Clifford Chance

Welcome to this month's global crypto round-up, summarising crypto regulatory developments that have happened around the world in June 2022 along with our Clifford Chance crypto publications and upcoming events. 

Details of these and previous developments can also be found on our Fintech Topic Guide on the Clifford Chance Financial Markets Toolkit.

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CLIFFORD CHANCE PUBLICATIONS AND MATERIALS

Non-fungible tokens (NFTs) – an introduction and some key intellectual property considerations
Demand for NFTs is expected to rise as a host of brands, including the likes of Nike, Coca-Cola, McDonald's, Gucci and Clinique, seek to capitalise on the market's explosion. But what are the key intellectual property considerations?

Decoding distress – cryptoassets, restructuring and insolvency under English law
In recent months, cryptoasset investors have weathered losses that have been estimated to exceed USD 1.3 trillion. Market participants, regulators and other stakeholders therefore need to pay close attention to how cryptoassets may be treated in a distressed scenario.
Read more

Japan to have world's first clear regulatory framework for stablecoins
An amendment to the Payment Services Act, which aims to regulate digital money used for fund transfers and payments, including stablecoins, was enacted in Japan. The amendment, which reflects international discussions, may be the world's first clear regulatory framework for stablecoins.
Read more

Crypto-custody regulation – what rules apply globally?
Policymakers around the world have introduced specific regulatory regimes for cryptoasset custody businesses in response to growing market activity. To help firms navigate this fast-evolving area, Clifford Chance has prepared an international Cryptoasset Custody Rules Tracker.

Regulation on Markets in Cryptoassets (MiCA) – EU reaches agreement on the cryptoassets regulation

The EU Trilogue negotiators have reached agreement on the proposed MiCA Regulation. While the agreed text has not yet been published, information in respect of what to expect has been reported via a range of news outlets and lobbyists.

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

• (30 Jun 2022) Financial Action Task Force (FATF) targeted update on the implementation of its standards on virtual assets and virtual asset service providers. | Press release
• (30 Jun 2022) Basel Committee on Banking Supervision consultation on the prudential treatment of banks' cryptoasset exposures. The consultation seeks feedback on, among other things, proposals to add provisions to the Basel Framework on the treatment of 'Group 1' cryptoassets (i.e. those which have stabilisation mechanisms or are tokenised versions of traditional assets), and to introduce requirements on the treatment of 'Group 2' cryptoassets (i.e. those that do not meet the criteria of Group 1), including restricting banks' exposures to them to 1% of their Tier 1 capital. Comments are due by 30 September 2022. | Press release
• (21 Jun 2022) Bank for International Settlements (BIS) Innovation Hub report, in which it sets out the findings from four projects on the use of wholesale central bank digital currencies (CBDCs) for cross-border transfers. The projects were conducted by BIS and the central banks of Switzerland and France, as well as a private sector consortium (Project Jura), Hong Kong and Thailand (Project Inthanon-LionRock2), Hong Kong, Thailand, China and the UAE (Project mBridge), and Australia, Malaysia, Singapore and South Africa (Project Dunbar). | Press release
• (21 Jun 2022) BIS chapter from its annual economic report, which sets out its vision for a future digital monetary system. In short, BIS calls for a monetary system based on CBDCs, which it argues effectively balance innovation with safety and stability, unlike other cryptoassets or decentralised finance (DeFi). The chapter also discusses the structural limitations that prevent distributed ledger technologies (DLTs) from processing a high volume of transactions, and the best regulatory approaches to mitigating the potential risks posed by DeFi and the crypto-sector. | Press release
• (17 Jun 2022) The BIS Innovation Hub has announced a new set of projects under its 2022 work programme, including the creation of an open-source market intelligence platform to share information on the cryptocurrency market, and testing of potential cryptographic solutions for secure payment and settlement systems that can withstand the security risks posed by quantum computing. | Press release
• (17 Jun 2022) FATF report on the outcomes of its plenary meeting, which was held on 14-17 June 2022. Among other things, the report provides an update on emerging risks and market developments in the virtual asset space, including DeFi, NFTs and unhosted wallets.
• (16 Jun 2022) BIS report on crypto-miners' roles as financial market intermediaries and the risks this may pose. | Summary
• (7 Jun 2022) International Monetary Fund (IMF) report on energy consumption and digital currencies. The report sets out the main components and technological options that determine the energy profile of a digital currency. | Summary

Africa

Central African Republic:        

• (14 Jun 2022) Tweet from President Faustin-Archange Touadéra, in which he reaffirms the country's decision to grant Bitcoin status as legal tender.

Americas

Brazil:            

• (10 Jun 2022) Bill to amend Article 835 of the Civil Procedure Code (in Portuguese), which has been introduced to the Chamber of Deputies. The bill, if enacted, would define cryptoassets as a 'financial asset' in Brazil, meaning they could be used as a means of payment or exchange, or for investments.

US:

• (17 Jun 2022) Federal Reserve Board monetary policy report, in which it highlights stablecoins as a potential risk to financial stability due to their 'structural fragilities'.
• (16 Jun 2022) Letter from a group of Senators and House Representatives to the Environmental Protection Agency (EPA) requesting that the EPA reassesses the environmental impact of crypto-mining to take into account the potential benefits or mitigants, such as mining operations that use flared gas and renewable energy sources.
• (15 Jun 2022) Letter from the Chair of the House of Representatives Ways and Means Committee, Richard Neal, to the Government Accountability Office (GAO), in which he calls on the GAO to investigate and advise on the use of cryptocurrencies in retirement plans.
• (14 Jun 2022) Speech by Securities and Exchange Commission (SEC) Commissioner, Hester Peirce, on the regulation of the crypto-ecosystem. Among other things, Peirce discusses and criticises the SEC's rationale for not approving a spot Bitcoin exchange-traded product.
• (8 Jun 2022) New York Department of Financial Services guidance on USD-backed stablecoins. The guidance sets out a series of rules applicable to stablecoin issuers operating in the state, including requirements on the size, quality and treatment of the assets the stablecoins are backed by. | Press release
• (7 Jun 2022) Draft Responsible Financial Innovation Act, which has been introduced to Congress by Senators Cynthia Lummis and Kirsten Gillibrand. The bill is intended to establish a wide set of regulations across the cryptoasset sector. Among other things, it clarifies the distinction between crypto-commodities and crypto-securities, sets out requirements for custody arrangements, provides a definition of a crypto-broker, and calls for regulators to investigate the possibility of establishing a self-regulatory organisation for the cryptoasset sector. | Press release | Section-by-section analysis of the bill
• (6 Jun 2022) Department of Justice (DoJ) report, in which it sets out its recommendations for strengthening international law enforcement cooperation to improve the detection, investigation and prosecution of criminal activities relating to digital assets. Among other things, the DoJ calls for greater cooperation with foreign law enforcement agencies and the establishment of consistent international standards.
• (3 Jun 2022) Senate Bill S6486D, which has been passed by the New York State Senate. The bill, if enacted, would introduce a two-year ban on all new proof-of-work crypto-mining facilities that use a carbon-based fuel to power their operations. It was passed by the State Assembly in April 2022. It must now be signed by the New York Governor, Kathy Hochul.
• (3 Jun 2022) Speech by Federal Reserve Governor, Christopher Waller, on the potential risks posed by the cryptoasset market and the need for regulation to mitigate them.
• (1 Jun 2022) California Department of Financial Protection and Innovation request for comment on proposals to develop guidance and supervisory parameters for firms offering cryptoasset-related financial products and services in the state. Comments are due by 5 August 2022. | Press release

APAC

Australia:

• (23 Jun 2022) Council of Financial Regulators statement following its most recent meeting with key Australian regulators, which focused on issues around de-banking and cryptoassets. Among other things, participants called for the development of a robust regulatory framework to address the potential financial stability issues posed by de-banking and cryptoassets, and discussed the possibility of incorporating payment stablecoins into Australia's future framework for regulating stored value facilities.

Hong Kong:

• (6 Jun 2022) Securities and Futures Commission (SFC) warning to investors on the potential risks posed by NFTs. Among other things, the SFC highlights their volatility, lack of transparency and fraud risks, and sets out the instances where marketing or distributing NFTs may constitute a regulated activity.

India:

• (30 Jun 2022) Reserve Bank of India (RBI) financial stability report, which emphasises the risks posed by cryptocurrencies, including their speculative nature and their potential to be used to avoid sanctions and anti-money laundering/counter terrorist financing (AML/CTF) controls. It does, however, note that other factors, including rising commodity prices and geopolitical tensions, currently pose a greater risk to the country's financial system.
• (2 Jun 2022) Recording of a session held between representatives of the IMF and the RBI. In the discussion, RBI Deputy Governor, T. Rabi Sankar, argues that CBDCs will reduce the need for private cryptocurrencies.

Japan:

• (3 Jun 2022) Bill to revise the payment services law (in Japanese), which has been passed by the House of Councillors. The bill introduces certain restrictions on stablecoins and cryptoassets, including introducing a registration regime for companies wishing to issue cryptoassets, and restricting the issuance of stablecoins to licensed banks, money transfer agents and trust companies.

Kazakhstan:

• (16 Jun 2022) The Ministry of Digital Development, Innovations and the Aerospace Industry has announced plans to launch a pilot project for crypto-exchanges licensed by the Astana Financial Service Authority. The pilot, which will run until the end of 2022, will allow licensed crypto-exchanges to open accounts with a chosen panel of Kazakh banks. | Press release (in Kazakh)

Thailand:      

• (15 Jun 2022) Securities and Exchange Commission of Thailand (SECT) consultation (in Thai) on proposed amendments to its rules on advertising by cryptoasset operators. The amendments, which include new requirements on the format, content and location of cryptoasset adverts, are intended to bring the rules more in line with international standards. Responses were due by 29 June 2022. | Press release (in Thai)
• (14 Jun 2022) SECT has announced it has issued circulars to all listed companies setting out its requirements regarding their crypto-related activities. SECT reminds any firms investing or conducting business relating to cryptoassets that they must have adequate management and internal control procedures in place, and that the cryptoassets must be stored securely and appropriately. | Press release (in Thai)

Europe

EU:  

• (30 Jun 2022) The EU Council and EU Parliament have reached a provisional agreement on the EU Commission's proposed MiCA Regulation. The provisional agreement is subject to approval by the co-legislators before it is formally adopted. | EU Council press release | EU Parliament press release
• (30 Jun 2022) European Systemic Risk Board (ESRB) statement following its meeting held on 23 June 2022. The ESRB notes that it intends to focus its attention on: considering the need for additional regulatory measures to address the potential threat posed by cryptoassets to financial stability; making proposals on how to ensure a European and global regulatory standard is developed; identifying the systemic implications of the crypto-market for the EU financial system, including legal recourse considerations; and regularly monitoring financial market exposures to crypto-based products and DeFi.
• (29 Jun 2022) The EU Council and EU Parliament have reached a provisional agreement on the EU Commission's proposal to extend the scope of rules on the information that must accompany transfers of funds so that they also apply to certain cryptoassets. The proposal is part of a package of legislative amendments designed to strengthen the EU's AML/CTF rules. The provisional agreement is subject to approval by the co-legislators before it is formally adopted. | EU Council press release | EU Parliament press release
• (29 Jun 2022) EU Council partial position on another aspect of the EU Commission's proposed AML/CTF package, namely its proposal to create a dedicated AML Authority (AMLA). In its position, the EU Council proposes, among other things, to grant AMLA the authority to directly supervise certain types of credit and financial institutions, including cryptoasset service providers, if they are considered particularly high-risk. The EU Council's position is partial as it has not yet agreed on AMLA's location. | Press release
• (15 Jun 2022) Speech by Executive Board Member at the European Central Bank (ECB), Fabio Panetta, on the EU's digital euro project. Panetta discusses the potential benefits the digital euro will bring to consumers and the EU banking system. He also suggests that the ECB is considering capping the number of tokens at between 1 and 1.5 trillion.

France:       

• (8 Jun 2022) Report from outgoing National Assembly Member, Pierre Person, on the regulation of cryptoassets and related emerging technologies in France. Person argues that the EU is not being sufficiently ambitious in its regulatory approach to cryptoassets and calls on France to introduce various proactive measures, including introducing fines for banks that refuse to provide services to fintech firms and recognising decentralised autonomous organisations and NFTs under its legal system.
• (1 Jun 2022) Autorité des marchés financiers questions and answers (Q&As) document (in French) on the regime for digital asset service providers. The Q&As have been revised to reflect developments in the digital asset sector's products and business models. | Press release (in French)

Germany:       

• ·(1 Jun 2022) Federal Financial Supervisory Authority (BaFin) guidance (in German) on the licence application process for the operation of crypto-securities registers. The note is intended to highlight to companies the aspects of the licensing procedure that BaFin deems particularly important. | Press release (in German)

Lithuania:    

• (8 Jun 2022) The Government has approved various amendments to the Law on the Prevention of Money Laundering and Terrorist Financing, which introduce stricter controls on cryptoasset transactions. In particular, the amendments prohibit anonymous accounts, introduce more detailed expectations regarding customer identification, and require virtual currency exchange operators to register and hold at least EUR 125,000 in capital. The amendments must now be approved by Parliament. | Press release (in Lithuanian)

Russia:       

• (28 Jun 2022) Bill on Amendments to Part Two of the Tax Code of the Russian Federation (in Russian), which has been passed by the State Duma. The bill exempts the sale of cryptoassets from value-added tax, and establishes income tax rates of 13% for Russian exchanges on the first RUB 5 million of their taxable base annually, 15% on amounts above that limit, and a flat rate of 15% for foreign exchange operators.
• (7 Jun 2022) Bill (in Russian) amending certain acts in relation to the regulation of digital financial assets and utilitarian digital rights, which has been introduced to Parliament. The bill, if enacted, would prohibit the use of digital financial assets for payments for goods and services. | Bill overview webpage (in Russian)

Italy:              

• (16 Jun 2022) Bank of Italy statement (in Italian) on the risks and opportunities posed by the use of DLT and cryptoassets by supervised entities.

UK:       

• (30 Jun 2022) Speech by the Executive Director of Markets at the Financial Conduct Authority (FCA), Sarah Pritchard, on the current state of the UK financial market. Among other things, Pritchard notes that the FCA, the Bank of England (BoE) and the Prudential Regulation Authority intend to publish a joint discussion paper on new measures to address the risks posed by the financial sector's reliance on a small number of critical third parties in the cryptoasset sector.
• (29 Jun 2022) FCA update on its CryptoSprint initiative. CryptoSprints are regular events hosted by the FCA, which seek practical solutions to the legal, technical and regulatory challenges currently facing the cryptoasset industry. In May and June 2022, the FCA held two CryptoSprints focusing on issuance and disclosure, regulatory obligations and gaps in the UK's existing custody framework. The update sets out the key findings from these events.
• (16 Jun 2022) House of Commons Treasury Committee second report on its inquiry into the future of financial services regulation. Among other things, the report summarises the discussions the committee has been having with key stakeholders on the future regulation of cryptoassets, stablecoins and CBDCs. | Summary | Press release
• (15 Jun 2022) HM Treasury (HMT) report on the outcome of its consultation on amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Among other things, the report notes that HMT is modifying its initial proposals that would have required all senders of funds to unhosted wallets to collect identification details of recipients. Instead, cryptoasset businesses will only be expected to collect this information for transactions identified as posing an elevated risk of illicit finance.
• (6 Jun 2022) Minutes from the third meeting of the BoE's CBDC Engagement Forum. The forum discussed person-to-business payments using CBDCs.
• (2 Jun 2022) Speech by the BoE Executive Director for Markets, Andrew Hauser, on the balance sheet implications of digital assets. Hauser argues that, while the introduction of a CBDC would have important implications for the size, composition and risk profile of the BoE's balance sheets, the implications are not a reason in themselves not to proceed.

Middle East

Israel:            

• (20 Jun 2022) Bank of Israel report setting out the findings from its experiment on the use of smart contracts and CBDCs for the sale of a car. | Press release