Clifford Chance

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 PUBLICATIONS AND MATERIALS

• China moves to further regulate artificial intelligence – what businesses should know
• New powers for the CMA to regulate digital markets and to enforce competition and consumer protection laws
  
• Partner Dessi Savova talks to BBC News on the EU's AI Act

SPOTLIGHT 

Spotlight: The Impact of Distributed Ledger Technology in Global Capital Markets

We are delighted to announce that together with the Global Financial Markets Association (GFMA), Boston Consulting Group, and Cravath, Swaine & Moore LLP, we have today published a new report highlighting the potential transformative benefits of distributed ledger technology (DLT) for capital markets and calling for market participants to proactively shape its future use, as well as for greater regulatory clarity. The report evaluates the opportunities and risks of DLT and DLT-based securities and assesses the applicability of existing legal, regulatory, and risk management frameworks, examining three emerging use cases: collateral management; tokenisation of assets; and sovereign and quasi-sovereign bonds. The report also sets out five calls to action to help overcome existing barriers to adoption and advance the development of DLT-based capital markets

Simon Gleeson comments: “The introduction of distributed ledger technology across finance poses a whole new series of challenges for legal and regulatory frameworks. Legal structures must deliver clarity of ownership rights, settlement finality and robust insolvency treatment. Regulatory structures must deliver high levels of investor protection without impeding the development of new products and services. However, those apparently simple objectives require deep and sophisticated thought and analysis. This report is a significant step towards these goals.”

Find the report and executive summary here.

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

• (17 May 2023) Global Financial Markets Association (GFMA) report, prepared together with Clifford Chance, Boston Consulting Group and Cravath, Swaine & Moore LLP, highlighting the potential transformative benefits of distributed ledger technology (DLT) for capital markets and calling for market participants to proactively shape its future use, as well as for greater regulatory clarity from policy makers. The report evaluates the opportunities and risks of DLT and DLT-based securities and assesses the applicability of existing legal, regulatory, and risk management frameworks, examining three emerging use cases: collateral management; tokenisation of assets; and sovereign and quasi-sovereign bonds. The report also sets out five calls to action to help overcome existing barriers to adoption and advance the development of DLT-based capital markets. | Executive summary |  Press release
• (13 May 2023) G7 Finance Ministers and Central Bank Governors communiqué following their meeting on Niigata, Japan on 11-13 May 2023. Amongst other things, the Ministers and Governors emphasised that effective monitoring, regulation and oversight are critical to addressing financial stability and integrity risks posed by cryptoasset activities and markets. They looked forward to the Financial Stability Board (FSB)’s finalisation of its high-level recommendations by July 2023 and committed to implementing effective regulatory and supervisory frameworks for cryptoasset activities and markets and stablecoin arrangements, which are consistent with the FSB’s recommendations and standards and guidance established by standard-setting bodies. They also noted that a reliable, stable, and transparent global payment system is a key foundation for the G7’s economic and financial activities, and that central bank digital currencies (CBDCs) could have a substantial role to play in this context.
• (11 May 2023) The Bank for International Settlements (BIS) has published a handbook exploring key aspects of how CBDCs could work for offline payments, as part of Project Polaris.  The handbook provides an overview of the key aspects of offline payments with CBDC and is intended to serve as a guide for central banks considering implementing offline payments capabilities. | Webpage

Europe

EU:  

• (16 May 2023) The EU Council has adopted the Markets in Cryptoassets Regulation (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. Commissioner McGuinness has previously 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 on MiCA | Press release on Regulation on transfers of funds
• (16 May 2023) The EU Council has reached agreement on its position on the EU Commission’s proposal for a Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC8), which is intended to improve Member States' ability to detect and counter tax fraud, tax evasion and tax avoidance by requiring all cryptoasset service providers, irrespective of their size or location, to report transactions of clients residing in the EU. The Directive also aims to establish a common minimum level of penalties for situations of serious non-compliance, such as the complete absence of reporting despite administrative reminders. The Directive is not subject to the ordinary legislative procedure but the consultation procedure, which means that the EU Parliament may present its views but has no legislative power to make changes to the proposal. The final outcome of the legislative process is decided by the EU Member States in the Council, by unanimity. The new reporting requirements with regard to cryptoassets, e-money and digital currencies are expected to enter into force on 1 January 2026. | Press release
• (15 May 2023) Main results of the Eurogroup meeting on 15 May, which included an exchange of views on the international aspects of central bank digital currencies (CBDCs) and on the progress on the digital euro project. The discussion was based on an issues note, presentations by the institutions and an update by the Swedish minister for finance, Elisabeth Svantesson, on the state of play of the e-krona project. | Webpage: Towards a digital euro | Webpage: Digital finance | Slides: International aspects of CBDCs – update on digital euro
• (11 May 2023) The EU Parliament’s Internal Market and Civil Liberties Committees have adopted a draft negotiating mandate on the proposed Artificial Intelligence Act. Before negotiations with the EU Council on the final form of the law can begin, the draft negotiating mandate needs to be endorsed by the Parliament plenary, with the vote expected during the 12-15 June 2023 session. | Press release | CC video

Ireland:         

• (5 May 2023) Blog post by Central Bank of Ireland Governor, Gabriel Makhlouf, on crypto and consumer protection, in which he notes that the Central Bank remains cautious on the benefits and risks of crypto, stresses the need to differentiate between ‘backed crypto’ and ‘unbacked crypto’, and argues that the claimed benefits of ‘unbacked crypto’ should be treated with a large dose of scepticism and that the purchase of such products can be “similar to purchasing a lottery ticket”.

Italy:              

• (15 May 2023) Law No. 52 of 10 May 2023, which converts into law, with amendments, Decree-Law No. 25 of 17 March 2023 containing urgent provisions on the issuance and circulation of certain financial instruments in digital form and simplification of fintech experimentation (the Fintech Decree), has been published in the Official Gazette (No. 112 of 15 May 2023). The Fintech Decree aligns the Italian national system to the provisions of Regulation (EU) 2022/858, which establishes a pilot regime for market infrastructures based on DLT.

UK:              

• (17 May 2023) House of Commons Treasury Committee report on regulating crypto, which concludes that cryptocurrencies pose significant risks to consumers and calls for consumer trading in unbacked cryptoassets to be regulated as gambling. The Committee is concerned that regulating consumer crypto trading as a financial service, as proposed by the Government, would create a ‘halo’ effect, leading consumers to believe this activity is safe and protected when it is not. | Summary | 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.