Clifford Chance

Welcome to this month's global crypto round-up, summarising crypto regulatory developments that have happened around the world in August 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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CLIFFORD CHANCE PUBLICATIONS

Guide to arbitration of disputes relating to cryptoassets and smart contracts

Arbitration has many features that make it well suited to disputes relating to cryptoassets and smart contracts and it is fast becoming the dispute resolution option of choice in the crypto sector. The inherent flexibility of arbitration and party autonomy can help to address many of the unique technical challenges arising from cryptoassets. However, technology, unique procedural options and public policy issues also give rise to specific concerns when arbitration is used.

Singapore High Court recognises cryptoassets as property

In a recent landmark decision, the Singapore High Court in ByBit Fintech Ltd v Ho Kai Xin and others has confirmed that Singapore law will recognise cryptoassets as a form of property capable of being held on trust. This ruling provides welcome clarity on the legal nature of crypto assets, and confirms that parties in cases involving cryptoassets may apply traditional common law doctrines to protect their assets.

Understanding the Regulatory Framework of the Future: Crypto Regulation in the EU and UK

You can now access the recording from our recent webinar with Paysafe offering a deep dive into European regulatory developments for the crypto industry. Clifford Chance Partner Diego Ballon Ossio and Senior Associate Boika Deleva and Paysafe's Director of Digital Assets Samuel Collins discussed the practical implications arising from the Markets in Cryptoassets Regulation (MiCA) and regulatory efforts in the UK, as well as wider compliance challenges and strategies for businesses to navigate the evolving regulatory landscape.

UK Electronic Trade Documents Act 2023: A Further Step Towards Paperless Trade

From 20 September 2023, the new UK Electronic Trade Documents Act 2023 (ETDA) will allow for the legal recognition of trade documents such as bills of lading and bills of exchange in electronic form. The aim of the ETDA is to help to rectify deficiencies in the treatment of electronic trade documents under English law. The ETDA will give electronic equivalents of paper trade documents the “same legal treatment, effects and functionality” as their paper equivalents. 

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

• (31 Aug 2023) Bank for International Settlements (BIS) Financial Stability Institute Executive Summary – central bank digital currencies | Webpage
• (22 Aug 2023) BIS paper on financial stability risks from cryptoassets in emerging market economies. The paper studies how vulnerabilities in the nature, structure, composition and function of cryptoasset markets translate into financial stability risks in traditional financial markets. | Webpage
• (10 Aug 2023) Institute of International Finance (IIF) briefing note summarising the July IIF Digital Asset Forum, which focused on visions for future digital financial infrastructure. Participants emphasised the importance of a collective approach to building, operating and governing financial infrastructure, particularly through public-private collaboration, and that the robustness of any future infrastructure was non-negotiable. The forum was conducted under the Chatham House Rule and does not represent the official position of the IIF or its membership.
• (2 Aug 2023) The Indian G20 Presidency has published a note providing its input on the upcoming International Monetary Fund-Financial Stability Board (IMF-FSB) synthesis paper on a roadmap on establishing a global framework for cryptoassets, which is expected to be published at the end of August 2023. The Presidency Note suggests the incorporation of a number of action points in the roadmap.
• (31 Jul 2023) The International Organization of Securities Commissions (IOSCO) consultation on policy recommendations for crypto and digital asset markets has now ended. Publicly available responses to date include those from: ACI Financial Markets Association | Association of the Luxembourg Fund Industry (ALFI) | Better Finance | CoinDCX | Crypto Council for Innovation | Futures Industry Association (FIA) | Global Digital Finance (GDF) | Institute of International Finance (IIF) | World Federation of Exchanges (WEF)

Americas

Brazil:            

• (7 Aug 2023) Central Bank of Brazil press release (in Portuguese) announcing a new name and brand for its central bank digital currency (CBDC) project; previously referred to as the digital Real, the project is now called Drex.

Canada:       

• (10 Aug 2023) Bank of Canada staff discussion paper on ‘Unmet Payment Needs and a Central Bank Digital Currency’, which argues that most Canadian consumers face few payment gaps or frictions and therefore might have relatively weak incentives to adopt and to use CBDC at scale

US

• (28 Aug 2023) The Securities and Exchange Commission (SEC) has charged Impact Theory, LLC, a media and entertainment company headquartered in Los Angeles, with conducting an unregistered offering of cryptoasset securities in the form of purported non-fungible tokens (NFTs). The SEC order finds that the NFTs offered and sold to investors were investment contracts and therefore securities and that Impact Theory violated the federal securities laws by offering and selling these cryptoasset securities to the public in an unregistered offering that was not otherwise exempt from registration. | Press release
• (25 Aug 2023) The Department of the Treasury and the Internal Revenue Service (IRS) have released proposed regulations on the sale and exchange of digital assets by brokers, which would require brokers of digital assets to report certain sales and exchanges, and clarify and adjust the rules regarding the tax reporting of information by brokers, so that brokers for digital assets are subject to the same information reporting rules as brokers for securities and other financial instruments. Deadline for comments: 30 October 2023 | Press release
• (14 Aug 2023) Federal Deposit Insurance Corporation (FDIC) Risk Review 2023, which includes a new section on cryptoasset risk noting that cryptoassets present novel and complex risks to banks that are difficult to assess fully.
• (9 Aug 2023) Securities and Exchange Commission (SEC) court filing in its action against Ripple Labs, Inc., setting out the basis for a motion for leave to file an interlocutory appeal against those parts of the 13 Jul 2023 Order by the United States District Court in the Southern District of New York granting summary judgment in Ripple’s favour (in which the Court concluded that Ripple’s programmatic sales of its XRP token on digital asset exchanges did not constitute the offer and sale of investment contracts).
• (8 Aug 2023) The Federal Reserve Board (FRB) has provided additional information on its program to supervise novel activities in the banks it oversees, including technology-driven partnerships with non-banks to provide banking services to customers and activities that involve cryptoassets and distributed ledger technology (DLT). The FRB has also provided additional information on the process for a state bank supervised by the Federal Reserve to follow before engaging in certain dollar token or stablecoin activity, including demonstrating to its Federal Reserve supervisors that it has appropriate safeguards to conduct the activity safely and soundly. | Press release
• (31 Jul 2023) The United States District Court in the Southern District of New York has rejected a motion by Terraform Labs Pte Ltd. and Do Hyeong Kwon to dismiss the Securities and Exchange Commission (SEC)’s complaint against them. The SEC alleges that the defendants used false and materially misleading statements to entice US investors to purchase and hold on to their products. In its opinion and order, the Court has also explicitly rejected the approach recently adopted by another judge in the same District in the case of SEC v. Ripple Labs Inc., declining to draw a distinction between different coins based on their manner of sale, such that coins sold directly to institutional investors are considered securities and those sold through secondary market transactions to retail investors are not. This follows a filing by the SEC on 21 July 2023 in its case against Terraform Labs Pte Ltd., in which it addressed the court's decision in SEC v. Ripple Labs Inc.. In the Ripple case, the Court found that (i) Ripple’s institutional sales of its XRP token constituted the unregistered offer and sale of investment contracts in violation of Section 5 of the Securities Act, but that (ii) Ripple’s programmatic sales of XRP on digital asset exchanges did not constitute the offer and sale of investment contracts. In its filing, the SEC argued that much of the Ripple ruling supports the SEC’s claims in its case against Terraform and rejected arguments raised by Terraform. With respect to programmatic and other sales, the SEC further argued that the Ripple decision conflicts with and adds baseless requirements to previous authority derived from SEC v. W.J. Howey Co., 328 U.S. 293 (1946) and subsequent cases. The SEC argued that those portions of Ripple were wrongly decided and that the Court should not follow them in the Terraform case.

APAC

Australia:

• (23 Aug 2023) The Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC) have published a report on the findings from a joint research project involving industry that explored potential use cases for a CBDC in Australia. | Press release

Hong Kong:

• (24 Aug 2023) HKMA report on bond tokenisation in Hong Kong, which summarises the experience learnt from the Government’s inaugural tokenised green bond offering and outlines potential next steps to promote the wider use of tokenisation technology in Hong Kong’s bond market. | Press release
• (7 Aug 2023) Securities and Futures Commission (SFC) statement warning unlicensed virtual asset trading platforms (VATPs) of the potential legal and regulatory consequences of engaging in improper practices and reminding investors to be wary of the risks of trading virtual assets on unregulated VATPs. Amongst other things, the statement notes that some unlicensed VATPs claim to have submitted licence applications to the SFC when in fact they have not done so, while others do not comply with the SFC’s legal and regulatory requirements.

India:             

• (10 Aug 2023) Reserve Bank of India (RBI) statement on various regulatory policy measures and developments, including (i) the proposed launch of a novel payment mode known as ‘Conversational Payments’ on the Unified Payments Interface (UPI), which will enable users to engage in a conversation with an artificial intelligence (AI)-powered system to initiate and complete transactions, and (ii) the development of a digital Public Tech Platform to enable frictionless digital credit delivery by facilitating the seamless flow of required digital information to lenders. According to the RBI, this end-to-end digital platform will have an open architecture, open Application Programming Interfaces (APIs) and standards, to which all financial sector players can connect seamlessly in a ‘plug and play’ model.

New Zealand:

• (18 Aug 2023) Report by the New Zealand House of Representatives Finance and Expenditure Committee on its inquiry into the current and future nature, impact, and risks of cryptocurrencies. Amongst other things, the report recommends that, because it is early in the development of digital assets and blockchain, the Government and regulatory agencies proceed carefully and do not design and implement a fully integrated and consistent regulatory framework for digital assets at this point in time. | Inquiry webpage.

Singapore:

• (15 Aug 2023) Monetary Authority of Singapore (MAS) response to its October 2022 public consultation on the proposed regulatory approach for stablecoin-related activities, which includes the MAS responses to the feedback it received and sets out its finalised regulatory approach towards stablecoins in Singapore. The MAS’ stablecoin regulatory framework will apply to single-currency stablecoins (SCS) pegged to the Singapore Dollar or any G10 currency, that are issued in Singapore. | Press release

EUROPE

EU

• (16 Aug 2023) European Central Bank (ECB) occasional paper entitled ‘Know your (holding) limits: CBDC, financial stability and central bank reliance’, which considers how CBDCs impact the balance sheets of banks and central banks and simulates the impact of a fictitious digital euro introduction in the third quarter of 2021.
• (16 Aug 2023) Interview with Verena Ross, Chair of the European Securities and Markets Authority (ESMA), published in the ECB’s Supervision Newsletter. The interview includes a section on MiCA, in which Ross warns that there is “no such thing” as a safe cryptoasset and that consumers need to be aware that MiCA does not provide the same protection as that for traditional financial products.
• (15 Aug 2023) The European Central Bank (ECB) has published the outcome of the second meeting of the Eurosystem’s market contact group on new technologies for wholesale central bank money settlement. The group supports the Eurosystem in setting up experiments and trials for market participants to explore solutions for settling wholesale financial transactions recorded on DLT platforms in central bank money. | Presentation slides | Press release.

France:          

• (10 Aug 2023) The Autorité des marchés financiers (AMF) has announced that it is amending the provisions of its General Regulation and its policy on the regime for digital asset service providers (DASPs) to:  incorporate the provisions applicable to DASPs subject to ‘enhanced’ registration introduced by the DDADUE Law. This regime will become mandatory from 1 January 2024 for new players wishing to provide the four services subject to mandatory registration; and align the requirements for DASP licences with those for European authorisation for cryptoasset service providers (CASPs) under the Markets in Cryptoassets Regulation (MiCA), and allow a fast track procedure to be implemented for CASP authorisation.

Luxembourg:  

• (17 Aug 2023) Commission de Surveillance du Secteur Financier (CSSF) FAQs regarding virtual asset service providers.
• (4 Aug 2023) Bill No. 8291 (in French), which has been lodged with the Luxembourg Parliament and is intended to implement the Digital Operational Resilience Act (DORA) and transpose the DORA Amending Directive into Luxembourg law. The lodging of the Bill with the Luxembourg Parliament constitutes the start of the legislative procedure.

Russia:          

• (9 Aug 2023) Central Bank of Russia press release (in Russian) announcing the launch of pilot testing operations with real digital rubles involving 13 banks and a limited circle of their clients from 15 Aug 2023.

UK:

• (31 Aug 2023) The Joint Money Laundering Steering Group (JMLSG) has published the final revisions to Sector 22 (Cryptoasset providers and custodian wallet providers) in Part II of its guidance. This includes a new Annex I to Sector 22 relating to cryptoasset transfers. The new guidance relates to the provisions of The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) that implement the Travel Rule for cryptoasset transfers in the UK. The new obligations per Regulations 64A-64H come into effect on 1 September 2023. | Press release
• (17 Aug 2023) Financial Conduct Authority (FCA) statement setting out its expectations for cryptoasset businesses that need to comply with the Travel Rule from 1 September 2023. The Travel Rule, a recommendation of the Financial Action Task Force (FATF) and introduced in the UK through amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, requires cryptoasset businesses to collect, verify and share information about cryptoasset transfers.
• (14 Aug 2023) Association of Corporate Treasurers (ACT) article on accounting considerations for cryptocurrencies (IFRS).
• (11 Aug 2023) FCA response to a freedom of information request relating to the registration of cryptoasset businesses in order to be to be compliant with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. In its response, the FCA confirms that: (i) 291 applications for registration have been received from cryptoasset businesses under the 5th Anti-Money Laundering Directive since 10 January 2020, (ii) 38 firms have been registered, (iii) the FCA has refused 5 and rejected 22 applications, and (iv) 155 firms have withdrawn their applications.
• (10 Aug 2023) The FCA’s June 2023 guidance consultation (GC23/1) on how it will approach, and how firms comply with, the requirement that cryptoasset financial promotions must be fair, clear and not misleading has now ended. Responses published to date include those from: Bitcoin Policy UK | Crypto UK | Digital Currencies Governance Group | Innovate Finance | The Payments Association
• (9 Aug 2023) The Bank of England and HM Treasury (HMT) have issued an open call for interest, for academics and researchers wishing to join a newly created CBDC Academic Advisory Group (the AAG). The AAG will bring together experts from a range of disciplines related to our work on the digital pound, including monetary policy, finance, competition economics, industrial organisation, behavioural science, law, innovation theory, marketing, and business.
• (7 Aug 2023) HMT has published the Government's response to its July 2022 consultation on reforming the payments regulatory landscape and amending the systemic payments perimeter of the Bank of England (BoE). The proposals included the Government’s intended approach to the future co-supervision of systemically important digital settlement assets (systemic stablecoins) by the BoE and FCA.

EVENTS

Reuters Events: Instant Payment Acceleration: Reaping the Cash Flow Benefits for European Merchants (online, 6 Sep 2023) Marian Scheele, Senior Counsel and head of fintech for Clifford Chance Amsterdam is delighted to be joining other industry expert panellists including from Citi and HSBC on Reuters Events' upcoming instant payments webinar. With many touting that Europe is falling behind the developing world when it comes to Instant Payments Adoption, the full impact of the European Commission’s Instant Payment Mandate remains to be seen. | For more information and to register, see the event page.