BlockReg Monthly: July 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)

ESAs Publish Second Batch of Policy Products Under DORA - On 25 July, the ESAs (EBA, EIOPA, and ESMA) released a second batch of policy products under DORA, including four final draft Regulatory Technical Standards (RTS), one set of Implementing Technical Standards (ITS), and two guidelines. These documents focus on reporting ICT-related incidents, threat-led penetration testing, and oversight frameworks. The RTS and ITS specify requirements for reporting formats, timelines, and oversight conditions. The guidelines cover estimating costs from major ICT incidents and improving oversight cooperation. The European Commission will review the drafts for adoption, with the final RTS on Subcontracting to be published later.

Parliament Re-elects Ursula von der Leyen as Commission President - On 18 July, Ursula von der Leyen was re-elected as President of the European Commission with 401 votes in favour out of 719 MEPs. This marks her second five-year term, having first been elected in 2019. The vote was held by secret ballot, with 284 votes against and 22 blank or invalid. Von der Leyen has outlined her priorities for the next term and will now invite member states to nominate candidates for European Commissioner positions. Parliament will conduct hearings for these nominees and must endorse the full college of Commissioners.

EBA Consults on Guidelines for NCAs on Reporting Requirements - On 15 July 2024, the European Banking Authority (EBA) launched a consultation on draft Guidelines to standardise reporting requirements under the Markets in Crypto-assets Regulation (MiCAR). The Guidelines aim to create a uniform supervisory approach with consistent templates across Member States. Issuers of Asset-Referenced Tokens (ARTs) and Electronic Money Tokens (EMTs) will need to report specific data points for compliance monitoring. EMT issuers using official EU currencies must also provide additional information for significance assessments. The deadline for comments is 15 October 2024, and the Guidelines will apply two months after translation into all EU languages.

ESAs Seek Feedback on MiCA Classification Guidelines - On July 12, the European Supervisory Authorities (ESAs) – EBA, ESMA, and EIOPA – released a consultation paper on standardised test guidelines under the Markets in Crypto-assets Regulation (MiCA). The guidelines aim to establish a unified approach for classifying crypto-assets by setting templates for legal opinions and categorization. They propose a standardised method to assess if a crypto asset represents value or rights and can be transferred and stored via distributed ledger technology (DLT), while also considering MiCA’s exclusions like NFTs and financial instruments. A virtual public hearing will be held on September 23, 2024, with comments due by October 12, 2024.

ESMA Updates MiCAR Q&As - On July 12, the European Securities and Markets Authority (ESMA) released an updated list of Questions and Answers (Q&As) regarding the Markets in Crypto-Assets Regulation (MiCAR). The update clarifies that MiCAR does not ban staking but requires Crypto-Asset Service Providers (CASPs) offering staking services to adhere to custody and administration rules. CASPs operating before December 30, 2024, will be covered by a grandfathering clause until their MiCAR authorization status is resolved. If a CASP fails to secure authorization or does not apply, it must cease operations in a client-protective manner. Financial entities regulated under Article 60 MiCAR and providing crypto-asset services before the deadline must notify their home Member State if they wish to continue these services.

DG FISMA Opens Call for Tender on Asset Tokenization Study - On July 10, the European Commission's Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) has launched a call for tenders for a study on national legal frameworks and obstacles related to asset tokenization within Member States. This initiative is part of the Digital Finance Strategy, which seeks to foster a technology-neutral regulatory environment that supports innovation in financial services. Despite advancements like the DLT pilot, feedback suggests that national private law and other legal areas may hinder asset tokenization. The study will analyse how current laws in selected Member States impact asset tokenization, focusing on securities law, property law, and smart contracts. The findings aim to inform future regulatory developments. Tenders are due by August 30, 2024.

EBA Issues Statement on MiCA Application for ART and EMT Activities - On July 5, the European Banking Authority (EBA) issued statement for issuers and traders of asset-referenced tokens (ARTs) and e-money tokens (EMTs), emphasising the necessity of compliance with the Markets in Crypto-Assets (MiCA) regulation by June 30, 2024.? The EBA highlighted key supervisory priorities for 2024-2025, including internal governance, financial resilience, technology risk management, and financial crime risk management. Consumers were advised to exercise caution when dealing with ARTs and EMTs, particularly if activities are non-compliant with MiCA. The EBA called on competent authorities to inform stakeholders about MiCA requirements and EBA guidelines. Ongoing dialogue and cooperation with European Supervisory Authorities (ESAs) will be essential for consistent and timely enforcement of MiCA.

EBA Issues Final Guidelines on the Travel Rule - On July 4, the European Banking Authority (EBA) published its Final Report with Guidelines on the 'Travel Rule,' aimed at preventing money laundering and terrorist financing through fund and crypto-asset transfers. The report outlines when these guidelines apply to the transfer of funds, crypto-assets, or both, and introduces new guidelines alongside amendments to existing ones. The EBA specified that electronic identification, compliant with the eIDAS Regulation, can be used for information verification. The guidelines detail steps for Crypto-Asset Service Providers (CASPs) to determine if they are transacting with a self-hosted wallet or another CASP, including criteria for proving ownership or control of a self-hosted address. These guidelines will be translated and published on the EBA's website, with Competent Authorities given two months to report compliance, taking effect from December 30, 2024.

AMF Summary on DeFi Discussion Paper - On July 11, the French Autorité des Marchés Financiers (AMF) published a summary of responses to its June 2023 discussion paper titled “Decentralised Finance (DeFi), Trading, Protocols and Governance Issues: Overview, Trends and Regulatory Discussion Points.” While the report summarises feedback without offering specific regulatory directions, it highlights a potential interest in exploring smart contract code certification. The AMF plans to collaborate with the French Autorité de Contr?le Prudentiel et de Résolution (ACPR) on this matter and will continue examining regulatory options for DeFi. The responses will aid in shaping regulatory approaches at both the EU and national levels.

United Kingdom (UK)

FCA Enforcement Action Against Trading Platform - On 25 July, the Financial Conduct Authority (FCA) fined CB Payments Limited (CBPL) ￡3,503,546 for breaching a requirement designed to prevent the firm from offering services to high-risk customers. CBPL, part of the Coinbase Group, acts as a gateway for crypto-asset trading but is not registered for such activities in the UK. Despite a voluntary restriction (VREQ) from October 2020, CBPL onboarded 13,416 high-risk customers, facilitating transactions totaling approximately USD $226 million. The FCA's action, the first of its kind under the Electronic Money Regulations 2011, highlights significant weaknesses in CBPL's financial crime controls, which failed to prevent these breaches. CBPL received a 30% fine discount for resolving the matter promptly.

The King’s Speech 2024 - On 17 July, Prime Minister Keir Starmer delivered the first King’s Speech of the newly elected Labour Government, outlining the legislative agenda for the upcoming year. The speech focused on driving economic growth and enacting change through proposed bills on AI, utilising data for financial innovations such as Open Banking, and expanding the UK's skills base. While the speech did not address the crypto-asset sector or broader financial technology explicitly, it emphasised the government's commitment to technological and economic advancement.

Law Commission Publishes Scoping Paper on DAO - On July 11, the Law Commission released a scoping paper exploring the characterization and legal accommodation of Decentralised Autonomous Organisations (DAOs) under the law of England and Wales. The paper provides an introduction to DAOs, their technological foundations, and their various forms, such as pure DAOs, hybrid arrangements, and digital legal entities. It discusses potential legal characterizations, liability issues, and regulatory considerations, including money laundering, financial services regulation, and taxation. The Commission suggests that while there is no immediate need for DAO-specific legal entities, reviews of the Companies Act 2006 and anti-money laundering regulations, as well as further exploration of flexible governance structures, could enhance legal clarity and facilitate the integration of DAOs into the existing legal framework.

Labour Pledges to 'Embrace' Fintech for ￡330bn Boost - On July 10, Labour has pledged to support the fintech sector, with Rachel Reeves' Treasury highlighting its potential to add ￡328bn in tax revenues by 2029. A policy plan from trade body Innovate Finance outlines steps to unlock institutional investment and streamline data policies. Key recommendations include introducing smart data legislation, reviewing the mandatory reimbursement scheme for authorised push payments, and focusing regulators on innovation. Despite a recent slowdown in UK fintech funding, the sector remains second only to the US. The government aims to drive innovation, boost investment, and support financial inclusion, with detailed plans expected soon.

Tulip Siddiq Appointed as Economic Secretary to the Treasury and City Minister - Tulip Siddiq was appointed as the Economic Secretary to the Treasury and City Minister on July 9, after being elected as the MP for Hampstead and Highgate. In her role, she oversees financial services policy, reform, and regulation. Her responsibilities include managing relationships with the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), promoting financial sector growth, and advancing fintech and crypto-assets, including Central Bank Digital Currency. She also handles international financial services, financial services taxation, and personal savings and pensions tax policy. Additionally, Siddiq supports the Chancellor with overall responsibility for appointments and serves as the parliamentary deputy on economic issues.

UK Payment Firms Urge New Government to Hold Tech Giants Accountable for Fraud - UK payment firms are pushing the incoming government to hold tech giants responsible for reimbursing victims of fraud, particularly Authorised Push Payment (APP) fraud, which is prevalent online. The Payments Association, representing over 200 members, proposed a "tech levy" on social media firms to fund fraud victim compensation, based on the "polluter pays" principle. This call comes ahead of new rules from the Payment Systems Regulator (PSR) requiring banks and fintechs to refund APP fraud victims up to ￡415,000 from October 7, 2023. The Payments Association argues that these rules may harm competition and innovation, particularly impacting smaller firms. Labour's draft plans suggest tech companies should bear liability for fraud reimbursement, alongside potentially enhancing the Online Fraud Charter.

LATAM

Brazil's Tax Authority to Engage Foreign Crypto Exchanges for Compliance - Brazil's Federal Revenue Service (Receita Federal) will engage with international cryptocurrency exchanges like Binance, Coinbase, Kucoin, and OKX to ensure compliance with local tax regulations. This initiative, under Portaria RFB 427, will involve discussions with payment service providers about tax obligations and strategies to address non-compliance. Following the 2023 Offshore Funds Taxation Law, all companies dealing with virtual assets in Brazil must report activity and client information to Receita Federal and the Financial Activities Control Council (Coaf). Future regulations will specify how foreign exchanges should report transactions, with a threshold for reporting operations exceeding R$35,000.

Brazilian Central Bank Announces Public Consultation on SCFIs Regulation - On June 25, the Central Bank of Brazil has launched Public Consultation Notice No. 101/2024 to propose a comprehensive update and consolidation of regulations for credit, financing, and investment companies (SCFIs). The proposal aims to unify the existing 11 regulatory acts into a single framework to enhance legal clarity and competitiveness for SCFIs. Key changes include a minimum capital requirement of R$7,000,000, with a 30% reduction for institutions outside RJ and SP, and expanded permitted activities such as issuing electronic money and operating in the foreign exchange market. This update is designed to modernise and strengthen Brazil's financial sector and closes on August 31, 2024.

New Open Finance Rules: Payment Facilitation and Institutional Participation Expansion - On July 4, The Central Bank and the National Monetary Council of Brazil have unveiled new rules to enhance Open Finance. Key updates include integrating Pix into digital wallets for seamless contactless transactions and expanding Open Finance to encompass a wider range of financial institutions, potentially reaching 95% of users in the National Financial System. The governance of Open Finance will now have its own legal framework to speed up development. These changes aim to improve efficiency, promote financial inclusion, and support the creation of Super Apps that consolidate financial services, thereby boosting competition and empowering consumers.

MENA

ADGM RA Publishes Consultation Paper on Employment Regulations - On July 26, the Abu Dhabi Global Market (ADGM) Registration Authority published a Consultation Paper on proposed amendments to the Employment Regulations 2019. The updates aim to modernise rules in line with global work practices, including support for remote and flexible work, clearer part-time employee entitlements, and enhanced workplace protections. Key changes also involve streamlining work permit processes and expanding employer-employee obligations. The consultation is open until August 26, 2024.

ADGM Revises Licensing Fees for 2025 - On July 17, the Abu Dhabi Global Market (ADGM) announced updated licensing fees set to take effect on January 1, 2025. For tech and fintech startups, including those in digital assets, registration and renewal fees will increase from USD 1,000 to USD 1,500. Conversely, non-financial businesses will see a reduction in new registration fees from USD 10,000 to USD 5,000, and annual renewal fees will drop from USD 8,000 to USD 5,000. Financial businesses will face higher costs, with new registration fees rising from USD 15,000 to USD 20,000 and annual renewal fees increasing from USD 13,000 to USD 15,000. Special Purpose Vehicles (SPVs) will not see any fee changes, remaining at USD 1,900. The full fee schedule will be published in December 2024.

DFSA Announces Amendments to Crowdfunding Legislation - On July 16, the Dubai Financial Services Authority (DFSA) approved amendments to its Rulebook, set to take effect on August 1, 2024, following feedback from its consultation period. The updated Conduct of Business Module (COB) Rule-Making Instrument (No. 386) 2024 repeals and replaces the existing COB module. Key changes include increasing annual investment and lending limits for retail investors on crowdfunding platforms from USD 50,000 to USD 100,000, introducing specific per-investment limits, and adjusting loan crowdfunding regulations. The new rules also relax advertising regulations, allowing limited information on crowdfunding platforms without it being classified as a public securities offer, and mandate that independent valuation reports for listed properties disclose the last transacted price and transaction date.

DIFC Updates Prescribed Company Regulations - On July 15, Dubai International Financial Centre (DIFC) implemented updated Prescribed Company Regulations, enhancing accessibility and operational clarity for global applicants. Key amendments include:

• Expanded Eligibility: The revised regulations broaden eligibility criteria, allowing Prescribed Companies (PCs) to be controlled by GCC citizens or entities, authorised firms, or DIFC registered persons. Additionally, PCs can now be established globally, provided they appoint a director from a DFSA registered Corporate Service Provider.
• Purpose-Specific Requirements: PCs must operate primarily as holding vehicles for GCC Registrable Assets or fulfil a Qualifying Purpose, maintaining a nexus to DIFC and the GCC region.
• Operational Restrictions: PCs are restricted from employing personnel and must focus solely on their designated purposes or as holding entities.
• Commercial Package: An inclusive commercial package offers reduced fees and flexible licensing arrangements, catering to existing PCs transitioning under the new regime and new applicants meeting specific criteria.

These updates reflect DIFC's commitment to accommodating market demands while upholding robust regulatory standards, supported by enhanced AML procedures and ongoing risk management practices. For comprehensive details, access the legislation via DIFC’s Legislative Database.

ADGM Announces New Whistleblowing Framework - On July 10, ADGM published its whistleblowing framework to enhance transparency and accountability and sustain market integrity within the centre. The framework includes regulations that protect good faith reporting of 'protected disclosures' and provides internal and external channels for reporting breaches and financial crimes. It ensures protection for anonymous reporting of suspected misconduct and integrates non-retaliation protections into employment regulations. Good governance requirements are mandated for all ADGM entities, and written policies and procedures are required for FSRA-licensed firms, DNFBPs, and large entities. Entities must implement effective whistleblowing arrangements by 31st May 2025. The ADGM framework aligns market participants with the highest global business standards.

Financial Stability Board Approves Implementation Plan for 2024 - On July 10, the Financial Stability Board (FSB) held its first meeting of 2024 in Abu Dhabi, chaired by His Excellency Mohammed bin Hadi Al Hussaini, UAE Minister of State for Financial Affairs. The Board approved the implementation plan for the Federal Decree-Law No. 13 of 2023, establishing the FSB to enhance the country's financial stability. Discussions included the UAE Central Bank's 2023 financial stability report, highlighting the resilience and growth of the nation's banking sector. Key initiatives within the National Payment Systems Strategy were also reviewed to ensure stable and efficient payment systems. The FSB aims to mitigate systemic risks and support sustainable economic development through coordinated financial and monetary policies.?

Global News

BIS Releases Final Framework on Bank Crypto Exposures - On 17 July 2024, the Basel Committee on Banking Supervision unveiled its final disclosure framework for banks' crypto-asset exposures and targeted amendments to its crypto-asset standards from December 2022. The framework introduces standardised tables and templates for banks to disclose both qualitative and quantitative details about their crypto-asset activities and capital requirements. The amendments aim to clarify criteria for stablecoins to receive "Group 1b" regulatory treatment and acknowledge the potential future impact of asset tokenization. The revised standards will be implemented from 1 January 2026.

Industry News?

European Union (EU)

One Trading Receives Dutch Licence for EU Crypto Futures - One Trading, a Netherlands-based digital asset exchange, has secured an Organized Trading Facility licence from the Dutch Financial Markets Authority (AFM). This licence enables the platform to introduce onshore crypto futures trading and become the first regulated European derivatives exchange accessible to retail clients. The company, formerly known as Bitpanda Pro, aims to offer institutional-grade solutions and 24/7 derivatives trading using blockchain technology. The move positions One Trading as a key player in Europe’s evolving crypto market, with potential new products for BTC and ETH.

United Kingdom (UK)

Revolut Receives UK Banking Licence - On 25 July, Revolut obtained a UK banking licence with restrictions from the Prudential Regulation Authority (PRA), entering the ‘mobilisation’ stage. This phase allows Revolut to finalise its UK banking operations. UK customers will see no immediate changes and can continue using their e-money accounts. CEO Nik Storonsky highlighted the milestone, while UK CEO Francesca Carlesi emphasised the company's commitment to improving financial services. Revolut recently reported record revenues of $2.2 billion and pre-tax profits of $545 million for 2023.

LATAM

Mercado Bitcoin Announces Exit from ABCripto - Mercado Bitcoin, a major Latin American cryptocurrency exchange, has exited the Brazilian Association of Crypto Economy (ABCripto). CEO Reinaldo Rabelo cited dissatisfaction with ABCripto's focus on foreign interests over the security and sustainable development of Brazil's local crypto ecosystem. Valued at $2.1 billion, Mercado Bitcoin plans to partner with organisations like the Brazilian Association of Fintechs (ABFintechs) and Anbima, aiming to promote a safer and more transparent crypto market in Brazil. The departure highlights concerns about industry association practices and underscores Mercado Bitcoin’s commitment to advancing a robust regulatory environment and fostering sector growth.

MENA

Crypto Custodian Service Obtains New FSP Licence in Abu Dhabi - Changer.ae, an independent crypto custodian service, has secured regulatory approval from the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) to operate as an investment agent. This new licence allows Changer to expand its services, which include secure virtual asset custody and upcoming banking-grade escrow services. The FSRA-regulated platform aims to offer a reliable, transparent, and user-friendly digital experience for cryptocurrency investors globally. The approval supports Changer’s goal of enhancing security and accessibility in the virtual asset market.

Dubai Customs Launches Blockchain Platform to Enhance Trade Transparency and Efficiency - Dubai Customs has launched a blockchain platform to enhance trade transparency and efficiency, aligning with Dubai's vision for digital transformation. This initiative aims to simplify customs procedures, expedite clearance processes, and ensure secure, tamper-proof data sharing. Sultan Ahmed bin Sulayem emphasized that this development strengthens Dubai's position as a global trade hub. The platform will foster collaboration with other government entities, making the business environment more transparent and efficient. This move reflects Dubai's commitment to leveraging cutting-edge technology for economic growth and global competitiveness.?