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Global Fintech Update

27 May 2022

Banking & Finance Fintech Crypto 27 May 2022

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 BRIEFING & MATERIALS

SPOTLIGHT 

  • The Clifford Chance International Festival of Fintech welcomed speakers and attendees from across the globe last week.  From 17th – 19th May, clients joined us virtually to enjoy three days of fintech webinars featuring expert panel discussions and online fireside chats with industry leaders and rising stars.T his year's Festival of Fintech focused on the theme of Building a thriving and sustainable fintech ecosystem for the future, with each session focused on the fast-changing world of financial technology and tackling related legal and regulatory issues. You can now relive these moments, and view them on demand

GLOBAL LEGAL AND REGULATORY UPDATE

International

  • (23 May 2022) Organisation for Economic Co-operation and Development report on governments' use of fintech to deliver support to small and medium-sized enterprises (SMEs) during the COVID-19 pandemic, and the potential of marketplace lending models for the financing of SMEs going forward.
  • (23 May 2022) International Swaps and Derivatives Association (ISDA) analysis on the hedging of cryptoassets. The report is in response to the proposals of the Basel Committee on Banking Supervision to introduce a framework for the prudential treatment of banks' cryptoasset exposures. ISDA argues that these proposals are 'punitive' and likely to discourage traditional financial intermediaries from engaging in crypto-markets, and sets out its proposed alternative approach. | Press release
  • (20 May 2022) G7 finance ministers and central bank governors communiqué on their future actions and priorities. Among other things, the group calls on the Financial Stability Board to accelerate its efforts to implement a regulatory framework for cryptoassets and their service providers, which would hold all cryptoassets (including stablecoins) to the same standards as the rest of the financial system. The group also highlights the opportunities and challenges posed by central bank digital currencies (CBDCs), and encourages jurisdictions exploring CBDC initiatives to consider, in particular, their international and cross-border dimensions.
  • (20 May 2022) Bank for International Settlements (BIS) working paper on the use of distributed ledger technologies (DLTs) for cross-border payments, and the extent to which existing financial laws and regulations are suitable for a DLT-based payment system. | Summary
  • (18 May 2022) BIS working paper on the impact of cryptocurrencies on the global financial system. The paper calls for regulatory action to address gaps in the reporting of crypto-trading data and to establish a more level playing-field with regard to the regulatory treatment of traditional financial institutions and the cryptocurrency ecosystem.

Africa

Central African Republic:        

  • (24 May 2022) Tweet from President Faustin-Archange Touadéra announcing the upcoming launch of a new cryptocurrency initiative, Project Sango, which is intended to establish the Central African Republic as a crypto-hub, following the passing of a law last month which granted Bitcoin status as legal tender in the country and established a legal framework for cryptocurrencies. | Project Sango website

Americas

Brazil:            

  • (19 May 2022) Statement (in Portuguese) from the Federal Reserve confirming, in response to a query, that Brazilian investors must pay income tax on gains made in transactions involving the exchange of one type of cryptocurrency for another.

Paraguay:   

US:  

  • (26 May 2022) House Committee on Financial Services hearing on the benefits and risks of introducing a US CBDC. The Vice Chair of the Federal Reserve, Lael Brainard, gave testimony at the hearing and confirmed that the Federal Reserve is still considering whether to launch a CBDC or not, but that it will not take action without approval from the White House and Congress. | Brainard's written statement | Video | Committee memorandum
  • (24 May 2022) Speech by the Acting Comptroller of the Currency, Michael Hsu, on the vulnerabilities in the cryptocurrency market. In particular, he mentions the potential risks posed by the fragmentation of the ecosystem, underdeveloped custody and ownership rights, and the interconnectedness between cryptocurrencies.
  • (24 May 2022) Senate Committee on Homeland Security and Government Affairs report on the role that cryptocurrencies play in facilitating cybercrime and ransomware. | Press release
  • (13 May 2022) Statement from the Deputy Comptroller for Operational Risk Policy at the Office of the Comptroller of the Currency (OCC), Kevin Greenfield, given before the House Committee on Financial Services' Task Force on Artificial Intelligence (AI). Greenfield outlines some of the OCC's supervisory expectations with regard to banks' management of AI risks and sets out how the agency intends to supervise machine learning activities going forward.

APAC

Kazakhstan:

  • (25 May 2022) The Lower Chamber of the Kazakh Parliament has approved at first reading amendments to the national tax code, which will introduce graded tax rates for electricity consumed by crypto-mining entities. | Press release (in Kazakh)

Singapore:   

  • (25 May 2022) The Infocomm Media Development Authority has announced the launch of AI Verify, a governance testing framework and toolkit for companies who wish to demonstrate the trustworthiness of their AI systems. The platform will test the AI systems against a standardised set of principles and deliver a report on their transparency, safety, resilience, accountability and oversight. | Press release

Europe

EU:  

  • (24 May 2022) European Central Bank (ECB) report on the risks arising from cryptoassets. The report forms part of the ECB's May 2022 Financial Stability Review, in which it assesses the current financial stability vulnerabilities facing the EU financial markets. The chapter on cryptoassets notes that, if the current crypto-market trends continue (such as increasing interconnectedness with the traditional financial sector), cryptoassets will begin to pose a risk to financial stability. The ECB therefore calls on the EU to close regulatory and data gaps in the cryptoasset ecosystem to ensure that financial stability risks are sufficiently mitigated.
  • (20 May 2022) European Securities and Markets Authority (ESMA) updated question and answer document on crowdfunding. ESMA has added material on general and investor provisions under the Crowdfunding Regulation (Regulation (EU) 2020/1503). 

UK:

  • (23 May 2022) HM Revenue and Customs consultation on proposals to include cryptoassets in the Investment Transactions List (ITL) of asset types used for the purposes of the Investment Manager Exemption (IME) and other fund tax regimes. The IME uses qualifying tests to permit non-UK resident investors to appoint UK-based investment managers to conduct certain investment transactions on their behalf, without bringing them into the scope of the UK taxation regime, and the ITL establishes the types of transactions that may qualify for the IME. Responses are due by 18 July 2022.
  • (20 May 2022) Speech by the Chair of the Financial Conduct Authority (FCA), Charles Randell, on the future regulatory framework for financial services. Randell discusses current considerations around the FCA's supervision of the crypto-market and argues that failing cryptoasset firms should not be covered by the Financial Services Compensation Scheme.

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