Digital Assets Digest July 2022

1. CPMI and IOSCO report on application of PFMI to stablecoin arrangements

On 13 July 2022, the Committee on Payments and Market Infrastructures (CPMI) and IOSCO issued a report on the application of the Principles for Financial Market Infrastructures to stablecoin arrangements.

The report follows an October 2021 consultative report and is not intended to create additional standards for stablecoins, but seeks to clarify certain aspects of the PFMI as they relate to stablecoin arrangements. CPMI and IOSCO consider the report as a significant step in applying "same risk, same regulation" to stablecoins and extending the international standards for payment, clearing and settlement systems to cover systemically important stablecoin arrangements. The report does not cover issues specific to multicurrency stablecoin arrangements.

Key issues

• Governance: A systemically important SA should have appropriate governance arrangements.
• Comprehensive risk management: A systemically important SA should regularly review the material risks that the FMI function bears from and poses to other stablecoin arrangement functions.
• Settlement finality: A systemically important SA should provide clear and certain final settlement, at a minimum by the end of the value date, regardless of the operational settlement method used.

2. FSB: Letter to G20 Finance Ministers and Central Bank Governors: Current outlook for financial stability

On 13 July 2022, the FSB issued this letter to G20 Finance Ministers.

The letter provides an overview of two areas of the FSB’s work for which documents have been submitted to the G20. The letter also provides an update on the FSB’s work on crypto-assets, following the publication of a public statement on this topic. The FSB confirms that it will continue to coordinate regulatory initiatives in this area and is taking forward work on the regulation and supervision of so-called stablecoins and other crypto-assets (in close collaboration with standard-setting bodies, including FATF). It is also looking at the financial stability implications of decentralised finance. The FSB confirms that it will submit to the G20 Finance Ministers and Central Bank Governors meeting, in October 2022, a consultative report on its review of the FSB High-Level Recommendations for "global stablecoins" and a consultative report with recommendations on regulatory and supervisory approaches to other crypto-assets.

3. BIS (CPMI)/Innovation Hub: Report: Options for access to and interoperability of CBDCs for cross-border payment

On 11 July 2022, this joint report to the G20 was published. The report reviews the options for access to CBDCs and their interoperability. These are: compatibility, based on individual CBDC systems using common standards, so that the operational burden on PSPs for participating in multiple systems is reduced; interlinking, involving a set of contractual agreements, technical links, standards, and operational components between CBDC systems allowing participants to transact with each other without participating in the same system; and a single system, an arrangement that uses a single common technical infrastructure hosting multiple CBDCs.

The report assesses options based on five criteria: do no harm, enhancing efficiency, increasing resilience, assuring coexistence and interoperability with non-CBDC systems, and enhancing financial inclusion. The report concludes that there is no one size fits all model for interoperability of CBDCs.

4. FSB: Report: Options to Improve Adoption of The LEI

On 7 July 2022, the FSB issued this report in respect of the use of LEIs for cross-border payments. The report, which was produced in close coordination with the Global LEI Foundation (GLEIF), the LEI Regulatory Oversight Committee (ROC) and national authorities, sets out a series of recommendations for promoting the use of the LEI in cross-border payments and highlights the potential benefits of the LEI in supporting straight-through processing and assisting in KYC. The report takes account of the 2019 FSB Thematic Review on Implementation of the Legal Entity Identifier and will also inform future FSB follow-up work on the recommendations set out in the peer review.

Key recommendations include mapping the LEI to domestic identifiers in their digital infrastructures to promote interoperability of LEI and other identifiers to facilitate automated reconciliation and validation; and including an optional field for the LEI in routing message formats, including for those migrating to ISO 20022 messages, and where appropriate, explore the scope to mandate use of the LEI for certain payment message types.

5. BIS (CPMI): Report: Interlinking payment systems and the role of application programming interfaces: A framework for cross-border payments

On 8 July 2022, the CPMI issued a report on interlinking payment systems and the role of application programming interfaces. The report is published as part of the G20 cross-border payments programme and seeks to provide a framework to assist payment system operators and authorities in understanding and evaluating the benefits, challenges and risks of interlinking arrangements (arrangements between payment systems of different jurisdictions). The report argues that new technologies and an increasing degree of standardisation have encouraged greater technical interoperability. The report highlights various challenges in relation to interlinking arrangements, including: divergent legal, regulatory and oversight frameworks, misaligned access criteria, differences in service level requirements, and operational risk management. The report cites the fragmentation of API protocols and the global variations in the implementation of the ISO 20022 standard as major challenges impeding a faster and more cost-effective interlinking of payment systems.

6. IOSCO: Speech on IOSCO’s Roadmap for Crypto-Regulation

On 11 July 2022, IOSCO issued this speech by Tuang Lee Lim, Chair of the IOSCO Fintech Task Force and Assistant Managing Director (Capital Markets). The speech provides an overview of the growth of cryptoassets sector over the years and also alludes to recent turmoil in the sector. Mr Lim notes the opaqueness of cryptoassets markets and argues that this calls for regulatory guardrails. Mr Lim provides further background into the newly established IOSCO roadmap on cryptoassets, summarising the key aims and action points for the future. Mr Lim also questions whether standards, as they are currently framed by international standard setters, can adequately allow oversight and monitoring of cryptoassets, given the decentralized nature. Mr Lim also notes that research into cryptoassets by IOSCO questions claims about the true level of decentralization occurring within the sector.

Mr Lim states that in relation to regulation of cryptoassets, IOSCO will begin by applying IOSCO’s existing rules to identified risks and will likely propose an outcomes-focused, principles-based approach.

7. FSB: Statement on International Regulation and Supervision of Crypto-asset Activities and Responsible Innovation

On 11 July 2022, the FSB issued a statement on international regulation and supervision of cryptoasset activities. The statement has been published in light of increasing turmoil in the cryptoasset markets and follows a February 2022 risk assessment published by the FSB in relation to cryptoassets (further information in recent Digital  Assets Digest).

Key points

• The recent turmoil in crypto-asset markets highlights their increasing interconnectedness with the traditional financial system, as well as the need for regulators to move quickly to address any associated financial stability issues.
• Cryptoasset service providers must at all times ensure compliance with existing legal obligations in the jurisdictions in which they operate, including requirements specific to cryptoassets as well as those general requirements that are also applicable.
• Stablecoins should be captured by robust regulations and supervision of relevant authorities if they are to be adopted as a widely used means of payment or otherwise play an important role in the financial system.
• FSB members support the full and timely implementation of existing international standards (e.g. FATF Recommendation 15).
• The FSB will report to the G20 Finance Ministers and Central Bank Governors in October 2022 on regulatory and supervisory approaches to stablecoins and other crypto-assets.

8. IOSCO (Fintech Task Force): Crypto-Asset Roadmap 2022-23

On 7 July 2022, IOSCO issued its Crypto-Asset Roadmap for 2022-2023, setting out its regulatory policy agenda and work program for the sector over the next 12 to 24 months.

Key points

• The IOSCO Board agreed to the establishment of a Board-level Fintech Task Force (FTF) at its meeting on 9 March 2022.
• FTF will be initially divided into two workstreams covering Crypto and Digital Assets (to be led by the UK FCA) and Decentralised Finance (to be led by the US SEC) will focus on analysing and responding to market integrity and investor protection concerns within the cryptoasset space. This is especially important given the Terra/Luna episode and ensuing market turmoil involving cryptoasset trading, lending and borrowing platforms and other market participants.
•  IOSCO's work will be channelled into the FSB’s financial stability agenda through close and continuous engagement with relevant workstreams
• Although the cryptoasset work agenda is being split between two internal workstreams, the FTF will ensure that they are connected and adopt a coherent and coordinated cross-sectoral approach in developing policy in response to crystallized and emerging risks.

9. FSB: Interim report: Developing the Implementation Approach for the Cross-Border Payments Targets

On 6 July 2022, the FSB issued an interim report in respect of an implementation approach to cross border payments. The report shares the preliminary observations of the Targets Data Group (TPG) group, a group set up by the FSB to assist in its work on setting quantitative global targets relating to challenges (cost, speed, transparency and access) concerning cross-border payments. This was in response to the G20 roadmap for Enhancing Cross-border Payments. The report contains the preliminary observations of the TDG as it works to develop specific proposals for measuring progress toward each of the targets. Areas the FSB is inviting views include the following: whether the FSB identified appropriate potential sources of data for efficiently monitoring progress toward the Roadmap’s targets; and whether the FSB defined the KPIs appropriately.

10. FATF update on implementation of FATF standards on virtual assets and virtual asset service providers

On 30 June 2022, the Financial Action Task Force published a report on the implementation of FATF standards on virtual assets and virtual asset service providers. The report suggests that the implementation of FATF's Travel Rule be accelerated by jurisdictions and private sector entities. FATF confirms that it will continue to monitor market trends for material developments that may necessitate further FATF work, including how the FATF Standards apply to Decentralised Finance and Non-Fungible Tokens.

11. BIS (BISIH): Research Paper: Using CBDCs across borders: lessons from practical experiments

This paper, published on 21 June 2022, looks at the use cases of CBDCs across borders. The report notes that BIS Innovation Hub (BISIH) has carried out four cross-border CBDC experiments. BIS argues that collectively, the projects show that platforms with two or more CBDCs are technically feasible and can improve cross border payments. BIS however states that a number of questions remain in relation to policy, legal and regulatory aspects. The paper concludes that CBDCs can enhance cross border payments but that banks need to consider how they should be built and how they fit into the future monetary system.

12. BIS Annual Report 2021/22

On 26 June 2022, BIS published its Annual Report 2021/22. The annual report highlights the steps the BIS has taken to deliver on its Innovation BIS 2025 strategy and to respond to the challenges facing central banks. The report contains a section on a future monetary system and contains a discussion on recent turmoil in the markets as well as issues posed by CBDCs and stablecoins. The report featured a special analysis on central bank digital currencies (CBDCs), which laid out how CBDCs present an opportunity for the monetary system.

Notable points

•  CBDCs should be based on digital identification, with institutional and technological safeguards to ensure privacy.
• Beyond concerns about data privacy, the issuance of a global stablecoin by a big tech could entrench market power and fragment the monetary system. Stablecoins could disintermediate incumbent banks and lead to digital currency areas.
• Central banks could work with one another, and with the private sector, to ensure that domestic CBDCs are interoperable across borders.
• Interlinking CBDCs across borders via Multi-CBDC arrangements can address the issue of bringing down high costs of cross-border payments.

13. BIS: Economic Report

On 26 June 2022, BIS published its annual economic report.

Notable points

• This fragmentation of the crypto universe raises serious questions as to the suitability of crypto as money.
• Central banks and regulators need to mitigate risks to financial stability that arise from the exposure of banks and non-bank financial intermediaries to the crypto space. Fast-growing investments in cryptocurrencies by traditional financial institutions mean that shocks to the crypto system could have spillovers. Non-bank investors, family offices and hedge funds have reportedly been the most active institutional investors in cryptocurrencies.
• Bank funding from stablecoin issuers has increased, as bank liabilities such as certificates of deposit form a key part of stablecoins’ asset backing. This may also require prudential regulation of crypto exchanges, stablecoin issuers and other key entities in the crypto system.
• The global nature of crypto and DeFi will require international cooperation.

14. BCBS: Consultation paper: Second consultation on the prudential treatment of cryptoasset exposures

On 30 June 2022, the Basel Committee issued its second public consultation on the prudential treatment of banks' exposures to cryptoassets. The second consultation builds on the proposals contained in the first consultation whilst introducing certain significant clarifications and amendments. Following industry feedback, the Committee is considering changes including: introducing tougher requirements in order for stablecoins to be eligible for inclusion under the Group 1b classification; introducing a so-called "infrastructure add-on" for Group 1a and Group 1b assets to reflect unforeseen risks posed by distributed ledger technology infrastructure; and a treatment of cryptoassets as collateral and for the purposes of liquidity risk management.

For more information, please see our briefing here.

15. FCA: Speech by Nikhil Rathi: How the UK will regulate for the future

On 14 July 2022, the FCA issued a speech by CEO, Nikhil Rathi, concerning how the UK will regulate the future. The speech referred to recent developments in the cryptoassets sector, including the US-UK Financial Innovation Partnership's recent meeting; IOSCO taskforce on decentralised finance and crypto market integrity risks, as well as the FCA's recent cryptosprint. He states that participants in the Cryptosprint pointed to a need for a regulatory regime for cryptoassets phased in over time, to allow firms and investors to prepare and for the rules to fit the evolving crypto assets.

Mr Rathi comments that the FCA's remit in relation to cryptoassets sector is limited to AML rules for platforms, adding that firms that have passed FCA requirements have done this after working with the FCA to improve their controls and systems.

16. House of Commons (Treasury Committee): Inquiry into Crypto-asset

On 13 July 2022, the House of Commons launched an inquiry into cryptoassets.

Views are requested in relation to a number of areas, including the following:

• The extent to which are crypto-assets when used as digital currencies (such as Stablecoin) likely to replace traditional currencies.
• Opportunities and risks associated with the introduction of a Bank of England Digital Currency.
• How distributed ledger technology can be applied in the financial services sector.
• How Governments and regulators in other countries are approaching crypto-assets, and lessons UK can learn from overseas.

The call for evidence closes on 12 September 2022.

17. Bank of England: Speech by Sir Jon Cunliffe: Some lessons from the Crypto Winter

On 12 July 2022, the Bank of England issued this speech by Jon Cunliffe, Deputy Governor of financial stability. In the speech, Mr Cunliffe refers to the recent turmoil in the cryptoassets sector.

Key issues

• Future regulation should be designed on the principle of "same risk, same regulation’
• Struggles experienced by DeFi platforms and crypto funds highlight a fundamental issue: new technology does not change old risks.
• Although cryptoassets are not yet a systemic risk, regulators should continue and accelerate their work to bring the use of crypto technologies in finance within the regulatory perimeter.
• The Principles for Financial Market Infrastructures provide key guidance in relation to stablecoins e.g. money holders of stablecoins must have a clear legal claim that enables them to redeem the coin within the day and at par in central or commercial bank money. The Bank of England hopes to issue a consultation document on the regulatory policy framework later in 2022.
• The use of crypto technologies and smart contracts in the exchange, clearing and settlement of financial securities are to be explored via a regulatory "sandbox".

18. Investment Association: Report on blockchain and funds

In July 2022, the Investment Association issued a report in relation to a new type of fund. The report explores the function and evolution of the investment fund over time, and argues that a key element of the change in the future will involve the greater use of DeFi in altering the roles of existing parties.

Recommendations for regulators and the UK government include:

• Establish a framework for tokenised funds to operate in the UK.
• Establish a DeFi taskforce to assess the overall policy implications for the UK fund industry from the opportunities identified in the paper.
• Consider establishing regulated routes for native digital asset exposure.
• Define the "rules of the road" for cryptoassets, to mitigate the risk of material consumer loss and harm.
• Ensure that investment firms are not exposed to the costs of failing stablecoin firms.

19. BoE: Minutes of the CBDC Technology Forum - June 2022

On 6 July 2022, the Bank of England issued the latest minutes of the CBDC Technology Forum. Items covered include a presentation by a member on why offline functionality should be a key feature of CBDC in light of declining use of physical cash. The minutes also refer to a discussion on whether offline capability should be regarded a day one requirement for CBDC. Members also offered views on the relative importance and complexity of potential CBDC functionalities, including payments in scope, interoperability considerations and innovation features.

20. FCA: Appointment of Director of Payments and Digital Assets

On 5 July 2022, the FCA published a press release announcing six senior appointments. This confirmed that Matthew Long has been appointed as Director of Payments and Digital Assets and that the role would include providing oversight of the e-money, payment and cryptoasset markets and leading related policy development. It was confirmed that Mr Long would join the FCA in October 2022.

21. Bank of England: Financial Stability Report 2022

On 5 July 2022, the financial stability report was published, together with the Financial Policy Summary and Record. The report notes that the outlook for the economy is uncertain and highlights areas that could pose a threat to stability. The report also refers to recent volatility in the cryptoassets markets. It refers to the HM Treasury's April 2022 response to its consultation which proposed that stablecoins be brought within the regulatory perimeter. The report also refers to the FPC statements in relation to stablecoins used as money like statements.

Key points

• Market capitalisation of cryptoassets has fallen to US$900 billion, from a peak of almost US$3 trillion in late 2021.
• Absent additional regulation, some stablecoins held to be used for payments may not offer similar protections to central bank or commercial bank money.
• Some characteristics of stablecoins and recent events highlight the need for enhanced regulatory and law enforcement frameworks to address developments in these markets and activities.

22. FCA: Updated webpage on Cryptosprint

On 29 June 2022, the FCA updated its webpage in relation to the Cryptosprint and published a video transcript. The FCA hosted its first policy focused CryptoSprint events in May and June 2022. The main purpose of the event was to increase understanding in relation to the cryptoasset market, as well as seek views from stakeholders on the features of an appropriate regulatory regime. The FCA states that there were 184 participants and states that views and issues raised will feed into its ongoing policy development programme, both domestically and internationally. The updated webpage sets out key themes from the events: cross cutting themes; issuance and disclosure; and regulatory hooks and custody.

23. FMLC: Minutes: Financial Markets Law Committee: 26 May 2022

On 28 June 2022, the FMLC Financial Markets Law Committee published the latest version of the minutes. Areas discussed by the committee included the treatment of Decentralised Autonomous Organisations (DAOs) and so called governance tokens under English law. Attendees noted that HM Government has asked the Law Commission to carry out a scoping study into DAOs. The FMLC discussed the implications of rulings in certain jurisdictions that DAOs do not have legal personality. The importance of establishing a coherent legal and regulatory approach was stressed and it was agreed that a Working Group would be established.

24. PRA: Speech by Victoria Cleland: Rowing in unison to enhance cross-border payments

On 29 June 2022, the Bank of England issued a speech by Victoria Cleland on the importance of cross-border payments. In the speech, Ms Cleland recites key facts and figures in relation to the growing nature of cross-border payments. The speech contains three key messages: enhancing cross-border payments is crucial to the global economy; tangible progress is already being made; and collaboration between stakeholders is key to deliver meaningful change.

Ms Cleland refers to global initiatives related to cross-border payments, such as the FSB Roadmap and the CPMI Building Blocks in relation to cross border payments. She looks at progress made against the various building blocks such as Building Block 10 (improving direct access can enhance cross-border payments); and Building Block 12 (extending RTGS operating hours across jurisdictions). Ms Cleland argues that Building Blocks 10 and 12 are foundational and urges central banks to undertake assessments and take action to expand access and operating hours. Ms Cleland also sets out what the Bank of England is doing in relation to work on the two blocks and how the RTGS Renewal Programme will support the work. Reference is made to two milestones approaching: CHAPS payments will migrate to enhanced ISO 20022 messaging in April 2023, followed by the switchover of the core settlement engine in Spring 2024.

25. ECB: The case for a digital euro: key objectives and design considerations

On 13 July 2022, the ECB issued a statement in relation to the key objectives and design considerations in relation to digital euro.

Key points

• The trend towards digital money is convenient, creating a wealth of opportunities for financial innovation and inclusion, as well as risks.
• A digital Euro could assist in helping to avoid market dominance, improve the efficiency of the payment system and foster innovation in the private sector.
• In terms of the needs of users, wide acceptance, ease of use, low costs, high speed, security and consumer protection is valued by consumers while merchants want the digital euro to be integrated with existing systems.
• The digital euro is intended as a means of payment, not as a form of investment.
• Safeguards should be introduced at the outset.

26. ESMA: Consultation on guidelines on standard forms and templates to apply for permission to operate DLT market infrastructures under DLT Pilot Regime Regulation

On 11 July 2022, ESMA published a consultation paper on draft guidelines in respect of standard forms, formats and templates to apply for permission to operate a distributed ledger technology market infrastructure under Regulation EU DLT Pilot Regime Regulation.

Guideline 1 sets out minimum instructions that NCAs should provide to market participants for submitting their applications to them. Guideline 2 specifies how applicants should provide the requested information and documents to their NCAs. The tables in the Annex outline the information that applicants for permission should provide to their NCAs.

The deadline for responses to the consultation is 9 September 2022.

27. European Commission: Opening speech by Commissioner McGuinness at the 20th anniversary of the European Payments Council

On 16 June 2022, this opening speech by Commissioner McGuinness at the 20th anniversary of the European Payments Council was published. The speech looks back at the developments in payments in the EU and challenges. It refers to the 2020 Retail Payments Strategy and confirms that the EU is preparing legislative proposal to address obstacles in the development of instant payments in the EU and that the proposal is likely to be adopted by the European Commission later in 2022. Ms Guinness also refers to the public consultation on the review of PSD2 (see our briefing here), and confirms that she expects for the review to be published in the first half of 2023 with a legislative proposal if appropriate. Ms Guinness also refers to ongoing work in relation to the digital euro, adding that it will play key role in the future payments landscape and stresses the importance of considering benefits and disadvantages of the various design options.

28. MICA: Provisional agreement reached between the European Parliament and the Council of the EU

On 30 June 2022, it was announced that the Council of EU and the European Parliament had reached a provisional agreement in relation to Markets in Cryptoassets (MICA) Regulation.

The provisional agreement will now need to be approved by Council of the EU and the European Parliament before formal adoption. We will provide a comprehensive review of MICA when it is formally adopted.

29. MAS: Three Arrows Capital

On 30 June 2022, the MAS reprimanded Three Arrows Capital Pte. Ltd. (TAC), a Singapore-based cryptocurrency hedge fund which was ordered to liquidate on 27 June 2022, for various breaches. In particular, the reprimand relates to TAC's provision of false information to the MAS, and for exceeding its allowable assets under management threshold of $250 million permitted for a registered fund management company. TAC had also failed to notify the MAS of changes to its directorships and shareholdings.

30. MAS: Further restrictions on cryptocurrency trading platforms

The MAS has indicated that it will be implementing further restrictions on cryptocurrency trading platforms, with the object of protecting unsophisticated persons and/or retail investors from entering into such trades which are considered highly risky. MAS states that these may include placing limits on retail participation, and rules on the use of leverage when transacting in cryptocurrencies.

31. MAS: Approvals for additional digital payment token licence

Despite turbulence in the market, MAS has recently issued in-principle approvals to three additional digital payment token (DPT) service licence (which allows holders to offer crypto services) to applicants, including cryptocurrency exchanges like Crypto.com and trading platforms like Genesis and Sparrow Exchange (through its entity Sparrowtech). MAS has expressed its desire for Singapore to work closely with blockchain and digital-asset players and will continue to assess new applications.

32. VASP regime in Hong Kong for Cryptoasset service providers

The Hong Kong Government has announced a new licensing regime for virtual asset service providers (VASP) which will come into effect on 1 March 2023. This will be via proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).

In addition to the introduction of a licensing regime for VASPs, the proposed amendments will also impose statutory anti-money laundering and counter-terrorist financing obligations on VASPs. The licensing regime will be administered by the SFC, and awarded licenses are open-ended.

The proposed amendments have arisen from the implementation of the requirements from the Financial Action Task Force (FATF), that require virtual asset service providers to be subject to the same AML and CTF requirements as financial institutions. These proposed amendments follow the Financial Services and Treasury Bureau’s (the FSTB) public consultation in May 2021.

Businesses providing (or holding themselves out to be providing) virtual asset services will be subject to the amendments. VASPs who are required to apply for a licence must file their application within the first 9 months of the commencement of the licensing regime (i.e. by 1 December 2023), and confirm that they will comply with the regulatory requirements set out by the SFC until a decision has been made on their application.

33. Reserve Bank of Australia Speech by Philip Lowe, RBA Governor on "Inflation, Productivity and the Future of Money" to the Australian Strategic Business Forum 2022

On 20 July 2022, whilst speaking to the Australian Strategic Business Forum 2022 in Melbourne, Dr Lowe noted that "money works best when it is backed by the central bank or by the state" and used the recent collapse of the TerraUSD stablecoin as a reminder of this point. The RBA Governor also went on to say that central banks and government face a strategic issue on "how to capitalise on the benefits of the new technologies and new forms of money, while at the same time preserving the stability and other benefits that come from a system underpinned by central banks". Importantly, he stated that the RBA was working on these issues with other regulators in Australia as well as other central banks, given the potential for these issues to reshape financial systems.

34. Reserve Bank of Australia: Speech by Philip Lowe, RBA Governor

On 17 July 2022, speaking at a seminar for the G20 Finance Ministry and Central Bank Governors' conference in Bali, Dr Lowe referred to the need for regulation of cryptoassets (although would only refer to them as 'various crypto things'). He also indicated that the RBA was investigating how private sector issued tokens could work - including whether they could be backed by collateral such as central bank deposits or government securities - and whether the issuers could and should be regulated in the same way that banks are.

35. Circle: Principles for a stablecoin in the U.S

On 18 July 2022, Circle issued, via a blog post, principles for stablecoin regulation in the U.S. The policy principles are intended to reflect Circle’s experience operating USD Coin (USDC). The principles cover a number of areas including reserve assets backing stablecoins, privacy concerns, accounting treatment of digital currencies and standardization of digital identity. The principles refer to the progress made by the EU in the way of the Markets in Cryptoassets Regulation and calls for quick progress to be made in relation to harmonizing national regulatory and policy frameworks for dollar digital currencies.

36. US Department of Treasury: Fact Sheet: Framework for International Engagement on Digital Assets

On 7 July 2022, Secretary of the Treasury published a framework for interagency engagement with foreign counterparts in relation to digital assets. This is in response to the Executive Order signed by President Biden on Ensuring Responsible Development of Digital Assets. The Executive Order, signed in March 2022 (see our briefing here), provides for (among other things) an interagency approach to address the risks and benefits of digital assets and their underlying technology, including through international engagement. The framework is informed by the policy objectives outlined in the Executive Order and is designed to reflect the international aspects of the group's work.

37. Speech by Vice Chair of Federal Reserve Board: Crypto-Assets and Decentralized Finance through a Financial Stability Lens

On 8 July 2022, a speech given by Vice Chair of the Federal Reserve Board, Lael Brainard was published. In the speech, Ms Brainard referred to the recent volatility in the crypto markets, adding that this showed it was susceptible to the same risks as traditional finance. She stresses that the regulatory perimeter should encompass crypto finance

• Distinguishing Responsible Innovation from Regulatory Evasion. Ms Brainard argues that the risks of crypto finance need to be adequately addressed as many of the technological innovations are novel.
• Insights from recent turbulence. The collapse of stablecoins is reminiscent of classic runs throughout history and crypto platforms are highly vulnerable to deleveraging, fire sales, and contagion.
• Same risk, same regulatory outcome. Collaboration between regulators at the domestic level and internationally is essential. It is important to fill any gaps in relation to the regulation/noncompliance of trading platforms as they play a critical role in crypto-assets markets. Permissionless exchange of assets and tools that obscure the source of funds not only facilitate evasion, but also increase the risk of theft, hacks, and ransom attacks. DeFi protocols may present new challenges that may require adapting existing approaches.

38. Joint Forum UK and US: Joint Statement on the U.S.-UK Financial Innovation Partnership Meeting 29th June 2022

On 29 June 2022, a statement was issued in respect of the U.S.-UK Financial Innovation Partnership Meeting held in June 2022. The US-UK Financial Innovation Partnership was established in March 2019 to encourage collaboration between the US Department of the Treasury and HM Treasury in the areas of regulatory engagement and commercial engagement.

The statement confirms that UK participants at the June 2022 meeting included staff from the Bank of England and the Financial Conduct Authority, while U.S. participants included staff from independent regulatory agencies, including the Board of Governors of the Federal Reserve System and Commodity Futures Trading Commission. In the meeting, participants discussed crypto and digital asset ecosystems and deepening ties between U.S. and UK financial authorities on financial innovation. Participants exchanged views on cryptoasset regulation and market developments, including recent developments in relation to stablecoins and the exploration of CBDCs. UK and U.S. authorities also discussed their respective plans for CBDC policy research and technology exploration. Participants also noted the importance of continued cooperation on crypto and digital assets in international fora, including the G7 Digital Payments Expert Group, the Financial Stability Board Crypto Assets Working Group.

39. Guardian: Celsius Networks: cryptocurrency lender files for bankruptcy

This article reports on the travails of Celsius.

Main points

• Crypto lending has tumbled in the recent months following a crash in cryptocurrency prices and the collapse of major token TerraUSD in May.
• Celsius had paused withdrawals and transfers between accounts last month, blaming extreme market conditions.
• The US company said it had $167m cash on hand to provide liquidity to support certain operations during the restructuring process. It listed its estimated assets and liabilities at between $1bn and $10bn on a consolidated basis.
• Celsius was not requesting authority to allow customer withdrawals at this time, the company said in a press release, adding that it had filed court motions to allow it to continue operations in the normal course.

40. Reuters: Factbox: Singapore's rise, and falter, as Asia cryptocurrency hub

Key points

• Singapore's burgeoning cryptocurrency sector has been shaken by the recent collapse of Three Arrows Capital, a cryptocurrency hedge fund, and signs of tighter scrutiny by regulators at the Monetary Authority of Singapore.
• According to KPMG, investment in Singapore's crypto and blockchain companies surged to $1.48 billion in 2021, ten times the previous year and nearly half the Asia Pacific total for 2021.
• PwC says 6% of the world's crypto funds are based in Singapore, ranking it a joint third globally – along with Switzerland and Hong Kong – behind the US and UK.
• The scale and range of Singapore's crypto companies and service providers attracted digital asset companies fleeing regulatory crackdowns elsewhere.

41. Fortune: There's a new crypto stablecoin on the block and it's the first to be backed by the euro

This article looks at the arrival of a new stablecoin.

Key points

• It is the first to offer consumers round-the-clock ability to conduct transactions through decentralized finance apps and the fledgling Web3 ecosystem in euros.
• The stablecoin with the ticker EUROC will be available to purchase on centralised exchanges such as Bitpanda, Bitget or Huobi Global, and later FTX and Binance, as well as their decentralised rivals, which include a number of liquidity pools.
• The European Central Bank is also considering the issue of an official digital euro, a so-called central bank digital currency (CBDC) that could compete with stablecoins.

42. FT: US urges Japan to step up pressure on crypto miners with links to Russia

This article looks at efforts by US officials to address crypto mining operations.

Key points

• The request from US diplomats was directed to several of Japan's 31 officially licensed crypto exchanges that are still running in Russia, according to people close to the situation.
• The diplomats asked Tokyo to focus on halting cryptocurrency mining operations based in the Irkutsk region in Siberia. The area is favoured for crypto mining operations because its relatively low temperatures require less cooling and because of the availability of cheap hydroelectric power.
• In response, representatives of Japan's Financial Services Agency renewed demands that the Japanese exchanges they oversee cut any surviving relationships, according to people close to three exchanges.

43. Guardian: NFT sales hit 12-month low after cryptocurrency crash

This article looks at demand for NFTs.

Key points

• Sales of non-fungible tokens totalled just over $1bn in June, compared with peak of $12.6bn in January.
• The cryptocurrency market, worth about $3tn last November, is now worth less than $1tn.
• However, demand for so-called blue chip NFT collections has held up.