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Crypto Compliance Weekly Roundup | July 17, 2024

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Building a global network of compliant crypto transactions

发布日期: 2024年7月17日

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

In this week's newsletter,

???? Hong Kong takes a major step towards stablecoin regulation
???? EU firms taking advantage of opportunity for regulatory arbitrage
???? US Senate advances bi-partisan discussions to bring clarity to digital commodities markets
?? Chainalysis releases 2024 Crypto Crime Report
and much more...

?? Dive in below!

APAC

???? Hong Kong set to release stablecoin consultation results, paving way for regulation

Hong Kong’s financial authorities are poised to publish the results of a consultation on stablecoin regulation, marking a significant step towards formal oversight of the industry. The Financial Services and the Treasury Bureau (FSTB) announced that the findings from the December consultation on stablecoin issuers will be released soon. This consultation is part of a legislative proposal aimed at establishing comprehensive regulations for stablecoin issuers.

Financial Services and the Treasury Bureau (FSTB) stated "We aim to establish a regulatory regime for fiat-backed stablecoin issuers that is appropriate and in line with international regulatory recommendations, providing adequate protection for users and addressing the potential risks that fiat-backed stablecoins pose to monetary and financial stability."

Key points from the proposal include:

Licensing Requirement: All fiat-referenced stablecoin issuers must obtain a license from the Hong Kong Monetary Authority (HKMA).
Permitted Sellers: Only licensed stablecoin issuers, authorized institutions (such as banks), licensed corporations, and licensed crypto trading platforms will be permitted to sell fiat-referenced stablecoins to retail users.
Regulatory Oversight: The proposal outlines rules for reserve management, stability mechanisms, redemption processes, and governance of stablecoin issuers.

Additionally, FSTB wants to regulate fiat-backed stablecoin issuers using a risk-based and pragmatic approach, with key requirements including: (a) reserve management and stability mechanisms, requiring issuers to ensure that fiat-backed stablecoins are fully backed by high-quality and highly liquid reserve assets; (b) redemption requirements; and (c) governance, knowledge, and experience regulatory requirements.

Why is this important? These developments reflect Hong Kong’s commitment to creating a robust regulatory environment for stablecoin, ensuring market stability and investor protection along with competitiveness with other regulators who are providing stablecoin regulations.

EMEA

???? How crypto firms are taking advantage of MiCA’s patchy roll-out

MiCA’s stablecoin regulations became effective on July 1, marking the start of its implementation. The next step, set for December 30, introduces a licensing regime for crypto businesses, including exchanges, custodians, and investment companies. Under MiCA’s “passporting” provisions, once a Crypto Asset Service Provider (CASP) is registered in one EU country, it can offer its services across all EU27 countries. Per the article, MiCA's licensing regime will go live at the end of December, creating opportunities for companies to shop around due to different levels of strictness in different countries.

MiCA's grandfathering period will affect where firms apply for licenses, with countries having different transition periods. Crypto businesses are considering different strategies to take advantage of the uneven rollout, including becoming compliant as soon as possible or progressing multiple applications in EU jurisdictions.
EU countries are scrambling to comply with the new crypto rulebook, creating opportunities for crypto firms to shop around for jurisdictions with lighter rules and less policing capacity. Firms are already taking advantage of the patchy way in which the MiCA regulations are rolling out across the EU, in a practice known as regulatory arbitrage.
Once licensed, the crypto asset service providers can passport their services anywhere in the EU, impacting market share and consolidation of CASPs in Europe.

Why is this important? Simply put, jurisdictional arbitrage will be occurring during the transition periods. Crypto businesses are employing various strategies to leverage the uneven MiCA rollout. Some firms aim to comply by December 30 to secure early passporting rights and EU market share. Others are submitting multiple applications across EU jurisdictions to benefit from transition periods in reputable locations while completing their MiCA applications.

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???? Senate Agriculture Hearing on Digital Commodities

Last Wednesday, the Senate Agriculture Committee conducted an oversight hearing focusing on the digital commodities market, featuring testimony from Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam. The hearing aimed to assess the current state of digital commodities and explore regulatory approaches to ensure market integrity and investor protection.

Key highlights from the hearing include:

Regulatory Challenges: Chair Behnam discussed the regulatory challenges posed by the rapidly evolving digital commodities market and emphasized the need for robust oversight to prevent fraud and market manipulation.
CFTC’s Role: Behnam outlined the CFTC’s role in regulating digital commodities and its efforts to adapt existing frameworks to better oversee these new asset classes.
Legislative Support: The hearing underscored the importance of legislative support in enhancing the CFTC’s authority and resources to effectively regulate the digital commodities market.
Market Integrity: Emphasis was placed on ensuring market integrity, protecting investors, and fostering innovation within a secure and transparent regulatory environment.

Why is this important? Senate Republicans and Democrats are interested in granting the CFTC primary jurisdiction over the digital commodity spot market, but it’s unclear whether they will reach consensus on details like determining which crypto assets are digital commodities – and whether they can reconcile their framework with the House. Additionally, issue discussion remained mostly high-level, with Senators voicing support for general principles like closing regulatory gaps, protecting customers, combatting illicit finance, and ensuring adequate funding for the CFTC.?