BlockReg Monthly: February 2024

BlockReg Advisors ' team presents a monthly wrap-up of the key news concerning digital assets in the prominent business press and governmental information services.

Regulatory News

European Union (EU)

EU selects Frankfurt for new anti-money laundering authority headquarters - On February 22, 2024, the EU has decided on the location of its new Anti-Money Laundering Authority (AMLA), which will be situated in Frankfurt, Germany, and is scheduled to commence operations in mid-2025. The decision on AMLA's location came after careful consideration, involving discussions between the Council and the European Parliament, as well as a transparent selection process among nine candidate member states. This move represents a significant step forward in the EU's efforts to strengthen its anti-money laundering framework, with AMLA poised to play a central role in combating financial crime. The selection process followed precedents set by the EU Court of Justice, which emphasized the importance of adherence to procedural guidelines laid out in the Treaties for the establishment of such agencies.

ECB still wary of Bitcoin and ETF approval - On February 22, 2024, the European Central Bank released an article about the US Securities and Exchange Commission (SEC) ETF for Bitcoin approval. The EU regulator remains skeptical of? the recent spot Bitcoin exchange-traded fund (ETF) approvals in the US, dismissing them as temporary price fluctuations. Despite market optimism, ECB executives believe Bitcoin lacks intrinsic value, citing its speculative nature, inability to generate dividends, and concerns about environmental and societal harm. They caution against over-reliance on ETF approvals and advocate for continued vigilance against money laundering and cybercrime.

ECB executives debunk banks' fears over digital euro's impact on deposits - On February 19, 2024, the ECB's Governing Council has outlined plans for a digital euro, focusing on its features like privacy and pan-European reach. ECB executives addressed concerns about potential bank disintermediation, assuring that the digital euro would not be an investment but a payment tool. They emphasized that concerns about deposit migration are unfounded, given the limits on individual digital euro holdings and the absence of interest accrual on these holdings. The ECB is committed to refining the design and addressing risks associated with a digital euro, aiming to maintain stable central bank money circulation and ensuring the continued role of banks in the economy.

ECB President Lagarde Discusses Euro's 25th anniversary and Digital Euro at European Parliament hearing - On February 15, 2024, during a hearing with the Committee on Economic and Monetary Affairs of the European Parliament, ECB President Christine Lagarde provided updates on the economic outlook and recent monetary policy decisions. Lagarde emphasized the significance of the euro's journey over the past 25 years, highlighting its role in providing simplicity, stability, and sovereignty. Additionally, she addressed the Parliament's role in strengthening the euro's foundations and outlined the ECB's commitment to addressing new challenges, including the development of a digital euro, to ensure the currency's future success.

ECB Executive Board Member discusses Digital Euro preparation phase - On February 14, 2024, Piero Cipollone, a member of the Executive Board of the ECB, addressed the Committee on Economic and Monetary Affairs of the European Parliament regarding the digital euro preparation phase. Cipollone emphasized the importance of preserving citizens' freedom to use a public means of payment while ensuring that both cash and digital euro remain widely accessible. He provided insights into key aspects of the digital euro preparation, including the search for possible providers, development of a digital euro rulebook, stability of the financial system, and the enhancement of privacy in digital payments.

ECB Working Paper analyzes transition to Central Bank Digital Currency - On February 13, 2024, the European Central Bank's working paper ? ′′Managing the transition to central bank digital currency′′ examines the shift from a non-CBDC state to one with a CBDC, utilizing a two-country DSGE model with financial frictions. Highlighting CBDC benefits like enhanced payment convenience, it notes potential drawbacks in increased volatility and initial declines in investment, consumption, and output. The study suggests that imposing binding caps proves most effective in mitigating disintermediation and output losses during the transition while minimizing international spillovers.

ESAs recommend enhanced monitoring of BigTech financial services in the EU - On Feb 1st, 2024, the European Supervisory Authorities (EBA, EIOPA, and ESMA) issued a report examining BigTechs' financial services in the EU, identifying services, risks and challenges. The cross-sectoral 2023 stocktake via EFIF revealed BigTech subsidiaries mainly operate in payments, e-money and insurance, with limited presence in banking and none in securities services. To intensify monitoring, ESAs propose a new matrix and advocate for a data mapping tool within EFIF. This aligns with the ongoing EFIF mission to facilitate cooperation and innovation in the FinTech sector across the EU single market, addressing concerns raised in the 2022 response to the European Commission's Call for Advice on Digital Finance.

Spanish Treasury to seize crypto for tax debts - Spain's Ministry of Finance unveils tax reforms granting financial entities authority to collect taxes on behalf of the government. The ministry plans to amend the General Tax Law, empowering the Spanish Tax Agency to seize cryptocurrency assets to settle overdue tax debts. With a recent royal decree expanding entities with tax collection powers, the Treasury aims to intensify efforts against tax evasion by requiring reporting on all card transactions.

United Kingdom (UK)

UK seeks swift action on stablecoin, staking laws within 6 months - The UK is prioritizing the introduction of comprehensive laws regulating stablecoins and crypto staking, aiming for enactment before the forthcoming general election. Speaking at a Coinbase-hosted crypto event in London on February 19, 2024, the Economic Secretary to the Treasury, Bim Afolami, expressed the government's dedication to advancing crypto-specific legislation. While concrete details were not disclosed, Afolami hinted at a six-month timeline for legislative progress.

UK Regulator cracks down on iIllegal crypto ads: Issues 450 alerts in 2023 - The Financial Conduct Authority (FCA) issued 450 alerts for illegal cryptocurrency advertisements in 2023, cracking down on non-compliance with new promotion rules. Additionally, over 10,000 finance-related promotions were ordered to be withdrawn or amended by the FCA in the same year. The regulator highlighted concerns about firms making unsupported claims about the safety and ease of use of crypto services. It also emphasized ongoing efforts to remove illegal promotions, including collaborations with tech companies to take down offending websites and apps. Consumers were urged to report potential scams and misleading advertisements through official channels.

Data Protection and Digital Information Bill carried over to next Parliamentary session? - On February 7, 2024, the House of Commons passed a carry-over motion on the Data Protection and Digital Information (No. 2) Bill. In particular, a carry-over motion allows a Public Bill to continue its progress from one parliamentary year (session) into the next. Public bills that have not been passed by the end of the session in which they were introduced will otherwise fail. The Data Protection and Digital Information Bill introduces provisions to enhance data protection, streamline compliance requirements, facilitate smart data schemes, establish digital verification services, and reform the Information Commissioner, among other measures.

European Markets Organization cautions UK on stablecoin regulations and securities - The Association of Financial Markets in Europe (AFME) caution the UK on stablecoin regulations and securities, as the Bank of England (BoE) and the Financial Conduct Authority (FCA) released discussion papers (BoE , FCA ) in November. The BoE addressed issues regarding sterling-backed stablecoins in payment systems, while the FCA focused on auditing, custodianship and regulatory principles. AFME praised certain aspects of the proposals but urged for securities tokens to be consistently treated as securities throughout their lifecycle. AFME also advocated for international coordination on stablecoin regulations before implementing rules for stablecoins issued overseas. The deadline for feedback on the BoE's Discussion Paper on the Regulatory regime for systemic payment systems using stablecoins and related service providers is extended to Monday, February 12, 10 am.

LATAM

New CVM directors emphasize tech advancements and tokenization - The Brazilian Securities and Exchange Commission (CVM) introduces new directors Daniel Maeda and Marina Copola, focusing on technological progress and tokenization during their inauguration ceremony. Led by CVM President Jo?o Pedro Nascimento, the event underscores the significance of a fully staffed board and highlights the directors' commitment to leveraging technology for investor empowerment and market safety.

New CVM Book discusses regulation of Decentralized Finance (DeFi) - The Brazilian Securities and Exchange Commission (CVM) has released a new book titled "Building the Foundations of Modern Financial Regulation in Brazil," which highlights decentralized finance (DeFi). The article on DeFi, written by Jorge Alexandre Casara, discusses the role of the CVM and recommends actions to address this emerging technology, recognizing the risks and the need for regulation to protect investors. The author emphasizes that while decentralized architectures can bring efficiency and inclusion, they also present new challenges, requiring an adapted regulatory approach.

GLOBAL NEWS

G20 finance leaders addressing global financial stability - On February 26, 2024, Financial Stability Board (FSB) published a comprehensive work plan for 2024. G20 finance ministers and central bank governors are addressing concerns over financial stability amid geopolitical uncertainty and inflation. They're focusing on addressing vulnerabilities in non-bank financial intermediation (NBFI), digital innovation, and climate change. They also aim to improve cross-border payments and tackle the challenges posed by the growth of the crypto market.

Addressing the digital money landscape in Pacific Island countries: opportunities and challenges - On February 25, 2024, the International Monetary Fund (IMF) published departmental paper "Rise of Digital Money: Implications for Pacific Island Countries" that explores the evolving landscape of digital money in Pacific Island Countries (PICs). It highlights the macroeconomic and financial consequences of digital money and provides an overview of its development in the region. The paper discusses potential benefits and risks of digital money and payment systems, emphasizing financial inclusion and payment efficiency. It proposes a strategic framework for policy decisions in PICs and advocates for a gradual, well-informed approach to digital money adoption. The paper also suggests a regional approach to address challenges in introducing new digital money forms and payment methods in PICs.

Industry News

European Union (EU)

Paris Saint-Germain joins Chiliz Chain as validator, pledges Fan Token buybacks - French football club Paris Saint-Germain (PSG) is pioneering the Chiliz Chain as an official blockchain validator, demonstrating its commitment to web3 technology and fan engagement. PSG will use revenue from validation to conduct regular buybacks of its fan tokens, bolstering its digital economy and fan relationships. The partnership underscores PSG's leadership in web3 transformation within sports and positions Chiliz as a leading platform for innovative sports applications. PSG's entry into web3 is marked by an upcoming blockchain hackathon at Parc Des Princes stadium, showcasing its dedication to digital innovation and fan experiences.

Deutsche B?rse-owned Crypto Finance secures BaFin licenses, prepares for exchange launch - Deutsche B?rse-owned Crypto Finance's German subsidiary secures four licenses from BaFin, paving the way for regulated digital asset trading, settlement, and custody services in Germany. This development aligns with Deutsche B?rse's plans to launch a digital exchange named DBDX, targeting institutional users later this year. With its commitment to transparency and security, Crypto Finance aims to contribute to the development of a reliable ecosystem for crypto assets within the framework of MiCA regulations set to come into force in 2024.

B2C2 obtains VASP registration in Luxembourg ahead of MiCA implementation - UK-based digital asset liquidity provider B2C2 has secured a Virtual Asset Service Provider (VASP) registration in Luxembourg, expanding its operations in anticipation of the Markets in Crypto Assets Regulation (MiCA) coming into effect in Europe this year. This registration allows B2C2 to offer over-the-counter spot crypto services to institutional clients and collaborate with local VASPs and traditional financial institutions. Denzel Walters has been appointed to lead the Luxembourg team, bringing extensive experience from roles at institutions like the Bank of England and Prudential Regulatory Authority. B2C2's move aligns with the broader regulatory landscape, with ESMA opening a feedback window on MiCA guidelines and speculation arising regarding potential restrictions on Proof-of-Work blockchain networks in the European Union.

Torrevieja aims to lead Europe in crypto adoption as stores welcome digital payments - Torrevieja in Spain plans to become Europe's first crypto-friendly city, allowing stores to accept cryptocurrencies for payments. This initiative, part of a digital transformation project, is a collaboration between the local government and merchants' association. Alongside promoting commerce with crypto transactions, the city aims to enhance natural spaces and boost job creation in the technology sector. The move reflects Spain's growing openness to cryptocurrencies, with increasing numbers of registered crypto companies and Bitcoin ATMs in the country.

United Kingdom (UK)

Lloyds Bank spearheads UK's trade digitalisation with WaveBL Partnership - Lloyds Bank joins forces with WaveBL for the UK's first trade digitalisation partnership, enabling clients to streamline trade processes using electronic Bills of Lading (eBLs) and fostering sustainability. The move signals Lloyds Bank's ongoing commitment to trade digitalisation and aligns with its participation in the FIT Alliance, aiming for a 100% global eBL uptake by 2030. This initiative follows Lloyds Bank's prior achievements in completing the UK's first digital promissory note transaction and successfully adopting the Electronic Trade Documents Act (ETDA) in 2023.

R3 welcomes Bob Wigley as non-executive director - R3 , a prominent enterprise distributed ledger technology (DLT) firm, has announced the appointment of Bob Wigley to its board of directors as a Non-Executive Director. Wigley brings extensive expertise in digital finance and regulated financial infrastructure to R3, having chaired UK Finance for the past six years and led the UK Finance digital tokenization taskforce. In his new role, Wigley will support R3's strategy, particularly regarding its new product offering, R3 Digital Markets, aimed at helping firms adopt and drive value across digital assets and currencies. R3 Digital Markets streamlines asset transfer and integration, enhancing existing systems and enabling more efficient workflows for financial institutions globally.

LATAM

OKX expands crypto exchange services to Argentina, targeting Latin American market growth - OKX , a cryptocurrency exchange, has launched its services in Argentina, marking its expansion into the Latin American market following its previous entry into Brazil. Argentine users now have access to OKX's exchange platform, self-custody wallet, and NFT trading capabilities. The move comes amid Argentina's growing crypto adoption, with the country ranking 15th on the Chainalysis Global Crypto Adoption Index . Despite regulatory challenges, OKX president Hong Fang sees Argentina as a key part of the exchange's regional growth strategy in Latin America.

Brazil's largest bank, Itaú, accelerates digital asset expansion in 2024 - Brazil Crypto Report talked to Guto Antunes, head of digital assets at Itaú about the bank's ambitious crypto and blockchain agenda for 2024. Itaú adopts a comprehensive strategy across tokenization, custody services, distribution and participation in the Drex CBDC project. Antunes emphasizes the importance of intuitive and secure products to cater to a new generation of digital asset users. With a dedicated team of 60-70 employees, Itaú leverages its governance and security expertise to provide retail and institutional investors with confidence in custody services. Partnerships with fintechs like Liqi facilitate bi-directional knowledge sharing, while Itaú remains proactive in regulatory compliance and product development, anticipating significant adoption with the expected launch of new crypto regulations and licenses in 2024.

MENA

Bridgetower Middle East joins ADGM to Boost UAE's digital economy - ADGM has embraced the arrival of Bridgetower Middle East, a move set to revolutionize digital asset services in the UAE and Gulf region. This fresh initiative, supported by an impressive $250 million investment from esteemed venture capital firms Deus X Capital and Bridgetower Capital, is poised to aid UAE companies in adopting digital currencies and blockchain technology.

ADGM and Solana Foundation Forge Strategic Partnership to Advance Blockchain Innovation - Abu Dhabi Global Market (ADGM) has announced a Memorandum of Understanding (MOU) with the Solana Foundation to enhance Distributed Ledger Technology (DLT) solutions and advance blockchain innovation. The partnership aims to explore joint initiatives and projects to develop the blockchain company ecosystem in Abu Dhabi, aligning with ADAM's vision of becoming a central hub for technology-driven financial services. The collaboration underscores the UAE's position as a global hub for blockchain innovation and aims to foster industry engagement and feedback to support the growth of Abu Dhabi's blockchain and Web3 ecosystem.

GLOBAL NEWS

Huobi HK seeks Virtual Asset Trading license in Hong Kong - Huobi HK has officially applied for a virtual asset trading platform license from the Hong Kong Securities and Futures Commission, making it the latest in a series of entities seeking regulatory approval to operate in Hong Kong's virtual asset market. Huobi HK's application, submitted under the company name HBGL Hong Kong Limited, was filed on February 20, 2024. This development reflects a growing interest in the Hong Kong virtual asset market, with the total number of applications for virtual asset trading platform licenses reaching 18.

Citi teams up with Wellington Management and WisdomTree for private market tokenization - Citi , in collaboration with Wellington Management and WisdomTree , has successfully completed a proof of concept on tokenizing private funds, utilizing smart-contract capabilities on the Avalanche Spruce institutional test Subnet. The experiment demonstrated the potential for enhanced operational efficiencies and compliance in private markets, addressing challenges such as lack of standardization and transparency. Through this initiative, Citi aims to explore new operating models and create efficiencies for both issuers and investors in the broader market.

Cathie Wood foresees Bitcoin overtaking gold as a store of value - In a recent YouTube video, Cathie Wood, the CEO of ARK Invest , expressed her belief that Bitcoin is poised to surpass gold as the premier store of value. Wood points to Bitcoin's resilience during economic turmoil, noting its 40% surge amidst a banking crisis last year. She suggests that Bitcoin's recent correction following the introduction of ETFs was merely a short-term market reaction. Wood highlights Bitcoin's potential to capture a significant portion of the global gold market, citing its decentralized nature as a key advantage. This aligns with her previous statements predicting Bitcoin's role as a decentralized and private alternative to traditional currencies.