BlockReg Monthly: May 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)

Member States' Priorities for EU Digital Policy - Member States approved Council Conclusions on the Future of EU Digital Policy on 21 May, 2024, focusing on balancing digital and green transitions and reducing the environmental footprint of the ICT sector. The conclusions emphasize opportunities for a competitive European circular economy through the widespread use of digital technologies, including blockchain. They also call for the development of methodologies to measure the environmental footprint of digital technologies, highlighting the need for effective implementation of digital legislation in the next legislative cycle.

AMF Blacklists BYBIT Crypto Trading Platform: Regulatory Alert - The Autorité des Marchés Financiers (AMF) has reminded the public on 16 May, 2024, that the crypto asset trading platform BYBIT is blacklisted. The AMF emphasizes that BYBIT is not authorized to provide its digital asset services in France and reserves the right to take legal action to block the platform's website. BYBIT has been blacklisted by the AMF since 20 May 2022 for non-compliance with current French regulations. Under French law, unregistered platforms providing digital asset services are illegal, and the AMF may take legal action to block their websites. The AMF advises French investors to take precautions to safeguard their assets and consult its website for a list of registered digital asset service providers before investing in crypto-assets.

The Eurosystem Completes First DLT Settlement in Central Bank - On 14 May, 2024,? the Eurosystem achieved a milestone by successfully conducting the first Distributed Ledger Technology (DLT) experiment for wholesale transaction settlement in central bank money. The Austrian National Bank led the inaugural experiment, which involved tokenization and simulated delivery-versus-payment (DvP) settlement of government bonds in a secondary market transaction. Currently, 16 private companies are participating, conducting trials involving actual settlement in central bank money and mock settlement in test environments. Over the next six months, the Eurosystem plans to gain further insights into the interaction between TARGET Services and DLT platforms, as well as the potential benefits of employing new technologies in wholesale financial markets. Moving forward, the ECB and the Eurosystem will continue to conduct relevant experiments from May to November 2024.

EBA releases its Annual Report for 2023 - On 7 May, 2024, the European Banking Authority (EBA) issued its Annual Report detailing its accomplishments and activities for 2023. Among EBA’s notable achievements, the Report highlights EBA’s efforts on the enforcement of both the Digital Resilience Act (DORA) and the Markets in Crypto-Assets Regulation, as they both came into effect in 2023. Furthermore, EBA outlines its work and advancements in strengthening Anti-Money Laundering (AML) capabilities, mentioning EBA’s standards, collaborative initiatives, and the establishment of unified approaches among National Competent Authorities (NCAs), including a strong AML/Combating the Financing of Terrorism (CFT) strategy for crypto-asset service providers.

EBA Publishes Final Draft Technical Standards Under MiCAR - On 7 May, 2024, the European Banking Authority (EBA) published final draft regulatory and implementing technical standards under the Markets in Crypto-Assets Regulation (MiCAR). These standards pertain to the authorization of issuers of asset-referenced tokens (ARTs), the assessment of acquisitions of qualifying holdings in ART issuers, and the approval procedure for white papers by credit institutions. The standards are designed to regulate market access for ART issuers and ensure thorough assessments by competent authorities. The RTS and ITS specify the information and procedural requirements necessary for authorizations and notifications. Credit institutions are exempt from some requirements but must submit white papers for approval.

OJ publications on MiCAR and DORA

On 30 May 6 Delegated Regulations (DR) further specifying MiCA and DORA were published in the Official Journal of the EU:

MiCA:

- DR on certain criteria for classifying ARTs and EMTs as significant: https://lnkd.in/dXG3PTgV

- DR on supervisory fees charged by the European Banking Authority (EBA) to issuers of significant ARTs (s-ARTs) or s-EMTs: https://lnkd.in/djA7Jz2P ?

- DR on EBA's powers to impose fines or periodic penalty payments on issuers of s-ARTs or s-EMTs: https://lnkd.in/d2izWRJE

- DR on EBA and ESMA product intervention powers: https://lnkd.in/d9X4xmZu

DORA:

- DR on criteria for the designation of ICT 3rd party providers as critical (CTPP) for financial entities: https://lnkd.in/dTWPwQXJ

- DR on oversight fees to be charged by the Lead Overseer to CTPPs: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202401505 ?

Next steps : All of them enter into force in 20 days and are directly applicable.

United Kingdom (UK)

UK Election Delays Crypto Legislation, Raising Questions About Labour's Plans - The UK's General Election scheduled for July 4, 2024, has imposed a six-week freeze on government and regulatory activities, delaying crucial crypto legislation. Prime Minister Rishi Sunak had aimed to make the UK a leading crypto hub, but with Labour leader Keir Starmer likely to become the next prime minister, the future of crypto regulation is uncertain. Industry insiders expect at least a six-month delay in finalizing legislation for crypto companies. Despite the uncertainty, it is anticipated that Labour's approach to financial services and digital assets will broadly align with the current government's policies. Secondary legislation for stablecoins and staking is now expected to be laid in the autumn.

Second Meeting of the Joint EU-UK Financial Regulatory Forum - On 22 May, 2024, the European Union and the United Kingdom held the second meeting of the Joint EU-UK Financial Regulatory Forum in Brussels. The discussion centered on six main areas: regulatory and market developments, financial stability outlook, banking and anti-money laundering (AML), sustainable finance, capital markets, asset management, and digital finance and artificial intelligence (AI). Both sides provided updates on recent developments in digital innovation within the financial sector, sharing insights on tokenization and exchanging reflections on the UK’s Digital Securities Sandbox and the EU’s Distributed Ledger Technology (DLT) Pilot Regime. Additionally, both parties welcomed continued engagement on Central Bank Digital Currencies (CBDC) and discussed data-driven initiatives such as the Commission’s proposal for a regulation on financial data access (FIDA) and the UK’s Smart Data legislation introduced through the Data Protection and Digital Information Bill (the Bill has now failed to pass, so will not become law).

Digital Regulation Cooperation Forum Report: Consumer Attitudes on Digital Assets -?

On 13th May, 2024, the Financial Conduct Authority (FCA) and Information Commissioner’s Office (ICO) released a joint paper detailing insights from consumer research on digital assets. The research aimed to understand consumer attitudes towards digital assets and their potential benefits and risks. Findings revealed two distinct groups of digital asset consumers, highlighting demographic characteristics and common narratives driving demand. Overall, consumers perceive digital assets as high-risk, high-reward investments, with some welcoming potential regulation for investor protection while expressing concerns about tax liabilities and privacy. The FCA and ICO plan to continue engagement on digital asset technology, transparency, and consumer trust, aligning future guidance on data protection and distributed ledger technologies.

Inquiry into FCA and PRA's Growth and Competitiveness Objective? - On May 8, 2024, the Financial Services Regulation Committee has launched an inquiry into the secondary objective of promoting international competitiveness and growth assigned to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) under the Financial Services and Markets Act 2023. This objective aims to enhance the UK's economic competitiveness and growth in the financial services sector while aligning with international standards and not compromising long-term sustainability. The inquiry will assess the implementation of this objective by the FCA and PRA, including their resource allocation, industry consultation, and potential lessons from other jurisdictions. Written submissions are invited by 11 July 2024.

PSR Seeks Feedback on Proposal for APP Scam Reimbursement in CHAPS Payments - On May 8, 2024, the Payment Systems Regulator (PSR) announced that is seeking feedback on a proposal requiring banks and payment firms involved in CHAPS to reimburse customers victimized by authorized push payment (APP) scams. This initiative aligns with the Bank of England's new CHAPS reimbursement rules. It follows the PSR's existing policy mandating reimbursement for APP scam victims in the Faster Payment System (FPS). By extending these protections to CHAPS, the PSR aims to ensure consistent safeguards across major UK payment systems, deterring criminals from exploiting system differences. The PSR plans to finalize the direction by September 2024, with implementation set for 7 October, ensuring uniform protection for APP scam victims across both payment systems.

LATAM

Central Bank of Brazil's Phased Approach to Regulating Crypto Assets and Virtual Asset Service Providers - On May 22, 2024, the Central Bank of Brazil (BCB) informed that is implementing a phased approach to regulate the virtual asset service market, aiming to enhance investor protection and establish clear rules regarding the benefits and risks associated with crypto asset investments. The regulation will proceed through several stages, including public consultations on general standards and authorization processes for virtual asset service providers (VASPs), as well as planning for stablecoins and refining the regulatory framework. The overarching goal is to safeguard investors and ensure the stability of the National Financial System by addressing concerns such as money laundering, terrorism financing, and prudential aspects of authorized institutions.

Ministry of Finance's New Rules for Fixed-Odds Betting Authorization - On May 22, 2024, the Secretariat of Prizes and Betting of the Ministry of Finance (SPA/MF) released Ordinance SPA/MF No. 827, establishing criteria for obtaining authorization for fixed-odds lottery betting commercial exploitation by private entities in Brazil. This ordinance, crucial for the regularization of betting companies, outlines stringent criteria across legal, financial, and technical domains to ensure the integrity and responsibility of authorized operators. Companies seeking authorization must comply with regulations on money laundering prevention, responsible gambling, match-fixing prevention, and advertising practices. Authorized companies are required to pay R$ 30 million to the Union and can operate up to three commercial brands for five years, subject to compliance with SPA/MF guidelines.

CVM Launches Public Consultation on Sustainability Disclosure Standards - On May 13, 2024, the Securities and Exchange Commission (CVM) initiated a public consultation on the draft technical pronouncement CBPS No. 01, in collaboration with the Federal Accounting Council (CFC), aiming to develop new policy general requirements for the disclosure of financial information related to sustainability. The consultation notice, aligned with international standards of the ISSB, focuses on disclosing sustainability-related risks and opportunities to enhance decision-making processes for resource allocation. The proposed standards aim to ensure relevant and comprehensive disclosure of sustainability-related financial information, independent of the entity's accounting practices, with a 60-day public consultation period to align Brazilian standards with international ones and allow for future adjustments based on feedback.

MENA

UAE Authority Warns Against Crypto Mining on Farms, Threatens Dh10,000 Fine - On May 23, 2024, Abu Dhabi authorities issued a warning against using farms for cryptocurrency mining, citing the process's high energy consumption and potential misuse of agricultural land. While blockchain activities are permitted in the UAE, strict regulations are enforced. The Abu Dhabi Agriculture and Food Safety Authority (Adafsa) emphasized that crypto mining on farms could lead to significant increases in electricity bills and constitutes a misuse of agricultural land. Violators may face fines of up to Dh10,000 for engaging in such activities.?

DFSA Fines Sarwa Digital Wealth Limited for Unapproved Public Share Offer in Regulatory Action - On May 21, 2024, the Dubai Financial Services Authority (DFSA) announced that Sarwa Digital Wealth Limited (Sarwa DIFC) had been fined USD 191,100 for making a Public Offer of Shares without an Approved Prospectus. This fine was reduced from USD 390,000 due to mitigation and settlement discounts after Sarwa DIFC halted the share sale and returned all monies to investors. Sarwa DIFC had emailed almost 100,000 users, receiving USD 2 million in commitments from over 150 potential investors while withholding crucial financial information and providing misleading metrics. The DFSA collaborated with the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM), which is also fining a related Sarwa entity. Ian Johnston, DFSA's Chief Executive, emphasized the importance of protecting retail investors and praised the regulatory cooperation in this case.?

DFSA Announces Amendments to Rulebook Modules - On May 13, 2024, the Dubai Financial Services Authority (DFSA) announced amendments to its Rulebook, focusing on modernizing and strengthening regulatory frameworks. Significant updates were made following feedback on Consultation Papers, including those on the regulation of crypto tokens. The changes aim to enhance clarity and effectiveness in the financial sector, particularly in response to the evolving crypto market. These amendments will be implemented in two phases: starting June 3, 2024, and January 1, 2025, allowing stakeholders time to adjust. Detailed appendices accompany each rule-making instrument, providing comprehensive information on the specific amendments.

DIFC Proposes Expanded Prescribed Company Regulations - On May 9, 2024, Dubai International Financial Centre (DIFC) announced a proposal to amend the Prescribed Company Regulations, aiming for significant expansion and simplification. The proposed changes aim to enhance accessibility to holding company vehicles for structuring purposes within the DIFC. Key amendments include broadening the criteria for establishing a Prescribed Company and clarifying its usage as a holding entity. The proposed regulations are open for public consultation until June 1, 2024, underscoring DIFC's commitment to regulatory transparency and market responsiveness.?

DIFC Proposes Amendments to Application of Civil and Commercial Laws - On May 2, 2024, the Dubai International Financial Centre (DIFC) announced proposed amendments to the DIFC Law on the Application of Civil and Commercial Laws. These amendments aim to provide statutory certainty regarding the source of DIFC Law and its interpretation. The amendments confirm the supplementation of DIFC laws with English Common Law and the interpretation of DIFC legislation in accordance with both English common law and laws of other established common law jurisdictions. Key changes include the addition of new articles specifying the role of English common law in filling gaps in DIFC statute and guiding the interpretation of DIFC legislation. The consultation period for public feedback lasts for 30 days, ending on 1 June 2024.?

Global News

Basel Committee's Report on Digitalisation of Finance - On 16 May, 2024, the Basel Committee published a report on the implications of digitalisation of finance for banks and their supervision, expanding upon the 2018 publication on Fintech developments. The report reviews key technologies including DLT, APIs, machine learning, and cloud computing, highlighting advantages for banks and clients but also increased risks and vulnerabilities. While banks are implementing risk mitigation tactics, sound governance and risk management procedures remain essential, with the BCBS planning to monitor developments and introduce additional standards or guidance.

IMF Report: Cross-Border Payments with Retail CBDC - On May 15, 2024, the IMF has published a report on the potential of retail central bank digital currencies (CBDCs) to improve cross-border payments. CBDCs offer advantages such as reduced financial intermediaries and settlement risks, making them a promising solution. The report emphasizes the importance of design and policy considerations for developing retail CBDC systems compatible with cross-border payments, focusing on lessons from ongoing research and experimentation. It specifically addresses retail CBDCs for households and non-financial firms, leaving wholesale CBDC topics for future discussion.

BIS Provides Crypto-Asset Standards Update - On May 13, 2024, the Group of Central Bank Governors and Heads of Supervision (GHOS) has postponed the implementation of the Basel Committee on Banking Supervision's prudential standard for banks' crypto-asset exposures to 1 January, 2026. They will review the standards in Q3-Q4 2024 to consider potential revisions. This decision reflects the need for further evaluation and adjustment to ensure effective regulation in the crypto-asset space. The GHOS aims to provide clarity and stability in the regulatory environment for banks dealing with crypto-assets. Implementation of the updated standards is scheduled for 1 January, 2026.

ISSA's DLT Working Group Report on Best Practices - This month, the DLT Working Group of the International Securities Services Association (ISSA) has published a report on best practices within DLT projects, highlighting both progress and challenges. The report underscores the importance of careful planning and stakeholder involvement in DLT initiatives. Key themes include the need for a clear and scalable business case, joint understanding between providers and clients, effective design addressing privacy and integration, incremental deployment for early benefits, stakeholder education, strong governance, network selection, early engagement with regulators, and informed decisions regarding vendor choices amidst evolving DLT technology.