BlockReg Monthly: September 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 Hold Hearing on Asset Classification Under MiCA - On September 23, 2024, the @European Supervisory Authorities (ESAs) held a public hearing on the draft guidelines for crypto-asset classification under MiCA. The ESAs clarified that the level of information required in the crypto-asset white paper varies based on asset complexity. They emphasised cooperation with national authorities (NCAs) to prevent inconsistent classifications of the same asset. Legal opinions need to be submitted primarily to the NCA where the asset is offered or traded but could also involve other jurisdictions. European Securities and Markets Authority (ESMA) is tasked with establishing a register for crypto-asset white papers, listing detailed information on issuers and crypto-asset service providers (CASPs).

European Central Bank Publishes Third Progress Report on Digital Euro Rulebook - On September 5, 2024, the European Central Bank (ECB) released its third progress report on the Digital Euro Scheme Rulebook. The rulebook aims to unify rules and standards for digital euro payments across the euro area. In 2024, efforts focused on reviewing and expanding the draft rulebook. The report highlights the digital euro's potential to provide a comprehensive payment solution, enhance competition, and reduce reliance on non-European systems. It also notes the potential for lower fees and greater price transparency for merchants and consumers. Feedback from the Rulebook Development Group will shape the next draft.

European Central Bank Publishes Opinion on FIDA - The European Central Bank (ECB) has shared its opinion on a proposed regulation for Financial Data Access (FIDA), which amends several EU regulations. While supporting the regulation's goals in line with the European data strategy, the ECB raised concerns about its assigned supervisory responsibilities. The ECB argues that consumer protection tasks outlined in the regulation fall outside its role of prudential supervision and suggests amendments to clarify that these tasks should remain with national authorities. The ECB also recommends enhanced cooperation and information-sharing with relevant authorities responsible for consumer protection.

United Kingdom (UK)

Financial Conduct Authority Speech on Tackling Fraud and Financial Crime - On September 17, 2024, Andrea Bowe, Director of the Specialist Directorate at the FCA, spoke on the regulator's progress in tackling financial crime. Bowe highlighted the importance of collaboration between regulators, law enforcement, the government, and industry. She praised the FCA's work with tech platforms like Google and Meta to combat illegal financial promotions, noting a near 100% reduction in scam ads on Google. Regarding crypto, Bowe mentioned that 86% of initial crypto registrations were rejected for failing anti-money laundering standards, but the FCA's guidance has helped over 40 crypto firms achieve compliance. The FCA is also working with app stores to remove non-compliant crypto apps. Bowe emphasised that continued industry collaboration is key to further progress.

New Bill Introduced to Clarify Legal Status of Crypto Assets - On September 11, 2024, a new bill was introduced in Parliament to recognize digital assets, including cryptocurrencies, as personal property. The Property (Digital Assets etc) Bill aims to provide legal protection to owners and keep the UK at the forefront of global tech. Previously, digital holdings were in a legal grey area. This law seeks to protect against fraud and assist judges in handling digital asset cases. Justice Minister Heidi Alexander emphasised its importance for maintaining the UK’s global leadership in crypto.

Financial Conduct Authority Annual Report 2023/24: Majority of Crypto Applications Fail to Meet Standards - On 5 September, 2024, the UK’s Financial Conduct Authority (FCA) released its 2023/24 Annual Report, highlighting progress and achievements over the past year, including enhancements in its authorization process to support new financial firms in meeting regulatory requirements. For the crypto sector, the report noted that 87% of crypto registration applications for money laundering compliance failed to meet the FCA's criteria in 2023-24. Only 4 out of 35 applications were approved, including a Binance payment partner, BNXA, a PayPal UK unit, and Komainu. The rest were either refused or rejected due to missing key assessment elements. FCA CEO Nikhil Rathi commented on the report, emphasising the need for efficient authorizations to make the UK a leading hub for financial services.

NCA Report Reveals up to $5.1 Billion in Illicit Crypto Transactions Linked to the UK - The UK's National Crime Agency (NCA) has released its 2024 National Strategic Assessment of Serious and Organized Crime, detailing data and analysis from the 2023 reporting period. According to this assessment, the NCA estimates that annually, between $1.7 billion and $5.1 billion in illicit crypto transactions are tied to the UK. Additionally, the report highlights a general rise in money laundering within the UK throughout 2023, with an increasing trend of criminals utilising cryptocurrency for laundering purposes. Alongside traditional methods, cryptoassets are now more frequently used to launder non-digital criminal proceeds, such as cash, obtained through rising levels of cybercrime, including theft, malware, and ransomware. The report remarks, "As cryptocurrency gains popularity, the instances of cryptocurrency crime also increase."

Decline in Crypto Asset Firms Registering with the Financial Conduct Authority - A Freedom of Information (FOI) request by law firm Reed Smith has revealed a sharp decline in crypto asset firms applying for registration with the UK's Financial Conduct Authority (FCA). Between 2021 and 2024, applications dropped by 51%, with only 29 submissions recorded between May 2023 and May 2024, and just seven in the first quarter of 2024. This decrease is partly due to new financial promotion regulations by the FCA, complicating operations for crypto firms. Additionally, the average approval time stands at 459 days, delayed by the FCA's lack of specialised crypto skills, as highlighted by the National Audit Office's report from last December.

LATAM

CVM Implements New Rules for Investment Portability in Capital Markets - The Brazilian Securities and Exchange Commission (CVM) issued Resolutions 209 and 210, establishing new rules for investment portability in the Brazilian capital market. Aligned with the CVM's 2024 Regulatory Agenda, these regulations aim to modernise and simplify the transfer of securities between institutions, making the process faster and more transparent for investors. Key changes include a standardised digital interface for tracking transfers in real-time and specific deadlines for completion. Institutions failing to meet deadlines may face penalties. These rules are part of the broader Open Capital Markets initiative, promoting an open, interoperable environment inspired by Open Banking principles. The new regulations will take effect on July 1, 2025.

Gabriel Galípolo Nominated for Central Bank Presidency: Awaiting Senate Approval - Gabriel Galípolo, appointed by President Luiz Inácio Lula da Silva to lead the Central Bank of Brazil, awaits Senate approval. The final step includes a hearing in the Senate's Economic Affairs Committee, after which his nomination will go to the Senate floor for a vote. If approved, Galípolo will serve a four-year term, potentially renewable, overseeing Brazil’s monetary policy, interest rates, and inflation. He is expected to balance the Central Bank's independence with coordination of the government's economic policies.

MENA

UAE Introduces Comprehensive Regulatory Framework for Crypto Businesses - The UAE's Securities and Commodities Authority (SCA) and Dubai’s Virtual Assets Regulatory Authority (VARA) have partnered to strengthen the country’s position as a global hub for virtual assets. This move aligns with the UAE's "Principles of the 50" strategy, aiming to create a clear regulatory framework for digital assets, covering areas like AML, data security, and asset custody. The new regulations aim to attract global crypto exchanges and blockchain firms to the UAE by providing legal clarity. Companies operating in or from Dubai must obtain a licence from VARA and will automatically be registered with the SCA to serve the broader UAE market. Firms in other emirates must be licensed by the SCA. The agreement includes mutual supervision, penalties, data exchange, and training, fostering a unified approach to virtual assets regulation across the UAE.

UAE Hosts APG Annual Meeting on AML Efforts - The UAE’s National Committee for Anti-Money Laundering (NAMLCFTC) is hosting the 2024 Asia Pacific Group (APG) Annual Meeting in Abu Dhabi, starting September 22. This marks the first time the APG meeting is held in the Middle East, showcasing the UAE's commitment to global AML efforts. The UAE joined the APG as an observer in July 2023, becoming the first Arab country to do so.

FTA Corporate Tax Registration Deadline Extended - On September 23, the Federal Tax Authority (FTA) urged Resident Juridical Persons with licences issued in July to submit their Corporate Tax registration by September 30, 2024, as per FTA Decision No. 3 of 2024. Registrations can be completed via the EmaraTax platform in about 30 minutes. Failure to meet the deadline may result in penalties.

Global News

Bank for International Settlements – BIS Releases Report on Financial Stability Risks of Crypto Asset Intermediaries - The report highlights that multifunction crypto asset intermediaries (MCIs), which offer various crypto services similar to traditional finance, often lack adequate controls, posing financial stability risks. The collapse of entities like FTX demonstrates their potential to amplify market vulnerabilities due to their central role. Risks include leverage, liquidity mismatches, and operational weaknesses, with possible spillovers into traditional finance. The report calls for global regulatory action, cross-border cooperation, and closing information gaps for better oversight.

Industry News?

European Union (EU)

BNB Chain Introduces Gasless Stablecoin Payments - On September 18, 2024, BNB Chain announced a new initiative to enhance stablecoin transactions with gasless transfers. By partnering with centralised exchanges (CEXs) like Binance and Gate.io, and wallets like Bitget and SafePal, BNB Chain aims to make stablecoin payments faster, cheaper, and more accessible. The initiative supports Tether (USDT), Circle USD (USDC), and First Digital USD (FDUSD) transfers. With added support for cross-chain bridges, it seeks to simplify asset movement and promote Web3 adoption. This development focuses on transaction efficiency rather than issuing stablecoins, aligning with regulatory frameworks like the EU’s MiCA set to apply in December.

CEX.io and MoneyGram Enable USDC Cash Conversions - CEX.io has partnered with MoneyGram to allow users to convert USDC to cash and vice versa at MoneyGram locations. This integration aims to make managing digital assets easier, offering seamless cash-in and cash-out options for CEX.io account holders. Users can fund their accounts with USDC using traditional currency or withdraw USDC for cash pickup. The collaboration aims to increase accessibility to the digital economy.?

LATAM

Brazil Leads in Non-Commercial Use of Digital Wallets - A Google study shows 30% of Brazilians use digital wallets for non-commercial purposes like storing documents, health records, and tickets, surpassing the global average. Despite this, full digital ID integration remains limited due to the need for official government platform support. Google plans to expand its digital ID functionality in Brazil and has partnered with banks to facilitate Pix payments via Google Wallet. A report by Febraban and Accenture highlights the move towards mobile data storage and identifies centralised, federated, and decentralised digital identity models, pointing to growing demand for a unified digital ID system.

Itaú and Genial Lead Ahead of Drex, Start Selling RWA Tokens - Itaú Bank and Genial Investimentos are ahead of Drex, launching Real-World Asset (RWA) token sales to clients. Itaú offers these tokens through its Private Bank, while Genial uses its Home Broker platform. The tokens, issued by BEE4, provide investment opportunities for small and medium enterprises. Four companies are already listed on BEE4, with plans to expand to over 100 by 2027. Meanwhile, the Central Bank of Brazil is entering the second phase of Drex project tests, evaluating various use cases, including non-regulated assets.

MENA

Standard Chartered Launches Digital Asset Custody Service in UAE - Standard Chartered has launched a digital asset custody service in the UAE, following approval from the Dubai Financial Services Authority (DFSA). This service, based in the Dubai International Financial Centre (DIFC), initially supports Bitcoin and Ethereum, with plans to expand to other digital assets. Brevan Howard Digital is the inaugural client of the custody solution, which aims to provide secure, regulated services to institutional clients. The move signals growing institutional interest in digital assets and Standard Chartered’s commitment to leading in this emerging space. The bank plans further expansion of its digital asset offerings in the coming months.