Crypto Compliance Weekly Roundup | December 26—January 2, 2024

Welcome to the Crypto Compliance Weekly, where we highlight crucial regulatory updates across the globe.

In this week's newsletter, ???? The Philippines' central bank clarifies the Travel Rule for VASPs, focusing on transaction thresholds and sanctions screening. ???? Dubai's DFSA invites public feedback on amendments to Crypto Token regulations. In the ???? United States, the U.S. Securities and Exchange Commission engages with firms for the launch of spot Bitcoin ETFs, emphasizing new models and the management of hard forks and airdrops.

Dive in for a detailed analysis of each region's latest regulatory measures and their implications for the global crypto landscape. ??

APAC

???? Philippines Central Bank clarifies the application of Travel Rule

On December 28, Bangko Sentral NG Pilipinas issued Memorandum no. M -2023-042, clarifying the implementation of the Philippine Travel Rule for VASPs. The Memo clarifies key aspects of how the Travel Rule applies in the region:

• Threshold and scope of required information: A limited scope of information about the originator and beneficiary customers (name and account number) is required for transactions below 50,000 PHP;
• Sunrise period: Similar to the approach taken by the FCA in the UK, central bank allows for a more flexible approach when transacting with counterparties in jurisdictions where Travel Rule regulations are not yet in force: In withdrawals: VASPs are allowed to proceed with the transaction even if the counterparty is not able to receive Travel Rule information or is not yet subject to Travel Rule requirements, provided that the needed information is still collected, verified, and stored as required.In deposits: VASPs should conduct periodic risk assessments to decide whether or not to accept a transaction not accompanied by Travel Rule information. This assessment should consider whether the originator VASP is able and required to send Travel Rule information in the jurisdiction where it is based, registered, or licensed.
• Sanctions screening: The Memo emphasizes the requirement to sanction screen all transaction counterparties.
• Transacting with self-hosted wallets: VASPs are expected to exercise caution and apply enhanced due diligence measures. Particularly, information about the originator and beneficiary customers should still be collected, verified, and stored as required.

EMEA

???? DFSA Seeking Input on Proposed Amendments in Crypto Token Regulation

• The Dubai Financial Services Authority (DFSA) has released Consultation Paper (CP) 153, inviting public commentary on proposed amendments to the regulatory framework governing financial services activities related to Crypto Tokens. These proposals stem from the DFSA's supervisory experience, recent market events, and recommendations from international standard setters. It is crucial to note that CP 153 exclusively addresses Crypto Tokens, with Investment Tokens falling outside its scope.
• The structure of CP 153 comprises an introduction, regulatory requirements for Crypto Tokens, insights into Decentralized Finance (DeFi), and discussions on various points. Appendices include draft amendments to modules like General (GEN), Conduct of Business (COB), Collective Investment Rules (CIR), Anti-Money Laundering, Counter-Terrorist Financing and Sanctions (AML), Fees (FER), Auditor (AUD), and Authorized Market Institutions (AMI). Annex 1 contains specific questions addressed in the consultation paper.

What's Next?

• Interested parties are encouraged to submit comments by March 4, 2024. T Following the consultation period, the DFSA will assess feedback and make necessary amendments to the proposed regime. The finalized Rulebook modules will be published on the DFSA website, accompanied by a notice. Stakeholders are advised not to act on the proposals until relevant changes are implemented.

AMERICAS

???? SEC Concerns and Industry Responses: Spotlight on Spot Bitcoin ETFs

• Firms aspiring to launch spot Bitcoin exchange-traded funds (ETFs) have been actively addressing Securities and Exchange Commission (SEC) concerns through recent meetings with the regulator. ETF issuers, including Grayscale, have responded to feedback by adopting a creation and redemption model favored by the SEC, leading to the disclosure of authorized participants—a notable step. There's a shift towards a cash model for certain ETF structures, aligning with the SEC's preference, as seen with BlackRock and @Grayscale following suit.
• Despite Grayscale initially advocating for an "in-kind" model, the SEC's inclination towards a cash model prompted a change in strategy. In an effort to be part of the initial wave, Grayscale, in a meeting before the holidays, proposed both in-kind and cash creation and redemption models but eventually amended its S-3 form on December 26 to adopt the cash model. Additionally, the industry has addressed concerns related to hard forks and airdrops, defining protocols in the event of a fork and clarifying that ETFs would not receive tokens through such events.
• In parallel, ETF issuers have begun naming authorized participants in amended filings, a practice not customary but one the SEC has emphasized. Meetings between exchanges and the SEC continue, though no indication of the SEC's decision on spot Bitcoin ETFs has emerged. Meanwhile, the approval landscape for spot Ethereum ETFs remains uncertain, with an executive noting that the SEC's approval of futures-based Bitcoin ETFs has complicated the path for a spot fund.

Thread of the Week ??

Elsewhere ??

• ???? Financial Intelligence Unit India (FIU IND) issues compliance Show Cause Notices to nine offshore Virtual Digital Assets Service Providers (VDA SPs)
• ???? Central Bank of Nigeria issues guidelines on operations of bank accounts for virtual assets service providers
• ???? EU Regulators to probe links between banks and non-banks

Reads & Listens ??

• Crypto optimism in the age of the doomer
• Alice & Bob: A History of The World’s Most Famous Cryptographic Couple
• Make Ethereum Cypherpunk Again
• 42 Different Countries Discussed or Passed Crypto Regulations, Legislation in 2023: PwC

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