Clifford Chance

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

The evolution of digital bonds: recent milestones on the journey to a digital bond market in Europe

Fintech sector developments in Asia – what you need to know

The payments revolution – how will CBDCs, stablecoins and tokenised deposits transform settlement globally 

Crypto Regulation: The Road Ahead for Hong Kong and Singapore

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

• (31 Oct 2023) Bank for International Settlements (BIS) Innovation Hub update on Project mBridge, a collaborative effort of the BIS Innovation Hub, four founding central banks and over 25 observing members, which experiments with a multiple-central bank digital currency (multi-CBDC) common platform for wholesale cross-border payments. The project is intended to address some of the key inefficiencies of cross-border payments, such as high costs, low speed and transparency, and operational complexities, while safeguarding currency sovereignty and monetary and financial stability for each participating jurisdiction. 
• (31 Oct 2023) Committee on Payments and Market Infrastructures (CPMI) report highlighting a range of considerations, opportunities and challenges regarding the use of stablecoin arrangements in cross-border payments. | Webpage
• (30 Oct 2023) The Monetary Authority of Singapore (MAS), the Financial Services Agency of Japan (FSA), the Swiss Financial Market Supervisory Authority (FINMA) and the UK Financial Conduct Authority (FCA) are partnering as a policymaker group under the MAS’ Project Guardian to advance digital asset pilots in fixed income, foreign exchange and asset management products. | MAS press release | FCA press release
• (17 Oct 2023) Basel Committee on Banking Supervision consultation paper on disclosure of cryptoassets exposures, which proposes a standardised disclosure table and set of templates for banks' cryptoasset exposures with a proposed implementation date of 1 January 2025. Deadline for comments: 31 January 2024. | Press release
• (13 Oct 2023) G20 Finance Ministers and Central Bank Governors (FMCBG) press release following their meeting on 12-13 October 2023 in Marrakech. Amongst other things, Ministers and Governors adopted the Roadmap proposed in the International Monetary Fund (IMF) - Financial Stability Board (FSB) synthesis paper on cryptoassets to achieve common goals of macro-economic and financial stability and to ensure effective, flexible, and coordinated implementation of the comprehensive policy framework for cryptoassets. They called for swift and coordinated implementation of this roadmap, including implementation of policy frameworks; outreach beyond G20 jurisdictions; global coordination, cooperation and information sharing; and addressing data gaps.
• (5 Oct 2023) BIS Innovation Hub has partnered with the central banks of Australia, Malaysia, Singapore, and South Korea to launch Project Mandala, which is intended to explore the feasibility of encoding jurisdiction-specific policy and regulatory requirements into a common protocol for cross-border use cases such as foreign direct investment, borrowing and payments. The project is intended to ease the policy and regulatory compliance burden by automating compliance procedures, providing real-time transaction monitoring and increasing transparency and visibility around country-specific policies. In doing so, it also seeks to address key challenges identified during Project Dunbar, which developed an experimental multiple central bank digital currency (mCBDC) platform. | Project webpage | Press release

Americas

US

• (19 Oct 2023) US Department of the Treasury Financial Crimes Enforcement Network (FinCEN) Notice of Proposed Rule Making that identifies international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern. | Press release
• (18 Oct 2023) Federal Deposit Insurance Corporation (FDIC) Office of Inspector General report on FDIC strategies related to cryptoasset risks, which concludes that while the FDIC has started to develop and implement strategies that address the risks posed by cryptoassets, it has not assessed the significance and potential impact of the risks. The report makes two recommendations for the FDIC to: (i) establish a plan with timeframes for assessing risks pertaining to crypto-related activities and (ii) update and clarify the supervisory feedback process related to its review of supervised institutions’ crypto-related activities.  The FDIC has accepted both recommendations and plans to complete corrective actions by 30 January 2024. | Press release
• (17 Oct 2023) Speech by US Federal Reserve Governor Michelle Bowman on innovations in money and payments, in which she warned that the potential benefits of a US central bank digital currency (CBDC) remain unclear, and that the introduction of a US CBDC could pose significant risks and tradeoffs for the financial system. Bowman also argued that while stablecoins purport to have convertibility one-for-one with the dollar, in practice they have been less secure, less stable, and less regulated than traditional forms of money, and she therefore emphasised the need for a clear and sensible regulatory framework based on the ‘same risk, same regulation’ principle.
• (13 Oct 2023) California Governor Gavin Newsom has signed Assembly Bill 39, which establishes the Digital Financial Assets Law. From 1 July 2025, the bill requires the Department of Financial Protection and Innovation (DFPI) to create a regulatory framework, including licensure and enforcement authority, for certain crypto activities. The bill provides DFPI with rulemaking authority and an 18-month implementation date

Canada

• (5 Oct 2023) Canadian Securities Administrators (CSA) notice setting out interim terms and conditions that would apply to cryptoasset trading platforms and the issuers of fiat-backed cryptoassets if they wish to continue allowing Canadian clients to purchase or deposit these assets. The notice is intended to provide further clarity and guidance to cryptoasset trading platforms about the CSA’s interim approach to the trading of value-referenced cryptoassets. | Press release
• (4 Oct 2023) Bank of Canada discussion paper on redefining financial inclusion for a digital age and the implications for a CBDC.

APAC

Australia

• (16 Oct 2023) Australian Treasury proposal paper on regulating digital asset platforms. The Australian Government intends to introduce a regulatory framework to address consumer harms in the crypto ecosystem while supporting innovation and is seeking views from interested parties on the proposed framework for regulating digital asset platforms. Deadline for comments: 1 December 2023 | Press release
• (16 Oct 2023) Speech by Reserve Bank of Australia Assistant Governor Brad Jones on the opportunities and challenges arising from the tokenisation of assets and money in the digital age and the next phase of the Reserve Bank’s strategic work program on the ‘future of money’..

Hong Kong

• (30 Oct 2023) Hong Kong Monetary Authority (HKMA) report on the key lessons from Phase 1 of its e-HKD Pilot Programme and the next steps of the programme. The report notes that the pilots under Phase 1 showed that an e-HKD could add unique value to the current payment ecosystem in Hong Kong in three main areas, namely programmability, tokenisation, and atomic settlement. The HKMA has not yet made a decision on whether and when to introduce an e-HKD. | Press release
• (20 Oct 2023) Securities and Futures Commission (SFC) and HKM A joint circular on intermediaries’ virtual asset-related activities, which supersedes the previous joint circular dated 28 January 2022. | Press release.

Taiwan

• (25 Oct 2023) Virtual Asset Management Bill (in Chinese), which has been introduced to the Legislative Yuan. The Bill sets out the scope and definition of virtual assets and is intended to realise the potential of Taiwan’s virtual asset market while strengthening the supervision of virtual asset operators.

Republic of Korea

• (4 Oct 2023) BIS research paper on the Bank of Korea's CBDC project | Webpage

EUROPE

EU

• (31 Oct 2023) European Central Bank (ECB) blog post on extending the benefits of digital technologies to cross-border payments
• (25 Oct 2023) Round Table on the Digital Euro study which argues that, in order to ensure widespread adoption, the digital euro must offer a compelling value proposition and clear benefits to consumers and merchants in the EU, while the EU’s legislative framework should allow for these benefits to gradually emerge over time. The Round Table also warns that there is a need to minimise the risk of crowding out European private solutions, which would impact competition and the attractiveness of the European payments market, while at the same time hindering the digital euro’s adoption.| Press release
• (24 Oct 2023) ECB blog post on ‘The digital euro, demystified’
• (20 Oct 2023) The European Banking Authority (EBA) has published three consultations on various aspects of the Markets in Cryptoassets Regulation (MiCA). In particular, the EBA is seeking feedback on:
  • o  draft regulatory technical standards (RTS) on the procedure for approving white papers of asset-reference tokens (ARTs) issued by credit institutions | Press release;
  • o  draft RTS on the main governance processes for the adoption, implementation and maintenance of ART and e-money token (EMT) issuers' remuneration policies, as well as the main elements that should be included in these policies | Press release; and
  • o  draft guidelines on internal governance arrangements for ART issuers, including the tasks and responsibilities of their management bodies and their processes for identifying and minimising sources of operational risk | Press release.
• The EBA has also published a consultation in collaboration with the European Securities and Markets Authority (ESMA), which contains two sets of joint draft guidelines on suitability assessments under MiCA. The first set of guidelines provides guidance on assessing the suitability of members of the management body of ART issuers and cryptoasset service providers (CASPs). The second set of guidelines covers suitability assessments for shareholders or members, whether direct or indirect, with qualifying holdings in ART issuers or CASPs. Comments on all four consultations are due by 22 January 2024. They form the second batch of proposed MiCA policy products, with the EBA intending to publish its third batch in November 2023. | Press release
• (18 Oct 2023) The Governing Council of the ECB has decided to move to the ‘preparation’ phase of the digital euro project. The decision follows the completion of the investigation phase launched by the Eurosystem in October 2021 to explore possible design and distribution models for a digital euro. Based on the findings from this phase, the ECB has designed a digital euro that would be a digital form of cash that could be used for all digital payments throughout the euro area. The ‘preparation’ phase will start on 1 November 2023 and will initially last two years, at which point the Governing Council will decide whether to move to the next stage of preparations. The ECB has emphasised that the launch of the preparation phase is not a decision on whether to issue a digital euro, and that that decision will only be considered by the Governing Council once the EU’s legislative process has been completed. | Press release
• (17 Oct 2023) ESMA letter to the President of the Economic and Financial Affairs Council, Nadia Calviño, setting out the actions ESMA wants Member States to prioritise in order to facilitate the smooth transition to the new regime under the MiCA. These include designating the national competent authorities (NCAs) responsible for carrying out the relevant functions and duties set out in MiCA, and considering limiting the optional grand-fathering period (which would allow entities already providing cryptoasset services to continue providing them up to as late as 1 July 2026) to twelve months if they intend to offer it in their jurisdictions. | Press release
• (17 Oct 2023) ESMA statement addressed to CASPs and the NCAs that supervise them, calling on NCAs to dedicate resources and align their supervisory practices with one another to ensure effective supervision as soon as MiCA enters into force, and encouraging CASPs to begin planning for the transition and to ensure their clients are aware of the regulatory status of any 'grand-fathered' cryptoasset offerings. | Press release
• (17 Oct 2023) Speech by ESMA Chair Verena Ross on ‘being ready for the digital age’, in which she discussed ESMA’s Data Strategy and its work on data-driven supervision, as well as ongoing work on MiCA, including a study that is currently being conducted to assess the feasibility of more integrated monitoring of crypto markets at EU level.
• (17 Oct 2023) The EU Council has adopted the 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 CASPs to report transactions of clients residing in the EU. The new reporting requirements will enter into force on 1 January 2026. | Press release
• (17 Oct 2023) ECB occasional paper on the future of decentralised autonomous organisations (DAOs) in finance, which argues that the establishment of regulatory frameworks on cryptoassets and cryptoasset services (such as MiCA) may force DAOs to rethink their legal status, governance and operational models.
• (17 Oct 2023) The European Data Protection Board (EDPB) and the European Data Protection Supervisor (EDPS) have issued a joint opinion on the proposed regulation on the digital euro as a CBDC, which includes recommendations to better ensure the highest standards of personal data protection and privacy for the future digital euro. | Press release
• (11 Oct 2023) ESMA has published two articles on DeFi, one on developments and risks in the EU market and another on a methodology for the categorisation of smart contracts. | Press release
• (11 Oct 2023) Securities and Markets Stakeholder Group (SMSG) advice to ESMA on its July 2023 consultation paper on the first package of technical standards specifying certain requirements of MiCA
• (6 Oct 2023) Letter from ECB Executive Board Member Fabio Panetta, responding to a letter from six Members of the European Parliament’s Committee on Economic and Monetary Affairs (ECON), in which they had called on the ECB to postpone the decision on the realisation phase of the digital euro until the legislative process pertaining to the Digital Euro package reaches its conclusion. In his response, Panetta clarifies that the next phase of the digital euro project would only focus on further exploring and testing certain design aspects and functionalities of a potential digital euro, making it a preparation phase rather than a ‘realisation phase’. Panetta also emphasises that opening this new phase of the project would not be a decision to issue a digital euro and would not pre-empt such a decision, nor the ongoing legislative process.
• (5 Oct 2023) ESMA has launched a consultation on the second package of technical standards under the MiCA. In this second of three consultation packages, ESMA is seeking input on five sets of proposed rules, covering: (i) sustainability indicators for distributed ledgers; (ii) disclosures of inside information; (iii) technical requirements for white papers; (iv) trade transparency measures; and (v) record-keeping and business continuity requirements for CASPs. Comments are due by 14 December 2023. ESMA intends to publish a final report on the basis of feedback received and submit the draft technical standards to the EU Commission for endorsement by 30 June 2024 at the latest. In order to allow market participants to familiarise themselves with Inline XBRL, ESMA has also made available a proof of concept (PoC) illustrating a concrete application of the proposed format requirements included in the draft implementing technical standard (ITS) on forms, formats and templates for the cryptoasset white papers under MiCA. ESMA intends to publish the third and final consultation package with the remaining 18-month mandates in Q1 of 2024. | Press release
• (5 Oct 2023) ESMA has published two reports, prepared for it by PwC EU Services EESV, on the DLT Pilot Regime and the implications of the use of distributed ledger technology/blockchain in the context of transactions in financial instruments when an exemption to Article 26 of MiFIR is granted to a DLT market infrastructure. The first report studies how financial instrument transactions are registered in various DLTs. The second report studies different approaches to the extraction of transaction data from DLTs.

France

• (12 Oct 2023) Autorité de Contrôle Prudentiel et de Résolution (ACPR) summary of its public consultation on a regulatory framework for DeFi. Amongst other things, the ACPR has concluded that the term ‘disintermediated’ finance is more appropriate than ‘decentralised’ finance. The input gathered during the consultation will feed into the ACPR’s contributions to the discussions under way at EU level on the follow-up to MiCA. | Press release
• (3 Oct 2023) Speech by François Villeroy de Galhau, Governor of the Banque de France, on wholesale CBDC, its role in relation to the tokenisation of assets and the improvement of cross-border payments, and the Banque de France’s technical contribution.
• (3 Oct 2023) Speech by Denis Beau, First Deputy Governor of the Banque de France, on the potential of wholesale CBDC, in which he emphasised that (i) with regard to the tokenisation of finance, the public sector must support the private sector more than ever to enable the full potential of DLT while limiting the risks and (ii) wholesale CBDC could be the catalyst for improving cross-border payments by enabling the build-up of a new international monetary system.

Germany

• (11 Oct 2023) German Federal Financial Supervisory Authority (BaFin) webpage with information on the Digital Operational Resilience Act (DORA). The info webpage currently focuses mainly on DORA's legal basis, its scope of application and on current consultations. In addition, users can learn more about BaFin's new tasks in the context of DORA as BaFin will play an important role in its implementation in Germany. To provide timely and concise information on particularly relevant questions, the webpage contains a catalogue of FAQs. | Press release

Spain

• (11 Oct 2023) German Federal Financial Supervisory Authority (BaFin) webpage with information on the Digital Operational Resilience Act (DORA). The info webpage currently focuses mainly on DORA's legal basis, its scope of application and on current consultations. In addition, users can learn more about BaFin's new tasks in the context of DORA as BaFin will play an important role in its implementation in Germany. To provide timely and concise information on particularly relevant questions, the webpage contains a catalogue of FAQs. | Press release

UK

• (30 Oct 2023) HM Treasury paper summarising the feedback the Government received to its consultation and call for evidence on the future financial services regulatory regime for cryptoassets, which ran from February to April 2023, and how the responses influenced the further development of the policies and proposals consulted upon.
• (30 Oct 2023) HM Treasury paper summarising the feedback the Government received to its consultation on proposed amendments to the Financial Market Infrastructure Special Administration Regime (FMI SAR) to include provisions on the management of failures of non-bank systemic digital settlement asset (DSA) firms. It notes that many respondents were supportive of the proposals to apply the FMI SAR to systemic DSA payment systems and service providers, and that the Government intends to proceed with these proposals, although it will consider whether there is a need for a bespoke failure regime in the longer term.
• (30 Oct 2023) HM Treasury policy statement providing an update on the Government's plans for the regulation of fiat-backed stablecoins. Among other things, it notes that HMT intends to bring forward secondary legislation as soon as possible, and by early 2024 if parliamentary time allows, to bring activities relating to fiat-backed stablecoins into the regulatory perimeter.
• (26 Oct 2023) The Economic Crime and Corporate Transparency Act 2023 has received Royal Assent. The Act includes additional powers to seize and recover suspected criminal cryptoassets. | Webpage | Press release
• (26 Oct 2023) New FCA webpage providing information for applicants about its requirements and expectations of cryptoasset businesses for AML/CTF regime registration.
• (26 Oct 2023) Speech by BoE Deputy Governor for Financial Stability, Jon Cunliffe, in which he recalls Facebook's announcement in 2019 that it was launching a digital currency and discusses the three areas where this galvanised more urgent action by authorities: (i) the G20 roadmap to improve cross-border payments, (ii) the Bank of England’s exploration of a CBDC, and (iii) the regulation in the UK of systemic payment systems using stablecoins.
• (25 Oct 2023) FCA statement which highlights common issues with cryptoasset financial promotions that the FCA has identified since they came under its remit on 8 October 2023. In particular, these include: (i) promotions making claims about the ‘safety’, ‘security’ or ease of using cryptoasset services without highlighting the risk involved, (ii) risk warnings not being visible enough due to small fonts, hard-to-read colouring or non-prominent positioning, and (iii) firms failing to provide customers with adequate information on the risks associated with specific products being promoted.
• (20 Oct 2023) Minutes of the sixth meeting of the CBDC Engagement Forum on 18 September 2023. Amongst other things, Members stressed the importance of continuing to engage the public on the digital pound proposals, given concerns about consumer privacy, potential uses of programmable functions in a digital pound, and related developments in cash use. Members also emphasised that it was critical to have merchant perspectives represented from the outset of the design phase to get their input on matters such as use cases and merchant needs, implementation costs, and practical issues around acceptance of digital pound payments. There were presentations by the Bank of England on Project Rosalind and by HM Treasury on the digital pound design phase objectives.
• (17 Oct 2023) UK Jurisdiction Taskforce consultation on digital assets and English insolvency law. The Taskforce is asking experts and members of the public to provide their input into the questions that the proposed Legal Statement on Digital Assets and English Insolvency Law can most usefully answer. Deadline for comments: 4 December 2023
• (12 Oct 2023) Speech by FCA Chair Ashley Alder, in which he indicated that, following its February 2023 discussion paper on updating and improving the UK regime for asset management, the FCA has been working with the HM Treasury Asset Management Taskforce’s Technology Working Group on a blueprint for fund tokenisation, which will be published later in 2023.
• (11 Oct 2023) House of Commons Culture, Media and Sport Committee report on non-fungible tokens (NFTs) and the blockchain and the risks to sport and culture. The report warns that the emergence of NFTs in the world of art has led to the risk of widespread copyright infringement, while the promotion of cryptoassets in professional sport is putting supporters at risk of financial harm and potentially damaging the reputations of clubs. It also raises concerns over how traditional regulatory regimes have been exposed by the emerging technology. | Press release
• (9 Oct 2023) FCA statement indicating that it issued 146 alerts about cryptoasset promotions on the first day of the new regime.