April, 2024

Greetings, dear readers,

As March bids us farewell, we also bid adieu to the first quarter of the year. It's been a whirlwind of events, from the groundbreaking final RTS of MiCA by ESMA to the startling revelation of KuCoin exchange failing AML requirements in the USA, resulting in a substantial fine. Amidst these developments, our team found itself amidst the intellectual fervor of the Lithuanian Davos, passionately discussing the regulatory trajectory of cryptocurrencies and the everyday utility of Bitcoin.

In the wake of substantial outflows from Greyscale ETF, Bitcoin has staged a remarkable comeback, reinvigorating interest in crypto assets across both institutional and retail spheres. It's a testament to the resilience and enduring appeal of the digital currency landscape.

Moreover, as national parliaments unveil their initial drafts for implementing MiCA into their respective legal frameworks, we anticipate a surge of clarity in the coming months. The second and third quarters promise to illuminate the regulatory path forward within the European Union.

As we embark on the next leg of this transformative journey, let's stay tuned for further insights, developments, and perhaps a few surprises along the way.

??Portugal‘s National Data Protection Commission Temporary Suspends Sam Altman’s Worldcoin Biometric Data Collection Amid Privacy Concerns

Just recently Portugal's National Data Protection Commision has ordered Sam Altman's iris-scanning project Worldcoin to stop collecting biometric data for 90 days. The regulator said the order to suspend data collection was temporary while it carried out additional due diligence and analyzed complaints during an investigation.

Portugal's National Data Protection Commision informed that more than 300,000 people in Portugal provided Worldcoin with their biometric data and it received dozens of complaints in the last month about unauthorized collection of data from minors, the inability to delete data or revoke consent.

Worldcoin is under investigation for its personal data collection practices in other countries as well.

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??EU Artificial Intelligence Act: European Parlament adopts landmark law

On March 13, 2024, European Parliament approved the Artificial Intelligence Act (?AI Act“) that will ensure safety and compliance with fundamental rights, while boosting innovation.

AI Act, which was agreed in negotiations with member states in December 2023, was endorsed with 523 votes in favor, 46 against and 49 abstentions.

The AI Act classifies AI according to its risk:

• Unacceptable risk is prohibited (e.g. social scoring systems and manipulative AI).
• Most of the text addresses high-risk AI systems, which are regulated.
• A smaller section handles limited risk AI systems, subject to lighter transparency obligations: developers and deployers must ensure that end-users are aware that they are interacting with AI.
• Minimal or no risk: AI Act allows the free use of minimal-risk AI. This includes applications such as AI-enabled video games or spam filters. The vast majority of AI systems currently used in the EU fall into this category.

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The majority of obligations fall on providers (developers) of high-risk AI systems:

• Those that intend to place on the market or put into service high-risk AI systems in the EU, regardless of whether they are based in the EU or in a third country; and
• Third country providers where the high risk AI system’s output is used in the EU.

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Users (deployers) are natural or legal persons that deploy an AI system in a professional capacity:

• Users (deployers) of high-risk AI systems have some obligations, though less than providers (developers).
• This applies to users (deployers) located in the EU, and third country users where the AI system’s output is used in the EU.

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??U.S. treasury takes action against Russian firms supporting sanctions circumvention through virtual asset operations and technology purchases

The department of the Treasury’s Office of Foreign Assets Control (OFAC) has imposed sanctions on thirteen entities and two individuals operating in Russia's financial services and technology sectors. These sanctions target entities and individuals involved in facilitating transactions that help sanctioned Russian entities evade U.S. sanctions. The sanctioned entities have either developed or offered services in virtual assets, allowing potential sanctions evasion. Among the sanctioned entities are fintech companies like B-Crypto, Masterchain, Laitkhaus, Atomaiz, and others, which have partnerships with OFAC-designated Russian banks and have been involved in issuing, exchanging, and transferring digital financial assets. Additionally, the sanctions also target technology procurement firms associated with OFAC-designated entities. The actions by OFAC aim to disrupt Russia's efforts to leverage financial technology to bypass international sanctions and fund its war against Ukraine.

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?? Digital markets act requirements enter into force as of March 7, 2024

The European Commission has mandated six major tech companies, including "Apple," "Alphabet," "Meta," "Amazon," "Microsoft," and "ByteDance," to comply with the Digital Markets Act (DMA) starting from March 7, 2024. The DMA aims to promote competitiveness and fairness in the EU's digital markets by setting new rules for key platform services. These rules grant European businesses and end-users new rights and opportunities. Gatekeepers, or major digital platforms, must demonstrate compliance with the DMA's obligations and are subject to investigations and potential fines for non-compliance. The Commission has also completed market investigations for "Apple" and "Microsoft" and is reviewing notifications from "Booking," "ByteDance," and "X" regarding their services' compliance with the DMA.

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??FCA Updates Position on Cryptoasset-Backed Exchange Traded Notes (cETNs) for Professional Investors

On March 11, 2024, the Financial Conduct Authority (FCA) issued a statement updating its position on cryptoasset-backed Exchange Traded Notes (cETNs) for professional investors. The FCA clarified that it would not oppose Recognised Investment Exchanges (RIEs) in establishing a UK listed market segment for cETNs, catering exclusively to professional investors such as authorized investment firms and credit institutions.

Key points from the FCA statement, supplemented by additional sources:

1. Approval for UK Listed Market Segment: The FCA's statement, as detailed on their official website, confirms that Recognized Investment Exchanges can request approval for a UK listed market segment dedicated to cETNs for professional investors. This decision aims to facilitate investment opportunities while ensuring appropriate regulatory oversight.
2. Listing Criteria and Ongoing Disclosure: As per the FCA's guidelines, cETNs seeking listing on the Official List must meet all requirements of the UK Listing Regime. This includes fulfilling prospectus obligations and maintaining ongoing disclosure standards to provide investors with transparent information regarding these financial products.
3. Mitigating Risks and Safeguarding Investors: The FCA underscores the importance of exchanges implementing robust safeguards to restrict access to the market segment solely to professional investors. These measures aim to mitigate risks associated with crypto-linked instruments and ensure market integrity, as elaborated on the FCA's official list website.
4. Continued Regulatory Collaboration: The FCA emphasizes ongoing collaboration with governmental bodies, international partners, and industry stakeholders to develop a comprehensive regulatory framework for crypto assets. This collaborative effort, highlighted in their statement, aims to establish UK leadership in setting international standards for crypto asset regulation.

Overall, the FCA's updated position on cETNs reflects a balanced approach, promoting innovation and investment opportunities while prioritizing investor protection and market integrity.

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?? EMIR 3.0 update

EMIR 3.0, the latest update to the European Market Infrastructure Regulation, introduces significant changes aimed at enhancing the competitiveness of the European central clearing framework. Here are the key points you need to know:

1. Active Account Requirement: Financial counterparties (FCs) and non-financial counterparties (NFCs) subject to the clearing obligation must have an active account with an EU Central Counterparty (CCP) for certain derivatives transactions. They are also required to clear a specified proportion of trades through EU CCPs.
2. Information Disclosure on Clearing Services: Clearing members and clients must inform their clients about the option to clear contracts at EU CCPs. They are also required to report on their clearing activities with third-country CCPs.
3. Intragroup Transactions: Amendments simplify intragroup transaction exemptions from clearing obligations, removing the need for equivalence determinations for certain third countries.
4. Clearing Obligation Exemptions: Exemptions from clearing obligations are introduced for transactions with certain pension scheme arrangements established in third countries.
5. Reporting and Risk Mitigation: Reporting obligations are expanded, and NFCs have an implementation period for collateral exchange requirements. Risk mitigation measures are strengthened.
6. CCP Authorization and Expansion: Procedures for CCP authorization and product offering expansion are streamlined, allowing for the authorization of clearing services in non-financial instruments.
7. Margin and Collateral Requirements: Requirements for margin, default funds, and collateral are revised to ensure better transparency and risk management.
8. Amendments to UCITS, IFD, CRD, and CRR: Amendments address counterparty risk limits, concentration risks, and own funds requirements for credit valuation adjustment risks.
9. Role of Public Entities: Public entities are encouraged to clear derivatives at EU CCPs, and obstacles to transferring exposures are addressed.
10. Next Steps: Formal adoption of EMIR 3.0 is pending, with expected publication in the EU Official Journal later in 2024. Most amendments will become applicable shortly after publication.

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??ESMA's first final report on technical standards for MiCA

The European Securities and Markets Authority (ESMA) recently released two final reports and a consultation paper regarding the implementation of the Markets in Crypto-Assets Regulation (MiCAR), offering insights into regulatory technical standards (RTS) and guidelines. Here's a breakdown:

Final Reports:

1. Investor Protection Technical Standards: ESMA's draft technical standards cover various aspects, including the authorization process for crypto-asset service providers (CASPs), notification requirements for financial entities providing crypto-asset services, assessment criteria for acquiring holdings in CASPs, and handling complaints by CASPs. A separate report on conflicts of interest is pending, awaiting input from the European Banking Authority (EBA) to ensure alignment.
2. Information Exchange Standards: Another final report outlines technical standards for exchanging information between competent authorities, defining standard forms, templates, and procedures for this exchange. It also addresses cooperation with third countries, enhancing regulatory harmonization and effectiveness.

Consultation Paper:

ESMA's third consultation package encompasses remaining mandates, covering draft technical standards and guidelines on various topics, including:

• Detection and reporting of suspected market abuse in crypto-assets.
• Policies, procedures, and client rights for crypto-asset transfer services.
• Suitability requirements and periodic statement formats for portfolio management.
• Systems maintenance and security access protocols complying with EU standards.

These consultations seek feedback to refine and finalize regulatory measures, ensuring comprehensive and effective implementation of MiCAR.

In essence, ESMA's initiatives aim to establish robust regulatory frameworks and guidelines for the evolving crypto-assets market, safeguarding investor interests and promoting market integrity.

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