CryptoLaw Newsletter #25
FATF publishes update on crypto/DeFi; BIS thinks crypto can re-focus attention on financial inclusion; US Presidential WG publishes stablecoin report; digital euro committee members selected
Hello CryptoLawyers,
Another wave of reports and announcements on crypto & law this week! I summarized the highlights for you below.
On another note: I’ve been writing this weekly newsletter for 6 months now, in my free time. I don’t know yet if it is sustainable to continue and I might need to find sponsors and contributors to keep it going (thanks to those who have contacted me!). Meanwhile, thank you for buying me a coffee via the "Buy Me A Coffee" button below. For now, this newsletter is supported by coffee donors like you!
Ok, here we go:
Digital assets
Global – Are we a step closer to global anti-money laundering rules for the crypto industry? The Financial Action Task Force (FATF) published its Updated Guidance on Virtual Assets and Virtual Asset Service Providers. After a few months of delay, a consultation period and much criticism from the crypto industry, FATF rounded the sharpest corners of its suggestions on how its anti-money laundering rules, and particular the infamous Travel Rule, apply to the crypto-industry and DeFi in particular. See our blog here.
Global - Another crypto report by the Bank for International Settlements: this time on the importance of cryptoassets of various sorts for emerging markets and developing economies. The conclusion? “[P]erhaps the most important contribution of new private digital currencies so far is to draw greater – and welcome – attention to the challenges to financial inclusion and cross-border payments and remittances” in these countries.
US – The Securities and Exchange Commission (SEC) won’t approve leveraged Exchange Traded Fund (ETF), at least for now. According to people familiar with the matter, the SEC asked at least one asset manager not to proceed with plans for a leveraged bitcoin ETF. (WSJ)
US – SEC, CFTC and DoJ attorneys outlined their enforcement priorities: not only corporate crypto-gatekeepers will be the focus of enforcement cases, but white-collar crypto-crime by individuals is also high on the agenda. The CFTC’s Acting director of enforcement, Vincent McGonagle, added his concern over DeFi. (Cointelegraph and Law360)
US – The Department of Justice (DoJ) is looking for a director for its crypto enforcement unit. (Coindesk)
Afghanistan – Crypto adoption appears to have surged in Afghanistan recently. Does it benefit ordinary Afghans in their daily lives? Unlikely, writes Decrypt, but it could benefit the Taliban.
Kazakhstan expects US$ 1.5 billion worth of economic activity linked to crypto-mining. (Cointelegraph) The country saw an increase in crypto mining after China’s crackdown on the industry. Kazakhstan ranked #3 in terms of bitcoin mining in April this year with over 8% of hashing power on the Bitcoin blockchain, according to CCAF.
Australia – The Australia Securities and Investments Commission (ASIC) issued guidelines about crypto-related Exchange Traded Products (ETPs). "Licensed exchanges may determine that crypto-assets can be permissible underlying assets for ETPs admitted to their market," it said. ASIC listed 5 factors for crypto ETP operators to consider, namely the presence of (1) broad institutional support, (2) reputable/experienced service providers, (3) a mature spot market, (4) regulated futures market for crypto-derivatives and (5) a robust/transparent pricing mechanism. The guidelines added that “bitcoin (BTC) and ether (ETH) appear likely to satisfy all five factors identified above to determine appropriate underlying assets for an ETP”.
Australia – Who’s the real Satoshi Nakamoto? Australian cryptographer Craig Wright has claimed for several years he’s the Bitcoin inventor, although that claim has been met with much (much…) scepticism. Wright was sued by Ira Kleiman, who claims his late brother was Wright’s “partner” in his Bitcoin venture. The civil trial started in Miami yesterday and the jury will need to decide whether Kleiman can claim a share of the estimated 1.1 million bitcoin (worth over $60 billion) that the real Satoshi might own. Even if the jury sides with Kleiman, however, it’s not clear how an order to hand over the bitcoin could be enforced. Wright previously claimed to have access to the bitcoin, but failed to prove his claims. (Coindesk)
Australia – Senator Andrew Bragg thinks the crypto industry is willing to embrace regulations, hoping this can help propel broader crypto adoption in the country. (Cointelegraph)
India is reportedly considering regulating cryptoassets as commodities. Finance Ministry officials hinted that a new law on cryptoassets, which could coincide with the presentation of the Union Budget in February, might move away from a blanket crypto-ban and instead treat crypto as assets. (Cointelegraph)
Japan – Crypto-exchange Liquid’s subsidiary has obtained a Type 1 Financial Instruments Business license from the Japanese regulator that allows it to offer derivatives. The license was granted under the Financial Instruments and Exchange Act. Liquid is a large crypto-fiat exchange and its activities are regulated by the Payment Services Act. It also applied for license from the Monetary Authority in Singapore. (Cointelegraph)
Stablecoins
US – Stablecoin issuers should be regulated like banks, according to the President's Working Group on Financial Markets. The Group, together with the Office of the Comptroller and the Federal Deposit Insurance Corporation, published its long-awaited stablecoin report yesterday. “Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter,” said Treasury head Janet Yellen. The Group asked Congress to legislate stablecoin issues like banks. Meanwhile, regulators will “continue to operate within their mandates” to address the risks of stablecoins. The main risks identified in the report are stablecoins’ “potential for destabilizing runs, disruptions in the payment system, and concentration of economic power.” The Report wants Congress to introduce legislation to address each of these risks, including by requiring (i) stablecoin issuers to be insured depository institutions, (ii) custodial wallet providers to be subject to appropriate federal oversight and (iii) stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities. The report suggested supervisors should have authority to implement standards to promote interoperability among stablecoins. Congress “may wish to consider” additional standards for custodial wallet providers, such as limits on the use of users’ transaction data. For a summary, see this Reuters article. Stablecoins have also drawn the attention of supra-national bodies such as the Financial Stability Board and the Bank for International Settlements.
DeFi
Global – DeFi made it into the latest updated guidance from the Financial Action Task Force’s (FATF). The guidance also discussed DeFi governance tokens: “An individual token holder in such a scenario does not have such responsibility if the holder does not exercise control or sufficient influence over the VASP activities undertaken as a business on behalf of others,” Coin Center commented. “However, “sufficient influence” is hardly a justiciable standard.” Coverage on FATF’s updated guidance from FT, Coindesk, Coin Center, XReg Consulting.
Blockchain
China plans to publish its national blockchain standard next year. (Coindesk) While the attention of public officials around the world seems to focus on how to regulate stablecoins or on the pro’s and con’s of adopting a CBDC, the importance of leading in standard-setting for distributed ledger technology may be one of those areas overlooked by many governments.
CBDCs
EU – The European Central Bank appointed 30 members to its Digital Euro Market Advisory Group. Those selected are "senior business professionals with proven experience", the ECB said and include employees from Deutsche Bank, BBVA, Stripe, Worldline, Accenture, IKEA, Swedbank and Société Générale, among others . The Group will advise on "design and distribution of a potential digital euro from an industry perspective, and on how a digital euro could add value for all players in the euro area’s diverse payments ecosystem.”
Nigeria launched its eNaira last week “mid hope, scepticism - and plenty of uncertainty”, writes Reuters.
Blockchain
Legal Aspects of Blockchain Technology: Governance, a Medium post on how a consortium can legally organize itself when it uses a collaborative blockchain. It distinguishes between a ‘contractual’ and a ‘legal person’ approach.
Law firms
US Cryptocurrency litigation tracker: by law firm Morrison Cohen. It “track[s] SEC, CFTC, and criminal litigation; other public regulatory proceedings and summary orders; class action and private litigation; and major pronouncements by U.S. regulators about cryptocurrency.”
Thanks for reading!