transparent discussion with stakeholders regarding the Commission's request for technical advice on the delegated act under the MiCA proposal concerning certain criteria for the classification of asset-referenced tokens and electronic money tokens as significant. The EBA's objective is to discuss key issues relating to this call for advice and the potential way forward with participants. Registration closes on 5 May 2023 at 16:00 CEST. | Event webpage | Registration link (password: MiCAWorkshop)
(Apr 2023) EU Parliament paper, provided by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee, on the digital Euro. The paper assesses the state of preparation of the European Central Bank (ECB) for the possible launch of a digital euro, based on the two progress reports published by the ECB in September 2022 and December 2022 and other ECB documents.
(25 Apr 2023) European Central Bank (ECB) working paper on digitalisation and the economy.
(24 Apr 2023) ECB third progress report on the investigation phase of a digital euro, together with the findings of focus groups commissioned by the ECB concerning people’s views on the features of a potential digital wallet. | Press release
(20 Apr 2023) The EU Parliament has formally adopted MiCA and the recast Regulation on information accompanying transfers of funds and certain cryptoassets. MiCA establishes an EU regulatory framework for the issuance, offering, intermediation and dealing in cryptoassets, including licensing, conduct of business requirements and enhanced consumer protection, as well as a market abuse regime. The recast Regulation on information accompanying transfers of funds, which is part of a package of legislative amendments designed to strengthen the EU's anti-money laundering and counter terrorist financing (AML/CTF) rules, is intended to improve the traceability of cryptoasset transfers and the identification of suspicious transactions. Once the texts are formally endorsed by the EU Council, they will be published in the Official Journal and enter into force 20 days after publication. Commissioner McGuinness has indicated that it is anticipated that both texts will be published in the Official Journal by the end of June and enter into force in July 2023. This would see the provisions under MiCA in relation to stablecoins start to apply in July 2024, with the remaining provisions on issuers of other cryptoassets and cryptoasset service providers applying from January 2025, together with the transfer of funds rules. | Press release | Opening remarks by EU Commissioner McGuinness at the European Parliament plenary joint debate on cryptoassets | Clifford Chance MiCA resources
(17 Apr 2023) EU Parliament paper, prepared for the Economic and Monetary Affairs Committee (ECON), which assesses the state of preparation for the possible launch of a digital euro. It focuses on the main relevant aspects: market impact, implications for banks, design and technical issues, monetary policy, financial stability, the role of fintech and Big Techs, international dimensions, privacy, and financial inclusion. On each, brief recommendations for the ECON Committee’s work are offered. The concluding judgment is broadly positive on the preparatory work but doubtful on the wisdom of eventually launching a digital euro. | Webpage
(11 Apr 2023) Report, commissioned by the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA), on cryptocurrencies and drugs, providing an analysis of cryptocurrency use on darknet markets in the EU and neighbouring countries. The report underlines the importance of countries around the world implementing the recommendations from the FATF's Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers. These recommendations include requiring that virtual asset service providers (including cryptocurrency exchanges, cryptocurrency ATMs, over-the-counter brokers and peer-to-peer exchanges) be registered or licensed and maintain effective AML programmes, including customer due diligence (KYC). | Webpage
(11 Apr 2023) European Systemic Risk Board (ESRB) press release, which notes that the ESRB will be publishing a report on cryptoassets and DeFi, exploring the possible systemic implications of developments in the cryptoasset market and the potential policy responses, in the second quarter of 2023. The report will emphasise that authorities should have the capacity to monitor possible spillover channels, both to the traditional financial sector and within the cryptoasset sector itself, to be able to act in a timely manner to address potential systemic risks. The report will also argue that, in the future, efforts should be made to identify and assess risks from crypto-conglomerates and from leverage using cryptoassets, and to monitor market developments with regard to operational resilience, DeFi and cryptoasset 'staking' and lending.
(5 Apr 2023) ECB blog post calling on policymakers and supervisors to work to close the gaps in oversight that exist in the cryptoasset market

France

(12 Apr 2023) The three French financial regulatory authorities – the Autorité de contrôle prudentiel et de résolution (ACPR), Banque de France, and Autorité des marchés financiers (AMF) – have published a joint statement addressed to sponsors of DLT market infrastructures. In the statement, the authorities explain how to apply for an authorisation under the EU Pilot Regime, how to submit an application for specific permissions, applicable exemptions and/or compensatory measures in France. | Press release (in French)
(3 Apr 2023) Autorité de contrôle prudentiel et de résolution (ACPR) discussion paper on decentralised or disintermediated finance (DeFi) and the possible regulatory approaches. Deadline for comments: 19 May 2023

Germany

(19 Apr 2023) The German Federal Financial Supervisory Authority (BaFin) has confirmed that it will fully adopt the German version of the European Securities and Markets Authority (ESMA) guidelines on standard forms, formats and templates to apply for permission to operate a DLT market infrastructure, dated 8 March 2023, in its supervisory practice. | Press release (in German)
(3 Apr 2023) German Federal Ministry of Finance statement (in German) setting out the cornerstones of the Future Financing Law, which include the digitalisation of capital markets through, for example, the issuance of electronic securities using blockchain or similar technology and improved portability of cryptoassets. | Press release (in German)

Luxembourg

(5 Apr 2023) Commission de Surveillance du Secteur Financier (CSSF) Circular 23/832 on the application of the European Securities and Market Authority (ESMA) guidelines on standard forms, formats and templates to apply for permission to operate a DLT market infrastructure. The circular confirms that the CSSF will apply the ESMA guidelines and has integrated them into its administrative practice and regulatory approach with a view to promoting supervisory convergence in this field at EU level.

(27 Apr 2023) HM Revenue & Customs (HMRC) consultation on the taxation of decentralised finance (DeFi) involving the lending and staking of cryptoassets. Consultation closes 22 June 2023. | Webpage | Updated consultation outcome
(3 Apr 2023) Intellectual Property Office (IPO) Practice Amendment Notice 2/23 on the IPO's approach to the classification of NFTs, virtual goods, and services provided in the metaverse.
(25 Apr 2023) UK Finance report on NFTs: Financial services use cases and regulatory considerations. The report aims to build market understanding, to deliver clarity on NFTs and the broader digital assets ecosystem and what is needed to ensure that an ethical and innovative market can flourish in the UK. | Webpage
(25 Apr 2023) House of Commons answer to written question, confirming that HM Treasury is not providing support to the Eastern Caribbean Central Bank on its development of a digital currency.
(25 Apr 2023) FCA speech by Sarah Pritchard, Executive Director of Markets, and Executive Director of International, on the regulation of digital assets in the UK.
(17 Apr 2023) Speech by BoE Deputy Governor Jon Cunliffe, in which he discussed four areas where the tokenisation of money is now being explored: (i) stablecoins used for payments, (ii) the tokenisation of commercial bank deposits, (iii) the next stage of the BoE's work on issuing a Digital Pound, and (iv) the Bank's work to ensure these new forms of money are robust and uniform.
(13 Apr 2023 – published 25 Apr 2023) Bank of England (BoE) response to the House of Commons March 2023 request for further information on the BoE’s approach to CBDC, stablecoins and crypto.
(12 Apr 2023) Speech on digital money by BoE Governor Andrew Bailey, in which he said that the Bank had concluded that the public should expect assured value in digital money, and that confidence in this is needed to underpin financial stability. He also emphasised that, in order for stablecoins to function as money, they will need to have the characteristics of, and be regulated as, inside money. Bailey further argued that a CBDC is likely to be needed to anchor the value of all forms of money, including new digital ones, and to ensure the maximum opportunity for innovation in payments services.

Middle East

Israel

(17 Apr 2023) Bank of Israel Steering Committee on the Potential Issuance of a Digital Shekel paper outlining potential scenarios for deciding to issue a digital shekel. The Bank of Israel has not made a decision on issuing a CBDC, and the paper sets out the conditions and variables that would enable or support such a decision in the future, including (i) CBDC issuances by other countries, (ii) a decline in the use of cash and its acceptance in transactions in Israel, (iii) significant penetration of stablecoins or other private means of payment, (iv) the extent of competition in the domestic payment system, and (v) technological developments in the payments system. | Webpage

UAE

(13 Apr 2023) Abu Dhabi Global Market (ADGM) consultation paper on the proposed DLT Foundations Regulations 2023, seeking public feedback and comments on the proposed new legislative framework for foundations that facilitate DLT and token issuance (DLT Foundations). The proposals cover: the structure of the DLT Foundations; governance and control; tokens; reporting, disclosures and publication; beneficial ownership; supervision; insolvency and liquidation / voluntary strike off. Deadline for comments: 12 May 2023. | Press release

Events

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.

Global Financial Markets Perspectives Series: International data flows - navigating the global legal landscape (online, 15 June 2023):
The legal landscape for cross-border data sharing is complex and evolving. Privacy laws and data localisation requirements are developing globally, and data transfer is in the regulatory spotlight. Joining this legal landscape are legislative proposals requiring the sharing of certain data, which may include personal data. We will examine recent legal developments impacting data flows, related international cooperation efforts and how organisations can navigate the challenges of international data transfer. | To register, please see the event series registration form.