Clifford Chance

Welcome to this month's global crypto round-up, summarising crypto regulatory developments that have happened around the world in September 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

Focus: EU Markets in Crypto-assets Regulation (MiCA)

We're pleased to share a new dedicated MiCA resource on our fintech topic guide. We have collated all Clifford Chance MiCA materials including the recordings from our recent Insights Calls series, together with information about MiCA's legislative passage and other official publications that will be regularly updated.

You can find the "Focus: MiCA" section on our fintech topic guide. If you have not already registered, you can request access to the guide and wider resources on our Client Portal by clicking on the "Register" box.

Banks' exposure to crypto – what do you need to know?

On 16 December 2022, the Basel Committee on Banking Supervision (BCBS) published a finalised prudential standard on banks' cryptoasset exposures (the Cryptoassets Standard) following two rounds of consultation. This article looks at what the final proposals say and the impact for market participants.

Fintech: The Evolving French Regulatory Landscape

The existing digital assets regulatory framework in force in France will be replaced by MiCA. This article looks at what changes this will mean in practice, how this will be implemented and how the regimes compare.

Crypto regulation: the introduction of MiCA into the EU regulatory landscape

With parts of MiCA anticipated to come into force from spring 2024, this article discusses what issuers of stablecoins and other cryptoassets, custodians and other crypto service providers need to know now.

Italian government calls for new cryptoassets tax treatment

The Italian Government recently published the bill of the Budget Law for 2023 envisaging the introduction of a specific set of rules for the taxation of cryptoassets. Previously cryptoasset taxation was based on general principles and (heavily criticised) guidance issued by the tax authority. The proposed new tax framework covers several sources of income, including those derived from cryptocurrencies, tokens (including NFTs) and related activities such as staking and airdrops, regardless of whether they have an investment purpose.

Updates on new VASP licensing regime in Amended AMLO

The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (Amended AMLO) was passed by the Legislative Council of the Hong Kong Special Administrative Region (LegCo) on 7 December 2022. This article explores the key concepts under the Amended AMLO and outline the amended extended timeline for commencement of the licensing regime for virtual asset service providers or VASPs.

Talking Tech: The Role of Fintech in the Future of Debt Capital Markets

Clifford Chance counsel Alexander Tollast discusses the role of fintech in the future of debt capital markets together with Christopher Wallace (Assistant General Counsel and Director, Bank of America), Rowan Varrall (Associate, Fintech and Digitalisation, ICMA) and Paula Redondo Pereira (Head of Regulatory Affairs, the Luxembourg Stock Exchange) in this podcast episode, covering innovations including digital bonds.

UK Edinburgh Reforms – Impact on Financial Services

The UK government has announced a package of over 30 measures to reform financial services regulation. The "Edinburgh reforms" are intended to drive growth and competitiveness in the UK financial services sector and include the government's plans for the repeal and reform of retained EU law on financial services under the Financial Services and Markets Bill. This briefing provides an overview of the reforms and the timeline for their implementation.

Global Legal And Regulatory Updates, Industry Guidance And Publications

International

• (28 Dec 2022) Clifford Chance has advised HQLAᵡ on its collaboration with Fnality to complete an innovative delivery-versus-payment (DvP) repo settlement proof of concept that promises to deliver efficiencies to the industry and move it closer to intraday settlement through the use of DLT. The proof of concept involved Banco Santander, Goldman Sachs and UBS as project participants, and the collateral transfer was conducted on the HQLAᵡ DLT, built on R3 Corda, with the funds transfer managed using the Fnality Payment System, built on Enterprise Ethereum. It successfully demonstrated how platforms operating on different DLTs can be connected to process such a transaction, allowing banks to reduce significantly their intraday liquidity requirements. The Clifford Chance team, who ensured the technology aligned with existing legal principles, was led by London Partner Jeremy Walter, with the support of Senior Associate Diego Ballon Ossio. | Press release
• (16 Dec 2022) The Group of Central Bank Governors and Heads of Supervision (GHOS) that oversees the Basel Committee on Banking Supervision (BCBS) has endorsed a finalised prudential standard on banks' cryptoasset exposures and the Committee's work programme and strategic priorities for 2023-24. The new standard is intended to provide a global regulatory framework for internationally active banks' exposures to cryptoassets, including tokenised traditional assets, stablecoins and unbacked cryptoassets. GHOS members agreed to implement the standard by 1 January 2025 and tasked the Basel Committee with monitoring the implementation and effects of the standard. | Press release | Clifford Chance article
• (16 Dec 2022) Bank for International Settlements (BIS) working paper on cryptocurrencies and decentralised finance, which discusses potential benefits and challenges of the new system and presents a comparison with the traditional system of financial intermediation.
• (6 Dec 2022) The Financial Stability Board (FSB) Plenary has met in Basel to discuss the outlook for global financial stability. The Plenary discussed developments in cryptoasset markets, including preliminary lessons from the recent failure of FTX. The FSB has also indicated that it will enhance its cryptoassets monitoring framework to include decentralised finance (DeFi)-specific vulnerability indicators and explore approaches to fill data gaps to measure and monitor interconnectedness of DeFi with traditional finance, with the real economy and with the crypto-asset ecosystem. | Press release
• (2 Dec 2022) Organisation for Economic Cooperation and Development (OECD) paper on the environmental impact of digital assets and cryptoasset mining and distributed ledger technology consensus mechanisms. The paper explores the growing environmental impact of cryptoassets due to increasing institutional and retail investors participation in these markets.

Americas

Brazil:            

• (23 Dec 2022) Brazilian Securities and Exchange Commission (CVM) resolution (in Portuguese) setting out a new regulatory framework for investment funds, which allows for new investment possibilities in cryptoassets. | Press release (in Portuguese)

Canada:  

• (19 Dec 2022) Bank of Canada staff analytical note on the potential benefits and key risks of fiat-referenced cryptoassets, which highlights the need for adequate regulation and supervision.
• (12 Dec 2022) Canadian Securities Administrators (CSA) statement on the steps CSA is taking to strengthen its approach to oversight of crypto trading platforms by expanding existing requirements for platforms operating in Canada

United States

• (22 Dec 2022) The Federal Reserve Bank of Boston and the Massachusetts Institute of Technology (MIT) have completed Project Hamilton, their joint research into the technical feasibility of a potential central bank digital currency. The project focused on better understanding the capabilities and limitations of different technologies that might be used to manage and transfer CBDCs. Researchers at the Boston Fed and MIT intend to release additional retrospectives on Project Hamilton’s findings in the coming months. | Press release
• (16 Dec 2022) Financial Stability Oversight Council (FSOC) annual report, which identifies gaps in the regulation of cryptoasset activities in the United States and recommends the passage of legislation providing for rulemaking authority for federal financial regulators over the spot market for cryptoassets that are not securities, steps to address regulatory arbitrage, and an assessment of whether vertically integrated market structures can or should be accommodated under existing laws and regulations. | Webpage
• (15 Dec 2022) New York Department of Financial Services (NYDFS) Superintendent Adrienne A. Harris has released guidance to banking organisations that wish to engage in virtual currency-related activities. The guidance is applicable to all New York regulated banking organisations, as well as branches and agencies of foreign banking organisations licensed by the NYDFS and reminds them of the current requirement to seek prior approval before commencing virtual currency-related activity, including where any portion of those activities will be conducted by a third party. The guidance outlines six broad categories of information that the NYDFS will consider in assessing an institution’s proposal: business plan; risk management; corporate governance and oversight; consumer protection; financials; and legal and regulatory analysis. The guidance also includes a supplemental checklist of initial documents and information that a covered institution should provide for the NYDFS to consider in its assessment. | Press release
• (14 Dec 2022) US Senators Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kan.) have introduced the Digital Asset Anti-Money Laundering Act of 2022, which is intended to bring cryptocurrency and other digital assets into greater compliance with the rules that govern other parts of the financial system. Amongst other things, the Act would: extend Bank Secrecy Act (BSA) responsibilities, including know-your-customer requirements; prohibit financial institutions from using or transacting with digital asset mixers; strengthen enforcement of BSA compliance; and extend BSA rules regarding reporting of foreign bank accounts to include digital assets. | Press release
• (8 Dec 2022) Securities and Exchange Commission (SEC) sample letter to companies regarding recent developments in cryptoasset markets, in which the SEC highlights that companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that recent bankruptcies and financial distress among cryptoasset market participants and the disruption in those markets and collateral events have had or may have on their business.
• (1 Dec 2022) Statement by Commodity Futures Trading Commission (CFTC) Commissioner Kristin N. Johnson, in which she called for the CFTC to use its existing authority to further mitigate the potential risks of crypto fraud to all customer assets held by all current registrants or licensed participants operating in its markets, as well as prospective registrants. Johnson also expressed her hope that Congress will identify a whole-of-government approach to ensuring that regulators prevent schemes that rely on regulatory arbitrage or take advantage of the regulatory gap that currently limits their visibility into digital asset trading markets and stymies their ability to adopt rules necessary to effectuate their mission in these markets, i.e. to protect customers, ensure market integrity, and foster fair, orderly, and transparent markets.
• (1 Dec 2022) The New York Department of Financial Services (NYDFS) has published a proposed regulation on virtual currency licensee assessments, which sets out the basis for allocating the NYDFS' costs and expenses among virtual currency business licensees, and the process for making such assessments.

APAC

Hong Kong:

• (20 Dec 2022) Hong Kong Monetary Authority (HKMA) circular on the finalised BCBS prudential standard on banks' cryptoasset exposures, in which the HKMA confirms that it intends to implement the standard by 1 January 2025 in accordance with the BCBS timetable.
• (7 Dec 2022) The Government of Hong Kong has announced the passage of the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 to enhance Hong Kong's regulatory regime for combating money laundering and terrorist financing. Amongst other things, the amended Anti-Money Laundering and Counter-Terrorist Financing Ordinance introduces a licensing regime for virtual asset service providers, which will take effect on 1 June 2023. | Press release

India

• (29 Dec 2022) Reserve Bank of India Financial Stability Report, which argues that in order to promote responsible innovation and to mitigate financial stability risks in the crypto ecosystem, it is vital for policymakers to design an appropriate policy approach and for regulators to arrive at a common approach to cryptoassets. | Report webpage | Press release

Kazakhstan:

• (15 Dec 2022) National Bank of Kazakhstan report (in Russian) on the possible introduction of a Kazakh central bank digital currency (CBDC), the 'digital tenge'​.
• Republic of Korea:
• (5 Dec 2022) Bank of Korea report (in Korean) on key issues and Korea's legislative direction related to cryptoasset regulation, which includes a chapter on the need for special regulations on stablecoins.

EUROPE

EU:

• (27 Dec 2022) The Digital Operational Resilience Act (DORA) and the DORA Amending Directive have been published in the Official Journal. DORA is intended to establish a uniform set of requirements for the security of network and information systems of companies and organisations operating in the financial sector including cryptoasset service providers, as well as any critical third parties which provide information communication technologies services to them. It is part of the EU Commission's wider digital finance strategy which was published in September 2020. DORA will enter into force on 16 January 2023 and apply from 17 January 2025.
• (21 Dec 2022) European Central Bank (ECB) second progress report on the investigation phase of a digital euro. The report provides an overview of developments since the September 2022 progress report and sets out a second set of design and distribution options that were recently endorsed by the Governing Council. In 2023 the ECB will further assess a number of design and distribution options and in the second half of the year present the overall design of a digital euro to the Governing Council. The Governing Council is expected to review the outcome of the investigation phase in autumn 2023 and to decide whether to proceed to a realisation phase. | Press release
• (15 Dec 2022) European Securities and Markets Authority (ESMA) final report including guidelines on standard templates, forms and formats to apply for permission to operate a DLT market infrastructure. The guidelines include templates to be used by market participants to apply for specific permission to operate any type of DLT market infrastructure (DLT MI) under the DLT Pilot Regulation (DLTR), namely: a DLT MTF, a DLT settlement system or a DLT trading and settlement system. | Press release
• (9 Dec 2022) Federation of European Securities Exchanges (FESE) response to the Financial Stability Board (FSB) consultation on regulation, supervision, and oversight of cryptoasset activities and markets.
• (8 Dec 2022) EU Commission proposal for a Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC8), which is intended to improve Member States' ability to detect and counter tax fraud, tax evasion and tax avoidance by requiring all cryptoasset service providers, irrespective of their size or location, to report transactions of clients residing in the EU. The adopted act is open for feedback until 2 February 2023 and will then be submitted to the EU Parliament for consultation and to the EU Council for adoption. The new reporting requirements with regard to cryptoassets, e-money and digital currencies are expected to enter into force on 1 January 2026. | Press release | Q&A
• (7 Dec 2022) The EU Council has agreed its position on legislative proposals for a sixth directive on anti-money laundering and countering the financing of terrorism (AML/CFT) (AMLD6) and an AML regulation (AMLR1). Key elements of the proposed AMLD6 and AMLR1 include expanding the scope of EU AML/CFT rules to cover the entire crypto sector, including due diligence obligations on cryptoasset service providers. The co-legislators are expected to enter trilogue negotiations in order to agree on a final version of the two texts in due course. | Press release
• (7 Dec 2022) Letter from Fabio Panetta, Member of the Executive Board of the European Central Bank (ECB), to Irene Tinagli, Chair of the EU Parliament's Economic and Monetary Affairs Committee (ECON) on the publication of the technical onboarding package for the digital euro prototyping exercise. The onboarding package contains the necessary information for participants in the digital euro prototyping exercise to integrate their front-end prototype with the back-end prototype developed by the Eurosystem. The aim of the exercise is primarily to learn, by testing how potential back-end solutions can integrate with front-end prototypes developed by companies with a track record in the area of payment services.| Cover note: The Eurosystem's technical onboarding package for digital euro prototyping | Annex 1: technical onboarding package for front-end prototype providers | Annex 2: core settlement application programming interface | Press release
• (7 Dec 2022) Speech by Fabio Panetta on the bursting crypto bubbles and the destiny of digital finance.

France

• (9 December 2022) The Autorité de contrôle prudentiel et de resolution (ACPR), in conjunction with the French intelligence unit TRACFIN and the French Ministry of Economy, has published sectoral application principles (in French) for regulated digital assets services providers (PSAN). The explanatory document, which is not binding, sets out and provides specific guidance on anti-money laundering/counter terrorism financing (AML/CTF) regulations applicable to PSANs in France and is intended to facilitate the development and implementation by PSANs of compliant AML/CTF preventive systems and asset freeze policies. The document supplements the first report (in French) on registered PSANs published in July 2021.

Italy

• (29 Dec 2022) The Senate has approved Italy's budget for 2023, which includes new rules on the taxation of capital gains on cryptoasset trading over EUR 2,000. | Budget (in Italian)

Malta

• (5 Dec 2022) Malta Financial Services Authority consultation document on the proposed treatment of non-fungible tokens in the context of the virtual financial assets framework. Consultation deadline: 6 January 2023.

Spain

• (5 Dec 2022) The Bank of Spain has launched a new wholesale central bank digital currency (CBDC) project and invited interested organisations to submit their proposals for the experiment by 31 January 2023. The Bank of Spain has emphasised that this project is not related to the work that is being done by the Eurosystem around the digital euro, but is an exclusive initiative of the Bank of Spain. | Project webpage (in Spanish) | Information note (in Spanish)

Turkey

• (29 Dec 2022) The Central Bank of the Republic of Turkey (CBRT) has announced that the first payment transactions on the Digital Turkish Lira Network have been executed successfully as part of the first-phase studies of the Digital Turkish Lira Project. The CBRT will continue to run the limited, closed-circuit pilot tests with technology stakeholders in the first quarter of 2023. It also intends to expand the Digital Turkish Lira Collaboration Platform in 2023 to involve selected banks and financial technology companies. | Press release

UK

• (16 Dec 2022) House of Lords Special Public Bill Committee call for evidence on the reforms proposed in the Electronic Trade Documents Bill.  The call for evidence deadline is 10 January 2023. | Press release
• (15 Dec 2022) UK Finance report on how unbacked cryptoassets might be regulated in future. The report highlights that defining cryptoassets as financial instruments could bring them into CASS and the on-shored MiFID and MAR regimes, but that these regimes would need to be significantly amended and adapted to sufficiently map cryptoassets and account for the novel risks raised. | Webpage
• (9 Dec 2022) The UK Government has announced an extensive package of reforms to the UK's regulatory framework for financial services aimed at maintaining and building the competitiveness of the UK as a global financial centre. Measures set out in the Edinburgh Reforms package include, amongst other things:
  • o  consulting on a UK retail CBDC alongside the Bank of England in the coming weeks;
  • o  publishing a response to the consultation on expanding the Investment Manager Exemption to include cryptoassets;
  • o  implementing a Financial Market Infrastructure Sandbox in 2023; and
  • o  working with the regulators and market participants to trial a new class of wholesale market venue which would operate on an intermittent trading basis.
• (8 Dec 2022) Law Society response (dated 4 Nov 2022) to Law Commission consultation on proposed law reforms intended to better recognise and protect digital assets by assigning them to a new category of personal property ('data objects'), which would be separate from the existing categories of 'things in possession' and 'things in action' under English law. | Consultation webpage | Summary of consultation paper
• (1 Dec 2022) Speech by the Economic Secretary, Andrew Griffith MP, in which he reiterated the UK Government's commitment to fintech and crypto and the potential of the underlying technology, and acknowledged that recent events in the crypto market reinforce the case for timely, clear and effective regulation.

Events

Insights on Financial Regulation: MiCA for exchanges, brokers and other venues (online, 5 January 2023):
In this call we will outline the new requirements that exchanges and brokers for digital assets should be aware of, including disclosure and governance requirements. | To register, please see the event series registration form