Clifford Chance

Welcome to this month's global crypto round-up, summarising crypto regulatory developments that have happened around the world in June 2023 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

Custody of Cryptoassets –  moving towards industry best practice

The provision of custody services for cryptoassets has recently been under heightened scrutiny following high-profile insolvencies of certain crypto service providers. These insolvency proceedings have demonstrated that determining what type of claim clients of custodian wallet providers have in respect of their cryptoassets is crucial.

We are delighted to have collaborated with digital asset custodian Komainu on a new report, in which we aim to improve clarity for market participants on best practice, as well as draw attention to areas of legal and regulatory uncertainty where it would be helpful for legislators and regulators to take action with policy recommendations. The report contains a detailed analysis of the legal position of custodial wallet services across Australia, Germany, Japan, Jersey, the Netherlands, Singapore, the UAE, the UK and the US. We are grateful to the team at Carey Olsen for their contributions in relation to Jersey law.

New restriction on cryptoasset promotions to UK consumers - what do the FCA's strict new rules mean for cryptoasset businesses?

Following the introduction of legislation to bring cryptoassets within the UK's financial promotions regime, the UK's Financial Conduct Authority (FCA) is introducing "tough new rules" from 8 October 2023 meaning that cryptoassets will only be able to be marketed to UK consumers subject to certain restrictions.

The regime will apply to all firms marketing cryptoassets to UK consumers regardless of whether the firm is based overseas, or what form the promotion takes (which may include websites and social media posts). The changes will significantly impact the UK cryptoasset market and, in particular, make it difficult for international firms with no UK presence to access UK clients. With just four months to implement the changes, firms could face significant enforcement action if they don't act now.

GLOBAL LEGAL AND REGULATORY UPDATES, INDUSTRY GUIDANCE AND PUBLICATIONS

International

• (29 Jun 2023) Bank for International Settlements (BIS) Financial Stability Institute Executive Summary of the Financial Stability Board (FSB)’s proposed framework for the international regulation of cryptoasset activities. | Webpage
• (28 Jun 2023) Financial Action Task Force (FATF) targeted update on the implementation of the FATF standards on virtual assets and virtual asset service providers, which provides an update on country compliance with the FATF’s Recommendation 15 and its Interpretative Note (R.15/INR.15), including the travel rule, and updates on emerging risks and market developments, including on decentralised finance (DeFi), peer-to-peer transactions (P2P), and non-fungible tokens (NFTs), unhosted wallets, and stablecoins.
• (26 Jun 2023) International Monetary Fund (IMF) paper on institutional arrangements for fintech regulation and supervisory monitoring. Ultimately, the paper argues, the aim for authorities should be to consider fintech regulation part of the mainstream, where fintech expertise is embedded throughout an organisation and not siloed to specific fintech units. | Webpage
• (23 Jun 2023) Institute of International Finance (IIF)/Deloitte report on the digital transformation of financial services and moving from Open Banking to Open Data, which outlines how different data-sharing frameworks function as ecosystems with the potential to achieve goals for policymakers and market participants alike. | Webpage
• (22 Jun 2023) IMF article on interest in central bank digital currencies (CBDCs) and crypto in Latin America and the Caribbean. The authors argue that, while a few countries have completely banned cryptoassets, this approach may not be effective in the long run, and that the region should instead focus on addressing the drivers of crypto demand, including citizens’ unmet digital payment needs, and on improving transparency, by recording cryptoasset transactions in national statistics.
• (20 Jun 2023) The BIS has published a special chapter of its Annual Economic Report 2023 setting out a blueprint for a future monetary system, which envisages CBDCs, tokenised deposits and other tokenised claims on financial and real assets being brought together in a new type of financial market infrastructure or ‘unified ledger’. | Webpage | Press release
• (19 Jun 2023) IMF Fintech Note: ‘The Rise of Payment and Contracting Platforms’, which explores the design and governance of platforms to enhance cross-border payments in line with public policy goals and offers an initial blueprint for a novel class of cross-border payment and contracting platforms.
• (16 Jun 2023) The BIS and the Bank of England have completed Project Rosalind, which explored how a universal and extensible application programming interface (API) layer could connect central bank and private sector infrastructures and facilitate retail CBDC payments. | Report | Webpage | Press release
• (8 Jun 2023) Organisation for Economic Co-operation and Development (OECD) International Standards for Automatic Exchange of Information in Tax Matters, which comprise the Cryptoasset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS), along with associated commentaries and exchange of information frameworks. The CARF provides for the automatic exchange of tax relevant-information on cryptoassets. The CRS has been amended to bring certain electronic money products and CBDCs in scope. Changes have also been made to ensure that indirect investments in cryptoassets through derivatives and investment vehicles are now covered by the CRS.| Webpage
• (7 Jun 2023) BIS working paper that develops the concept of a ‘crypto multiplier’, which measures the response of a cryptocurrency's market capitalisation to the aggregate inflows and outflows of investors' funds. Building on the quantity equation, the authors derive the value of the crypto multiplier. The multiplier is likely to be larger than one so that an inflow or outflow of one dollar of investors' funds affects the market capitalisation of a cryptocurrency by more than one dollar. | Webpage
• (6 Jun 2023) The Basel Committee on Banking Supervision (BCBS) has held a meeting to discuss the outlook for the global banking system in light of recent economic and financial market developments. Among other things, the Committee assessed certain outstanding elements of the prudential treatment of banks' exposures to cryptoassets, including work related to the treatment of permissionless blockchains as well as the eligibility criteria for ‘Group 1’ stablecoins. | Press release

Africa

Kenya

• (2 Jun 2023) The Central Bank of Kenya (CBK) has published a report summarising the comments it received on its February 2022 discussion paper on CBDC. The report concludes that the implementation of a CBDC in Kenya may not be a compelling priority in the short to medium term, but the CBK intends to continue to monitor developments in CBDCs to inform future assessments of the need for CBDC in Kenya. | Press release

Americas

Canada

• (14 Jun 2023) House of Commons Standing Committee on Industry and Technology report on blockchain technology and cryptocurrencies, which highlights the importance of recognising the contribution of blockchain technology in a variety of industries in Canada and calls on the Government to support blockchain as an emerging industry capable of stimulating the economy and creating long-term jobs while also protecting and informing Canadians. | Webpage

US

• (16 Jun 2023) Speech by Acting Comptroller of the Currency Michael J. Hsu on the benefits and risks of tokenisation and artificial intelligence (AI), in which he discussed how risk and compliance can facilitate responsible innovation in AI and tokenisation, and the distinctions between public, trustless blockchains and centralised, trusted blockchains.
• (13 Jun 2023) Securities and Exchange Commission (SEC) letter submitted to the US Court of Appeals for the Third Circuit in response to a Court Order dated 6 Jun 2023, in which the SEC reiterates that it has not decided what action to take on Coinbase’s July 2022 rulemaking petition, but states that it anticipates being able to make a recommendation regarding the petition within the next 120 days and that it can provide the Court with a status report at the expiration of that period, by 11 October 2023.
• (13 Jun 2023) Speech by US Department of the Treasury Assistant Secretary for Financial Institutions, Graham Steele, in which he argued that, when designing any potential retail CBDC, the Treasury should consider the extent to which privacy and anonymity might be preserved and explore the technologies and methods available to enable such protections.
• (8 Jun 2023) Discussion draft of a bill to provide for the regulation of payment stablecoins. The bill was discussed at the House Financial Services Committee hearing on ‘The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem’ on 13 Jun 2023. | Hearing webpage
• (8 Jun 2023) Speech by SEC Chair, Gary Gensler, in which he discussed the SEC’s recent enforcement actions against Coinbase and Binance. Gensler reiterated his view that the vast majority of crypto tokens meet the investment contract test and that crypto security issuers need to register the offer and sale of their investment contracts with the SEC or meet the requirements for an exemption. He also dismissed the argument that crypto intermediary compliance is not possible, noting that in order to protect investors, crypto intermediaries may need to separate lines of business, put into place rulebooks that protect against fraud and manipulation, properly segregate customer funds, mitigate conflicts, or change their approach to clearing and custody.
• (6 Jun 2023) Commodity Futures Trading Commission (CFTC) Chairman, Rostin Behnam, has testified before the House Committee on Agriculture hearing on ‘The Future of Digital Assets: Providing Clarity for Digital Asset Spot Markets’. | Opening statement | Hearing page with video recording
• (5 Jun 2023) The SEC has charged Coinbase, Inc. for operating its cryptoasset trading platform as an unregistered national securities exchange, broker, and clearing agency and for failing to register the offer and sale of its cryptoasset staking-as-a-service program. | Press release
• (5 Jun 2023) The SEC has charged Binance Holdings Ltd., its US-based affiliate, BAM Trading Services Inc., and their founder, Changpeng Zhao, with a variety of securities law violations, including operating unregistered exchanges, broker-dealers, and clearing agencies; misrepresenting trading controls and oversight on the Binance.US platform; and the unregistered offer and sale of securities. | Press release
• (5 Jun 2023) Congressmen Brad Sherman and Stephen Lynch, both Democrat members of the House Committee on Financial Services, have sent a letter to the United States Treasury Department and the Internal Revenue Service to urge the prompt release of proposed regulations that would bring the cryptocurrency industry into full tax compliance.
• (2 Jun 2023) Digital Asset Market Structure Discussion Draft, which sets out draft legislation providing a statutory framework for digital asset regulation intended to provide clarity, fill regulatory gaps, and foster innovation, while providing adequate consumer protections. The draft has been released by Republican Congressmen Patrick McHenry, Chairman of the House Financial Services Committee, and Glenn ‘GT’ Thompson, Chairman of the House Committee on Agriculture. | Press release | Section-by-section summary
• (1 Jun 2023) CFTC advance notice of proposed rulemaking (ANPRM) seeking public comment on potential amendments to the Risk Management Program (RMP) requirements applicable to swap dealers and futures commission merchants. In an accompanying statement, Commissioner Christy Goldsmith Romero noted that evolving technologies like digital assets, AI, and cloud services, have emerged as areas that can carry significant risk, and that the CFTC should ensure that its risk management frameworks for banks and brokers reflect and keep pace with the significant evolution of financial stability risk. | Press release

APAC

New Zealand

• (30 Jun 2023) The Reserve Bank of New Zealand (RBNZ) has published a summary of the responses it received to its December 2022 issues paper on the future of money and set out its next steps. The RBNZ has concluded that a regulatory approach to stablecoins and cryptoassets is not needed at present, but that increased vigilance is, and that there is a need for enhanced data and monitoring to build understanding. | Webpage | Press release

Singapore

• (26 Jun 2023) Monetary Authority of Singapore (MAS) report on one of the foundational principles of Project Guardian – the establishment of open and interoperable networks. The report introduces a framework for understanding the design options to enable the trading of digital assets across networks and liquidity pools. The framework considers the core principles of financial market infrastructure and takes reference from projects that have sought to push the boundary on these topics. The report was jointly developed with subject matter experts at the BIS Committee on Payments and Market Infrastructure (CPMI). | Webpage
• (21 Jun 2023) MAS technical whitepaper on Purpose Bound Money (PBM), proposing a common protocol to specify conditions for the use of digital money such as CBDC, tokenised bank deposits, and stablecoins on a distributed ledger. | Press release

Europe

EU

• (28 Jun 2023) The EU Commission has published its proposals for a digital euro as part of a ‘single currency package’, which comprises proposals for a Regulation establishing the legal framework for a possible digital euro, a Regulation on the provision of digital euro services by payment services providers incorporated in Member States whose currency is not the euro and a Regulation on the legal tender of euro coins and banknotes. | Digital euro package webpage | The euro as legal tender webpage | Press release | Q&A
• (28 Jun 2023) The EU Commission has put forward its financial data access and payments package, which comprises proposals for a new Payment Services Directive (PSD3), a Payment Services Regulation (PSR) and a Regulation on a framework for financial data access. | Webpage | Q&A | Press release 
• (28 Jun 2023) European Central Bank (ECB) blog post by Fabio Panetta, Member of the Executive Board of the ECB, and Valdis Dombrovskis, Executive Vice-President of the EU Commission, arguing that the digital euro is a necessary step to ensure that the EU’s monetary system keeps up with digital advances.
• (26 Jun 2023) EU Council and Parliament negotiators have reached a provisional agreement on amendments to the Capital Requirements Regulation and the Capital Requirements Directive (CRR3/CRD6). The agreement includes a transitional prudential regime for cryptoassets. | Council press release | Parliament press release | Commission press release
• (23 Jun 2023) Speech by Fabio Panetta, Member of the Executive Board of the ECB, on how crypto failed to deliver on its promises and what to do about it. | Slides
• (21 Jun 2023) Speech by Verena Ross, Executive Director of the European Securities and Markets Authority (ESMA), on building safe digital financial markets. Amongst other things, Ross discussed ESMA’s work on implementing measures under the Markets in Cryptoassets Regulation (MiCA) and the DLT Pilot Regime.
• (20 Jun 2023) Speech by Mairead McGuinness, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union, at the FinTech Soiree hosted by the European Fintech Association. Among other topics, McGuinness discussed the Digital Operational Resilience Act (DORA), MiCA, the Commission’s work on payments and the digital euro.
• (19 Jun 2023) European Supervisory Authorities (ESAs) public consultation on the first batch of policy products under the Digital Operational Resilience Act (DORA). This includes the following four draft regulatory technical standards (RTS) and one set of draft implementing technical standards (ITS), which are intended to ensure a consistent and harmonised legal framework: RTS on ICT risk management framework and RTS on simplified ICT risk management framework; RTS on criteria for the classification of ICT-related incidents;  ITS to establish the templates for the register of information; RTS to specify the policy on ICT services performed by ICT third-party providers
• Comments on the consultation are due by 11 September 2023. The ESAs will be organising an online public hearing on 13 July 2023. The final draft technical standards are to be submitted to the EU Commission for adoption by 17 January 2024. | Introductory note | Press release
• (15 Jun 2023) ESMA has set out its timetable for consulting on the implementing measures under MiCA. ESMA will be releasing the MiCA consultation packages in sequence starting with the Level 2 and Level 3 measures with the shortest deadlines. These include those related to authorisation, governance, conflicts of interest, and complaint handling procedures. The first package will be launched in July 2023. ESMA plans to publish the second package by October 2023. The third and final consultation package, which includes the MiCA mandates with an 18-month deadline, will be published (tentatively) in Q1 2024. | Webpage | Timeline
• (9 Jun 2023) Regulation (EU) 2023/1114 on markets in MiCA and Regulation (EU) 2023/1113 on information accompanying transfers of funds and certain cryptoassets (recast) have been published in the Official Journal. MiCA establishes an EU regulatory framework for the issuance, offering, intermediation and dealing in cryptoassets, including licensing, conduct of business requirements and enhanced consumer protection, as well as a market abuse regime. The recast Regulation on information accompanying transfers of funds, which is part of a package of legislative amendments designed to strengthen the EU's anti-money laundering and counter terrorist financing (AML/CTF) rules, is intended to improve the traceability of cryptoasset transfers and the identification of suspicious transactions. Both regulations will enter into force on 29 June 2023. The provisions under MiCA in relation to stablecoins will apply from 30 June 2024, with the remaining provisions on issuers of other cryptoassets and cryptoasset service providers applying from 30 December 2024, together with the transfer of funds rules.
• (8 Jun 2023) BEUC, The European Consumer Organisation, and nine of its members (in Denmark, France, Greece, Italy, Lithuania, Portugal, Slovakia and Spain) have filed a complaint with the EU Commission and consumer authorities against Instagram, YouTube, TikTok and Twitter for facilitating the misleading promotion of cryptoassets. Their report, ‘Hype or harm? The great social media crypto con’, calls for: (i) stricter advertising policies for crypto on social media platforms, (ii) the adoption of measures to prevent influencers from misleading consumers as to the nature of crypto, (iii) platforms to inform the EU Commission about the effectiveness of the measures put in place to protect consumers against such unfair practices, and (iv) European consumer authorities to cooperate with the European Supervisory Authorities (ESAs) for financial services to ensure the platforms adapt their advertising policies to prevent the misleading promotion of crypto. | Press release
• (2 Jun 2023) ESMA updated Q&A on the implementation of Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology (DLT).

France

• (19 Jun 2023) Autorité des Marchés Financiers (AMF) discussion paper on DeFi, in which the AMF shares its preliminary thinking on the regulatory issues raised by cryptoassets and the new financial activities based on automated, decentralised and disintermediated protocols that make up the emerging DeFi ecosystem. The AMF has invited stakeholders to share their views by 30 September 2023, to feed into the European and international work on these matters.| Press release
• (8 Jun 2023) Association Française des Marchés Financiers (AMAFI) note setting out the changes to the French Monetary and Financial Code and the French Commercial Code resulting from the decree adapting French securities law to Regulation (EU) 2022/858 on a pilot regime for market Infrastructures based on DLT.

UK

• (29 Jun 2023) The Financial Services and Markets Bill and the Retained EU Law (Revocation and Reform) Bill have received Royal Assent and become Acts of Parliament. The Financial Services and Markets Act 2023 is intended to implement the outcomes of the UK Government's future regulatory framework (FRF) review and to make other significant changes to the structure and content of UK financial services regulation. Amongst other things, it enables the regulation of cryptoassets and establishes sandboxes to facilitate the use of new technologies such as blockchain in financial markets. | Press release
• (28 Jun 2023) Law Commission final report on digital assets, which sets out recommendations for reform and development of the law intended to provide a comprehensive legal foundation for digital assets. The report concludes that the common law of England and Wales is well placed to provide a coherent and globally relevant regime for existing and new types of digital asset. The report also makes recommendations to provide market participants with legal tools that do not yet exist in England and Wales, such as new ways to take security over crypto-tokens and tokenised securities. | Webpage | Summary | Press release
• (27 Jun 2023) Law Society Legal & Regulatory Guidance on Blockchain (3rd edition), which includes  guidance on a range of key issues for legal practitioners to be aware of when advising on DLT-related matters. | Webpage
• (8 Jun 2023) FCA policy statement (PS23/6) summarising the feedback the FCA received to its January 2022 consultation (CP22/2) in relation to cryptoassets and setting out its final policy position and near final Handbook rules. The FCA intends to proceed with categorising cryptoassets as ‘restricted mass market investments’ and applying the associated restrictions on how they can be marketed to UK consumers. The new regime will come into force on 8 October 2023. The FCA has also launched a separate guidance consultation (GC23/1) on how it will approach, and how firms comply with, the requirement that cryptoasset financial promotions must be fair, clear and not misleading. Deadline for comments: 10 August 2023. | Policy statement webpage | Guidance consultation webpage | Research note: Cryptoassets consumer research 2023 (Wave 4) | FCA webpage for cryptoasset firms marketing to UK consumers | Press release | CC Talking Tech article
• (7 Jun 2023) The Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (SI 2023/612) has been made. The Order amends the FSMA (Financial Promotion) Order 2005 (FPO) to include financial promotions in respect of qualifying cryptoassets, such as exchange tokens. The Order also introduces a temporary, limited exemption for: (i) cryptoasset businesses registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (AML/CFT Regulations); and (ii) persons who communicate non-real time financial promotions prepared by a registered person on that person's behalf. For the purposes of enabling the FCA to make rules and give guidance, the Order came into force on 8 June 2023. For all other purposes and to ensure compliance, there will be a four-month implementation period before the Order comes into force. | CC Talking Tech article
• (6 Jun 2023) Letter dated 23 May 2023 from the Chancellor of the Exchequer, Jeremy Hunt, to the Chairs of Treasury Select Committee and Economic Affairs Committee setting out the Government’s commitment to introducing primary legislation before launching a digital pound in order to ensure that Parliament is fully engaged. The letter also emphasises that the Government and the Bank of England are at an early stage of policy development, that they have not made a decision on whether or not to introduce the digital pound, and that, as a result, they do not yet know whether a potential digital pound will require primary legislation.
• (5 Jun 2023) All Party Parliamentary Group (APPG) for Crypto and Digital Assets report on the need for urgent regulation of the cryptocurrency and digital asset industry in the UK, which reports on the APPG’s official inquiry into the sector. The report makes a total of 53 recommendations to Government on key areas including the UK’s approach to the regulation of cryptocurrency, the role of UK regulators, CBDCs and the ‘Digital Pound’, and risks in terms of consumer protection and economic crime. | Press release

Middle East

Israel

• (6 Jun 2023) The Tel Aviv Stock Exchange and the Israeli Ministry of Finance have announced the successful completion of the proof of concept phase for Project Eden, issuing a government digital bond on a dedicated blockchain platform. | Press release