Digital Currencies Governance Group (DCGG): April Newsletter

Posted on 30 April 2024

European Union (EU)

Digital Currencies Governance Group (DCGG) responds to European Securities and Markets Authority (ESMA) 's consultation on reverse solicitation guidelines: On April 29, the European Securities and Markets Authority (ESMA) closed its 3-month long public consultation on its proposed draft guidelines on reverse solicitation under the Markets in Crypto-Assets (MiCA) Regulation. As a reminder, under Article 61, the Regulation allows for the provision of cryptoasset services by third country firms to EU customers at their own exclusive initiative. DCGG welcomed the opportunity to provide feedback to ESMA’s draft guidelines and criticised the broad, and in some instances too far-reaching, interpretation of what constitutes solicitation and the de-facto severe restriction of EU consumer’s right to access third-country firm services should they decide to do so. We are concerned that ESMA’s broad approach to defining solicitation fails to acknowledge the nuances of digital communications and may inadvertently classify all types of such communications as solicitation, without these necessarily being promotional. DCGG offered its views on the restrictive proposals in order to advocate for EU consumers’ rights and a fair and proportionate framework for third-country firms. ESMA is expected to consider the feedback received to this consultation and publish a final report by the end of this year.

Digital Currencies Governance Group (DCGG) responds to ESMA’s consultation on guidelines on the classification of crypto-assets as financial instruments: On April 29, alongside the public call for input on reverse solicitation, ESMA also closed the 3-month long consultation on its draft guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments. According to MiCA, crypto-assets that are akin to financial instruments should be captured under the MiFID II rules rather than MiCA in order for consumer risk to be appropriately mitigated. However, the lack of a harmonised definition of a financial instrument at EU-level under MiFID II may lead to practical consequences for the classification of crypto-assets as financial instruments. DCGG took the opportunity to share views with ESMA on its proposals, expressing concern with the overly broad approach to classification of crypto-assets as financial instruments that falls short from fully accounting for the utility, functions, characteristics and technological make-up of some crypto-assets which may unintentionally capture inherently non-financial tokens in its scope and hinder development in the sector. We extended our recommendations to ESMA for considering a more prescriptive approach and encouraged a thorough case-by-case assessment of each type of token (including non-ARTs/non-EMTs, e.g., NFTs, hybrid tokens) by NCAs and market participants in order to avoid a premature classification as a financial instrument and MiFID II enforcement based oftentimes surface-level characteristics. As a next step, ESMA will consider the feedback received to the consultation and will be publishing a final report by the end of 2024.

Digital Currencies Governance Group (DCGG) co-signs a joint letter on ESMA’s approach to reverse solicitation: As part of our advocacy campaign on ESMA’s proposed guidelines on reverse solicitation under Article 61 of MiCA, DCGG signed an open letter to ESMA with Adan , Blockchain for Europe , the European Crypto Initiative and the Crypto Council for Innovation as representatives of the Blockchain sector. We shared our concerns regarding ESMA’s proposals, in particular that the draft guidelines go far beyond the original mandate of the Level I MiCA text in a way that would effectively ban all possible forms of reverse solicitation in the EU and hinder the right granted by MiCA to customers to actively seek crypto-asset services outside of the EU at their own exclusive initiative. We subscribe to the objective that third-country firms should not exploit these provisions to circumvent MiCA authorisation, however, as representatives of the sector, we fear that ESMA’s proposed approach is disproportionate and far too broad. We extend our recommendations for a more granular definition of solicitation, clearer distinction between promotional and non-promotional activities, more legal clarity and the provision of a detailed cost-benefit analysis. You can find our open letter here.?

The European Parliament adopts the landmark AML Package in Plenary: On April 24, the landmark AML Package was adopted by the European Parliament. Following the adoption of the Transfer of Funds Regulation (TFR) in 2023, the EP has now adopted the final texts of rest of the files of the AML Package in Plenary in Strasbourg - Anti-Money Laundering Regulation (AMLR), the Sixth Anti-Money Laundering Directive (AMLD6) and the Anti-Money Laundering Authority (AMLA), namely the Anti-Money Laundering Package (AML Package).The finalised AML Package is of key importance for the cryptoasset industry, which is now officially brought into scope of the new rules to combat money-laundering in the Union. We welcome the efforts put into finalising the AML Package and, with emphasis on the AMLR, we look forward to continue to engage with the upcoming regulatory technical standards that will be drawn up by AMLA, in order to create a safe and pro-innovation regulatory environment for EU customers and crypto operators alike. Formal adoption by the Council is expected in Q2, 2024ahead of publication in the Official Journal of the EU (OJEU), with an expected entry into force in Q3.?

Digital Currencies Governance Group (DCGG) attends Paris Blockchain Week: This year’s edition of one of the most important crypto events of the year - Paris Blockchain Week - took place between April 8 and April 11. It was a good opportunity to discuss and exchange views with industry experts and regulators and follow some of the discussions on the MiCA implementation and application in Europe and how that compares to the rest of the world.

United Kingdom?

Digital Currencies Governance Group (DCGG) attends the Innovate Finance Global Summit: The 2024 iteration of the Innovate Finance Global Summit took place on April 15-16 in London. Our Head of UK Policy, Joshua Townson , attended on behalf of DCGG to meet and hear from industry experts on the next phase of regulation and the interaction with emerging financial services innovations. Of particular note to the crypto industry, a speech from Sarah Breedan, the Deputy Governor for Financial Stability at the Bank of England, reaffirmed the central bank’s commitment towards 100% backing in central bank deposits for those stablecoin issuers deemed systemic by HM Treasury. The Economic Secretary to the Treasury (EST) also outlined his intention that the government will legislate by the end of July for regulators to introduce the regulatory regime for cryptoassets.?

Digital Currencies Governance Group (DCGG) attends HMRC roundtable on the implementation of the OECD’s CARF: In early April, as a part of the UK tax authority HMRC’s engagement with the crypto-asset industry during the consultation period on the implementation of the Organisation for Economic Cooperation and Development’s (OECD) Cryptoasset Reporting Framework (CARF) in the context of the UK cryptoasset market, amendments to the Common Reporting Standard (CRS 2.0) and the extension to domestic reporting, DCGG attended a roundtable providing further insights and welcoming stakeholder questions on the topic, various definitions and scope of the framework in the UK. As a reminder, responses to the public consultation are expected by May 29, 2024 - stay tuned for DCGG’s views.?

Announcing Digital Currencies Governance Group (DCGG) ’s Media Partnership with DigiAssets Conference : DCGG is pleased to announce its media partnership with the DigiAssets Conference, Europe’s leading digital assets conference for institutional market players.

The event, scheduled for May 14th-15th, 2024, at the Business Design Centre in London, promises an immersive two-day experience delving into the latest topics and innovations within the digital assets sector. Attendees can expect? 25+ sessions led by top thinkers and innovators in the institutional digital asset space, featuring representatives from central banks, regulators, buy-side firms, and leading providers.

The conference offers a platform for networking and exploration, with opportunities to engage with over 600 financial institutions. Moreover, the event presents a chance for benchmarking digital asset initiatives and technology roadmaps with over 300 senior buy-side heads from asset owners, asset managers, private banks, and hedge funds.

Attendees can take advantage of an exclusive 10% discount on registration by using the code DADCGG24 when booking online. Further details, including the agenda, speaker lineup, key topics, and networking opportunities, can be found on the conference website.