BlockReg Monthly: October 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)

EIOPA Proposes 100% Capital Requirement for EU Insurers’ Crypto Holdings Amid High Volatility - On October 24, 2024, the European Insurance and Occupational Pensions Authority (EIOPA) launched a public consultation on its draft advice regarding capital requirements for crypto assets held by EU insurers. Responding to the European Commission’s Call for Advice, EIOPA recommends a 100% capital weight on insurers' crypto holdings due to the high risks, lack of transparency, and volatility associated with these assets. Although insurers' crypto exposure remains minimal, EIOPA advises a cautious regulatory approach and suggests revisiting the prudential treatment of certain crypto assets, like asset-referenced tokens, in the future. Stakeholders are invited to provide feedback by January 16, 2025.

FSB Chair Urges G20 to Address Cross-Border Crypto Risks and Stablecoin Regulations - On October 22, FSB Chair Klaas Knot urged G20 leaders to address ongoing regulatory challenges with crypto assets, noting cross-border activities and regulatory arbitrage as key obstacles. Knot stressed the need for robust stablecoin regulations to prevent potential runs and emphasised preparing regulatory frameworks for tokenisation’s future growth. The FSB plans to support cross-border cooperation and will release its final FIRE report by Q2 2025.

European Securities and Markets Authority (ESMA) Responds to European Commission on CASP Authorisation RTS, Proposes Amendments to MiCA Repute Standards - On October 16, ESMA issued a response to the European Commission's proposed amendments to the regulatory technical standards (RTS) for authorising crypto-asset service providers (CASPs) under MiCA. ESMA agreed with the Commission’s stance on standards for good repute but recommended revising Article 62(3)(a) of MiCA to remove limits on the scope of reputation assessments. Additionally, while ESMA supported the Commission’s updates on ICT security requirements, it emphasised the critical role of ICT systems for CASPs. The European Parliament and Council now have until January 2025 to raise any objections to the RTS.

International Organization of Securities Commissions - IOSCO Publishes Final Report on Crypto Investor Education, Emphasises Need for Youth-Focused Strategies - On October 9, the International Organisation of Securities Commissions (IOSCO) published its final report on educating crypto investors, focusing on updating risks and proposing targeted strategies for younger and new investors in the crypto market. Recognizing high volatility, industry failures, and the presence of bad actors, IOSCO underscores the importance of investor education alongside protective measures, fair advice, and enforcement of regulations. This marks IOSCO’s second report on crypto investor education since 2020.

European Banking Authority (EBA) Issues Guidelines on Redemption Plans for Token Issuers under MiCA - On October 9, the European Banking Authority (EBA) released final Guidelines under MiCA, aimed at ensuring orderly redemption processes for asset-referenced tokens (ARTs) and e-money tokens (EMTs) during issuer crises. These Guidelines detail requirements for redemption plans, including steps for asset liquidation and critical activity mapping, with adjustments made after public consultation to offer flexibility for issuers.?

ESAs Joint Committee Sets 2025 Focus on Digital Resilience and Sustainability Disclosures - On 7 October, the Joint Committee of the European Supervisory Authorities (EBA, EMSA, EIOPA) released its 2025 work plan. For 2025, the ESAs will concentrate on enhancing digital resilience and improving sustainability reporting. In terms of digital resilience, they aim to strengthen the digital operational robustness of financial institutions by, among other actions, beginning oversight of essential third-party information and communication technology (ICT) providers and implementing coordinated response measures for major ICT-related incidents under the Digital Operational Resilience Act (DORA).

United Kingdom (UK)

New Data Law Introduced to Boost UK Economy and Enhance Public Services by ￡10 Billion - On October 24, 2024, the UK government introduced the Data Use and Access Bill, designed to drive economic growth, improve public services, and streamline everyday processes through better data use. The Bill is expected to free up 1.5 million hours of police time and 140,000 NHS staff hours annually, enhancing efficiency and safety in public services. It also mandates a National Underground Asset Register to prevent costly excavation accidents and modernises digital identity verification for citizens. This initiative aims to boost the UK economy by ￡10 billion over the next decade while ensuring robust privacy protections.

FCA Stands Firm on Crypto Registration Standards, Prioritising Security and Compliance - On October 21, FCA’s Head of Payments and Digital Assets, Val Smith, addressed concerns about UK crypto registration standards, acknowledging critiques that requirements are stringent. Smith clarified that while security and risk management are top priorities, the FCA is mindful of the evolving crypto landscape and aims to ensure fair evaluations for firms. She emphasised that registration decisions consider broader factors beyond systems, including operational environments, personnel, and target customers. Smith reaffirmed that high standards are essential to fostering a secure and competitive UK crypto sector.

FCA Updates Regulatory Initiatives Grid: Highlights on Stablecoin Legislation, Digital Asset Enforcement, and Diversity Policies - On October 15, the Financial Conduct Authority (FCA) released an interim update to its Regulatory Initiatives Grid, outlining key regulatory developments for Q4 2024 and Q1 2025. In crypto and digital currency regulation, the Grid indicates that secondary stablecoin legislation is expected by the end of 2024. Additionally, the Bank of England will issue a Policy Statement summarising feedback from its 2024 consultation on enforcing rules for critical third parties, securitization, wholesale cash distribution, and digital settlement assets, maintaining its established enforcement approach for digital assets. On Diversity & Inclusion, the FCA plans to release a Policy Statement on "Tackling Non-Financial Misconduct in the Financial Sector" by year-end 2024, with further D&I policy updates from the FCA and PRA to follow in 2025.

Bank of England and FCA Launch Digital Securities Sandbox for Innovation in Financial Markets - The Bank of England and the Financial Conduct Authority (FCA) have collaboratively launched the Digital Securities Sandbox (DSS) for applications on 30th September 2024. The DSS is a regulated live setting designed to enable firms to securely trial innovative technologies in traditional financial markets, including distributed ledger technology (DLT), for the issuance, trading, and settlement of securities within the UK. This launch follows a consultation with industry conducted by the Bank and FCA from April 2023 to May 2024. The regulators have indicated that if successfully applied, these advancing technologies could lead to “more efficient, transparent, and robust” markets, providing “cost savings across markets and their participants, by streamlining existing processes and reducing expenses.”

LATAM

Central Bank of Brazil Launches Second Phase of the Drex Pilot with Public Call for New Business Cases - On October 10, the Central Bank of Brazil (BC) has taken another significant step towards innovation in the financial system by launching the second phase of the Drex Pilot, with a public call for the submission of proposals for new business cases. This initiative aims to test applications in smart contracts, offering financial institutions the opportunity to experiment with innovative models within the Drex platform, the Central Bank's digital currency. Resolution BCB No. 423/2024, which grants the Executive Management Committee (CEG) of the Drex Pilot the necessary authority to lead this phase, establishes the procedures for entities interested in participating. The call, open from October 14 to November 29, 2024, seeks to select proposals from entities with the technical capability to test innovative business models, such as the issuance, redemption, and transfer of assets.

Gabriel Galípolo has been approved by the Federal Senate and will be the next president of the Central Bank of Brazil - Gabriel Galípolo, appointed by President Luiz Inácio Lula da Silva to lead the Central Bank of Brazil (BCB), was approved on October 8 by Federal Senate to take office. He will begin his four-year term at the helm of the Central Bank, with the possibility of renewal for another four years. During this period, Galípolo will be responsible for steering Brazil’s monetary policy, directly influencing interest rates, inflation, and the country’s economic growth. It is expected that Galípolo will seek to balance the Central Bank’s operational independence with close coordination with the government’s broader economic policies, which may include adjustments to interest rates and measures to control inflation while maintaining sustainable economic growth.?

MENA

UAE VAT Executive Regulation Amendments Announced by FTA: Cryptocurrency Transfers Exempt from VAT - On 2 October, the Federal Tax Authority (FTA) announced amendments to the UAE VAT Executive Regulation, effective 15 November 2024, following Cabinet Decision No. (100) of 2024. Key changes focus on export of goods and services, tax treatment of financial services, and VAT exemptions for Virtual Assets such as cryptocurrencies and investment fund management services. Businesses, particularly in virtual assets and fund management, must review these amendments for potential impacts on their VAT obligations and input tax recovery.?

Dubai’s VARA Tightens Marketing Rules for Virtual Assets with New Disclaimer Requirement - Dubai’s Virtual Assets Regulatory Authority (VARA) has updated its marketing guidelines, effective October 1. The new rules require companies promoting virtual assets to include a disclaimer stating the potential for full or partial loss of value and the high volatility of these assets. This move aims to protect investors, particularly retail investors, and prevent misleading marketing practices. Additionally, firms offering promotions or incentives must obtain VARA’s compliance confirmation before launching campaigns. These updates reflect global trends in regulating the crypto market and reinforce Dubai's commitment to a transparent and secure investment environment.?

Gold-Backed Stablecoin Deenar Expands Global Access with Onramp Money Listing - Deenar ($DEEN), a gold-backed and Shariah-compliant stablecoin built on the HAQQ Network, announced its listing on Onramp Money to facilitate the purchase of the coin across 30 countries, including those in the Middle East, Africa, and Latin America. The stablecoin is backed by high-purity physical gold, offering a hedge against inflation and economic instability. This partnership allows users to invest in $DEEN using local fiat currencies, enhancing access and usability. The integration of Deenar with Onramp Money, known for its user-friendly fiat-to-crypto services, aims to simplify web3 onboarding and promote gold investments for those underserved by traditional financial institutions. Additionally, Deenar donates 1% of its sales to charity, aligning with its Shariah-compliant principles.

Global News

FATF Opens Consultation on AML/CFT Standards, Proposes Proportionate Risk-Based Measures - On October 28, FATF released a public consultation on proposed changes to its AML/CFT Standards, focusing on refining terminology and enhancing financial inclusion. Key proposals include replacing "commensurate" with "proportionate," defining proportionate risk approaches, and encouraging simplified measures for lower-risk situations. FATF also designates non-face-to-face customer identification as higher risk, due to its frequent usage. The consultation period will conclude on December 6, 2024.

BIS Highlights Tokenisation's Impact on Central Banks in New Report for G20 - On October 21, The Bank for International Settlements (BIS), alongside the Committee on Payments and Market Infrastructures (CPMI), released a report for the Brazilian G20 Presidency examining tokenisation’s role in regulated financial markets. The report discusses how tokenisation can lower transaction costs and introduce new financial use cases through platform-based systems. It emphasises the need for strong governance and risk management to maintain market safety and efficiency. Central banks are encouraged to consider tokenisation’s effects on wholesale payments, regulatory oversight, and monetary policy.

Industry News?

European Union (EU)

Bitstamp Secures EU License to Offer Crypto Derivatives, Expanding Institutional Services - On October 25, Bitstamp received a Multilateral Trading Facility (MTF) licence from Slovenia’s Securities Market Agency, allowing it to offer crypto derivatives, such as perpetual swaps, to institutional and retail clients across the European Union. This licence, aligned with the EU’s MiFID II regulations, enables Bitstamp to provide a broader range of products, including crypto derivatives, stocks, and commodities. Bitstamp's CEO, Jean-Baptiste Graftieaux, sees the license as a mark of trust and maturity for the crypto industry, positioning Bitstamp to meet rising institutional demand for crypto-linked products.

United Kingdom (UK)

Innovate Finance Hosts “Innovation Driving Growth” Forum, Launches Nationwide FinTech Pitch Initiative - On October 10, Innovate Finance hosted an event, "Innovation Driving Growth - A FinTech as a Force for Good Forum," highlighting FinTech’s positive impact on the UK economy and exploring sector needs for sustained growth. The event featured a keynote by Economic Secretary to the Treasury Tulip Siddiq, with notable attendees including Phillip Belamant (Zilch), Francesca Carlesim (Revolut), and Admir Dedic (Lloyds Banking Group). Innovate Finance also launched the “Pitch360: Across the UK” initiative, which will host pitch events over the next year for entrepreneurs to present FinTech innovations to live audiences and top industry judges.

LATAM

Brazilian Exchanges Launch BRL1 Stablecoin to Revolutionise Transactions in the Crypto Ecosystem - Foxbit, Mercado Bitcoin, Bitso, and Cainvest have formed a consortium to launch BRL1, a stablecoin pegged to the Brazilian real, with the aim of facilitating transactions within the Brazilian crypto ecosystem. The stablecoin will be issued on the Ethereum and Polygon networks, backed by both Brazilian reais and government bonds. Initially, R$10 million worth of BRL1 will be released, with the goal of reaching R$100 million in circulation within the first year. BRL1 is designed to reduce friction between the cryptocurrency sector and traditional financial systems, enabling faster and cheaper transactions between exchanges, and introducing new use cases such as more efficient international payments. Payment service providers have already expressed interest in integrating BRL1 into their operations. Cainvest, a financial services specialist, will provide liquidity for trading pairs with BTC and ETH, while Fireblocks will ensure the security of BRL1 through its tokenization and custody technology. BRL1 holders might also receive yields from the bonds backing the stablecoin, adding further appeal as a yield-bearing asset.?

MENA

ADGM Academy and Fintech Tuesdays Sign MOU to Boost Fintech Innovation in the UAE - The ADGM Academy and Fintech Tuesdays have signed a Memorandum of Understanding (MOU) to collaborate on fintech innovation. The partnership focuses on knowledge sharing, research, training, and events aimed at advancing fintech in the UAE and the broader MENA region. The MOU was signed during the UAE Fintech Vision 2024 event, where industry leaders discussed the future of fintech, including key topics like artificial intelligence, blockchain, and RegTech. This strategic alliance will foster growth in the sector and enhance digital transformation in financial services.

Global Crypto Company OKX Launches UAE Exchange, Offering AED Banking and Expanded Trading Services - OKX, a global crypto company, has officially launched its UAE crypto exchange, making it the first international crypto firm to offer AED banking rails for retail and institutional clients. UAE residents can now access services such as spot trading, conversions, and on-chain earning products, with direct AED deposits and withdrawals. OKX offers over 280 cryptocurrencies and 480 trading pairs, including BTC/AED, ETH/AED, and USDT/AED.?

Ripple Secures In-Principle License Approval from Dubai Financial Services Authority -? On October 1, 2024, Ripple, a leading provider of digital asset infrastructure, received in-principle approval from the Dubai Financial Services Authority (DFSA) to expand its services within the Dubai International Financial Centre (DIFC). This milestone will enable Ripple to introduce its cross-border payment services, including Ripple Payments Direct (RPD), in the UAE, bolstering its presence in the Middle East. This approval highlights Dubai's strategic location and DIFC’s robust regulatory environment. Ripple aims to leverage this opportunity to support blockchain growth and innovation in the region.?