Clifford Chance

Welcome to this month's global crypto round-up, summarising crypto regulatory developments that have happened around the world in May 2022 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 AND MATERIALS

International Festival of Fintech 2022
On 17-19 May 2022, Clifford Chance hosted an International Festival of Fintech. Click the link below to catch up on the sessions, including talks on making digital assets mainstream, the nature of cryptoassets, and central bank digital currencies (CBDCs) around the world.
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GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

• (31 May 2022) Summary of the discussions raised at the meeting of the Basel Committee on Banking Supervision (BCBS) held on 27 May 2022. Among other things, the BCBS discussed the progress made on its workstream on the prudential treatment of banks' cryptoasset exposures, following an initial consultation in 2021. The BCBS plans to publish a second consultation paper in June 2022, and to finalise its rules around the end of the year.
• (23 May 2022) International Swaps and Derivatives Association (ISDA) analysis on the hedging of cryptoassets. The report is in response to the BCBS's 2021 consultation mentioned above. ISDA argues that BCBS's 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 (FSB) 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 CBDCs, and encourages jurisdictions exploring CBDC initiatives to consider, in particular, their international and cross-border dimensions.
• (18 May 2022) Bank for International Settlements (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.
• (12 May 2022) Speech by the BCBS Chair, Pablo Hernández de Cos, on the BCBS's current activity around cryptoassets and decentralised finance (DeFi).
• (11 May 2022) Speech by the FSB Chair, Klaas Knot, on the current stability challenges facing the global financial markets. Among other things, Knot highlights the risks posed by the rapid evolution of the cryptoassets market and notes that the FSB is prioritising work on the regulation and supervision of unbacked cryptoassets and stablecoins.
• (10 May 2022) International Monetary Fund (IMF) report on the impact of cryptoassets on capital flow management measures. | Summary
• (9 May 2022) IMF statement following its official staff visit with the Bahamas. The IMF comments on the Bahamas CBDC initiative, stating that it has potential to foster financial inclusion, but that it requires stronger internal capacity and oversight, and campaigns to educate citizens.
• (6 May 2022) BIS working paper setting out the results of its survey on CBDCs. The paper summarises feedback from 81 central banks on their engagement with CBDCs and the impact that the COVID-19 pandemic and the rapid development of cryptocurrencies has had on their work in this area. | Press release
• (2 May 2022) Public responses received by the Organisation for Economic Co-operation and Development on its consultation on a proposed tax reporting framework for cryptoassets.

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 in April 2022 which granted Bitcoin status as legal tender in the country and established a legal framework for cryptocurrencies. | Project Sango website

Nigeria:         

• (10 May 2022) Securities and Exchange Commission rules on the issuance of digital assets as securities and on requirements for digital asset offering platforms, custodians, exchanges and other service providers. 

Americas

Argentina:       

• (5 May 2022) Banco Central de la República Argentina statement (in Spanish), which bans financial entities from engaging in, or facilitating their customers to engage in, any activities involving cryptoassets.

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.

Chile:              

• (11 May 2022) Banco Central de Chile report (in Spanish) on the findings of its Internal Digital Payments Working Group, which was established in 2021 to explore the possibility of issuing a CBDC. The report highlights the benefits, risks and principles of issuing a CBDC, but notes that further evidence gathering and analysis is required before a final decision can be made about introducing a CBDC in Chile.

Paraguay:   

• (25 May 2022) Bill to regulate the industry and commercialisation of virtual assets and cryptoassets (in Spanish), which has been approved by the Chamber of Deputies. The bill establishes a legal framework for the mining, commercialisation, exchange, transfer, custody and administration of cryptoassets and instruments that provide control over cryptoassets. | Press release (in Spanish)

St Vincent and the Grenadines:           

• (10 May 2022) Virtual Asset Business Bill, which has been approved by Parliament at its first reading. The bill establishes a regulatory framework for virtual assets, including by introducing a registration regime for firms wishing to offer virtual asset-related services. | Press release

US:  

• (31 May 2022) Federal Reserve staff working paper on the impact that a retail CBDC could have on the balance sheets of the Federal Reserve, commercial banks and US households, and the subsequent impact on US monetary policy implementation. | Summary
• (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
• (19 May 2022) US Department of Congress request for comment on aspects stakeholders wish it to consider when developing a framework to enhance US economic competitiveness in the digital asset technology space. The framework was announced under President Biden's Executive Order on the responsible development of digital assets, which was published in March 2022. Comments on the proposals are due by 5 July 2022.
• (16 May 2022) Congressional Research Service report on algorithmic stablecoins. The paper provides an overview of the TerraUSD crash (when the dollar-pegged stablecoin broke its peg twice over the course of a week), and considers wider policy issues, and current policy initiatives, relating to the run risk of stablecoins.
• (16 May 2022) Unsealed opinion from the US District Court for the District of Columbia on the application of sanctions to an online payment platform and cryptocurrency exchange transactions. The opinion rules that the defendant's transmission of cryptocurrency to a sanctioned jurisdiction violated US sanctions, and that they face liability because their transactions caused the crypto-exchanges they used to violate US sanctions.
• (11 May 2022) Financial Accounting Standards Board summary of its board meeting, which notes that the board voted to begin a project to review the accounting for exchange-traded digital assets and commodities.
• (9 May 2022) Federal Reserve Board semi-annual report on financial stability, which flags stablecoins as a particular area of concern. The report argues that, as stablecoins are backed by assets that may lose value or become illiquid during stress, they are vulnerable to runs and redemption risks.

APAC

Australia:     

• (16 May 2022) Australian Tax Office statement on its tax priorities for 2022, which include, among other things, the monitoring of citizens' reporting of cryptoasset and non-fungible token capital gains and losses.

India:   

• (27 May 2022) Reserve Bank of India (RBI) annual report, in which the RBI discusses its work over the 2021-22 period, including its activity around CBDCs. The report also covers the RBI's agenda for the 2022-23 period, which includes the 'phased introduction' of an Indian CBDC.

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.
• (16 May 2022) Speech by ECB Executive Board Member, Fabio Panetta, on the EU's digital euro project. Panetta states that the EU hopes to launch the CBDC within four years and that peer-to-peer payments may be one of its first applications.
• (13 May 2022) ECB working paper on the benefits of CBDCs in addressing frictions around financial intermediation and privacy concerns.
• (12 May 2022) ECB occasional paper on CBDCs and bank intermediation, which considers the potential impact of the introduction of a digital euro on EU banks' balance sheets and activities.
• (4 May 2022) Annual report from the Council of Europe's Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, which warns of the money laundering risks posed by DeFi and cryptoassets, and calls for stronger regulation. | Press release

Belgium:       

• (1 May 2022) The Financial Services and Markets Authority (FSMA) has announced that new rules have entered into force in Belgium, which require crypto-exchanges and custodial wallet service providers to register with FSMA. Those firms which are already operational must notify FSMA by 1 July 2022 and apply for registration by 1 September 2022. | Press release | Rules and guidance (in French)

Germany:    

• (11 May 2022) Ministry of Finance guidance (in German) on the income tax treatment of virtual currencies and other tokens. | Press release (in German)

The Netherlands:      

·         (17 May 2022) Speech from the Head of Capital Market Infrastructure and Transparency Supervision at the Authority for the Financial Markets, Paul Willem van Gerwen, on the rise and impact of crypto-derivatives. van Gerwen argues that the Netherlands should follow the approach taken in the UK and ban retail customers from trading in crypto-derivatives.| Press release (in Dutch)

UK:

• (31 May 2022) HM Treasury consultation on the Government's proposed approach to managing the failure of systemic 'digital settlement asset' firms. The consultation defines digital settlement assets as any form of digital asset used for payments or settlement, including stablecoins. Responses are due by 2 August 2022. | Consultation webpage
• (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.
• (10 May 2022) The Government has announced the introduction of two bills containing provisions on cryptocurrencies, as part of the Queen's speech, delivered by Prince Charles at the state opening of Parliament. The Financial Services and Markets Bill is intended to establish the UK as a competitive and innovative leader in financial services, and under the provisions of the bill the Government will be 'harnessing the opportunities of innovative technologies in financial services, including by supporting the safe adoption of cryptocurrencies and resilient outsourcing to technology providers'. The Economic Crime and Corporate Transparency Bill is intended to strengthen the authorities' abilities to tackle illicit finance and reduce economic crime, and includes the introduction of powers designed to allow cryptoassets to be seized and recovered more quickly and easily. | Speech | Briefing pack

Middle East

Israel:

• (9 May 2022) Bank of Israel report setting out the findings from its consultation on a potential CBDC. The bank notes that it has not yet made a final decision on whether it will issue a digital shekel, but that the response to its consultation was largely positive. | Press release