Global Digital Assets Digest August 2024

Welcome to this month's Global Digital Assets Digest. In this month's edition, there are important updates from the ESAs in relation to MiCA, as well as news from the BCBS on the final disclosure framework for banks' cryptoasset exposures and amendments to its cryptoasset standard. In the UK, the FCA has issued important communications concerning financial promotions of cryptoassets. In the US, there's news on spot Ethereum ETFs.

Updates and Guidance: International Bodies

1. ESMA: Opinion to support the convergent application of MiCA

On 31 July 2024, ESMA published an Opinion noting consumer protection and competition concerns posed by EU-authorised brokers routing orders to intra-group execution venues based outside the EU. This follows an October 2023 ESMA Communication which referred to opaque and complex group structures.

ESMA calls for NCAs to be vigilant while authorising entities and for careful assessment of business structures in order to prevent circumvention of MiCA rules.

The Opinion calls for a case-by-case assessment, setting out requirements concerning best execution, conflicts of interest, acting honestly, fairly and professionally in the best interests of clients and custody and administration of cryptoassets. In relation to reverse solicitation, ESMA sets out circumstances that could be indications of unlawful reverse solicitation, including: 

• systematic routing of orders by EU-authorised broker to the group’s execution venue (trading platform/another broker) outside of the EU;
• EU-authorised broker does not consider availability of other suitable unaffiliated execution venues/ cannot give proper justification for not including other unaffiliated execution venues in its execution policy; and
• reliance placed by EU-authorised broker on the reputation and brand of the non-EU exchange to attract business from EU clients, making it difficult to differentiate services between entities. 

2. BIS: Project Pyxtrial - monitoring the backing of stablecoins 

On 31 July 2024, BIS published an update/report on Project Pyxtrial. Project Pyxtrial is a joint project between BIS Innovation Hub and the BoE looking at how technology solutions can enable the monitoring of asset-backed stablecoins’ balance sheets.

Pyxtrial makes the most recent data available to the stablecoin issuer’s regulator or supervisor via a dashboard using APIs. The setup would theoretically allow for any inconsistencies between the backing assets and liabilities of a stablecoin to be noted by a regulator. 

Challenges in relation to proof of concept cited in the project consisted of: absence of a final framework of rules regulating stablecoin issuers; accurate assessment  a stablecoin issuer’s assets backing its liabilities (with quality of reporting varying).

3. FSB: Report: Cross-border Regulatory and Supervisory Issues of Global Stablecoin Arrangements in EMDEs

On 23 July 2024, the FSB issued a report on regulatory and supervisory issues in relation to global stablecoin arrangements and the additional risks and challenges faced by emerging market and developing economies (EMDEs). 

The report examines the various factors behind the higher level of activities in emerging markets and regulatory challenges, noting that a stablecoin may become systemic in an EMDE before becoming systemic in the jurisdiction where it is domiciled. Factors for higher level activity in EMDEs in relation to stablecoins in comparison to advanced economies include: perceived preference for US dollar (USD)-pegged stablecoins in the face of inflation and currency devaluation; and facilitation of cross-border payments and remittances.

The report examines challenges common to all jurisdictions in relation to the regulation of stablecoins and challenges specific to EMDEs, with the latter including capacity and resource constraints when it comes to establishing a comprehensive regulatory framework; and absence of effective cross-border cooperation arrangements.

The FSB confirms that it will continue to support the implementation of the FSB GSC recommendations, as well as the FATF, CPMI-IOSCO, and IOSCO recommendations. It also stresses the importance of EMDEs receiving technical assistance (e.g. from the IMF and World Bank) to address gaps.

4. EU Commission: Q&As: Clarification on SEPA 2 requirements

On 23 July 2024, the EU Commission published a set of Q&As to provide clarification on the requirements of SEPA 2 (Regulation(EU) 2024/886) and its implementation. SEPA 2 sets out obligations for payment service providers, requiring (among other things) in-scope PSPs to offer the service of instant credit transfers in Euro.

The Q&A document consists of material collected from workshops organised by DG FISMA in April and May 2024. Areas covered include scope; penalties and reports; sanctions screening; and payee verification.

5. ECB: Policy on access by non-bank payment service providers to central bank-operated payment systems and to central bank accounts  

On 19 July 2024, the ECB published the Eurosytem's policy on access by non-bank payment service providers to central bank-operated payment systems and to central bank accounts (including TARGET). 

This follows the entry into force of SEPA 2 (Regulation(EU) 2024/886), which among other things, amended the Settlement Finality Directive to widen the scope of entities eligible to participate in designated payment systems to include non-bank PSPs. From April 2025, non-bank PSPs meeting certain requirements will be able to access TARGET, including T2 and TIPS. The requirements are to be set out in the TARGET Guideline, and will be the same as those applicable to credit institutions.

6. BCBS: Final disclosure framework for banks' cryptoasset exposures and targeted amendments to its cryptoasset standard

On 17 July 2024, the BCBS published its final disclosure framework for banks' cryptoasset exposures (BCBS580) and targeted amendments to its cryptoasset standard (BCBS579). This follows an October 2023 consultation in respect of the disclosure framework and a December 2023 consultation in relation to the cryptoasset standard.

The final framework includes a set of standardised tables and templates in relation to banks' cryptoasset exposures, covering both qualitative and quantitative information. These include: an overview of the bank’s activities related to cryptoassets and the main risks related to its cryptoasset exposures, as well as the approach used in assessing the classification conditions for cryptoassets; overview of a bank’s exposures to cryptoassets according to the prudential classification of cryptoassets (Groups 1a, 1b, 2a and 2b) and the related capital requirements; information on the accounting classification and measurement of banks’ exposures to cryptoassets and crypto liabilities; and overview of a bank’s exposures to cryptoassets and cryptoliabilities according to the liquidity risk classification.

The targeted amendments to the cryptoasset prudential standard seek to (among other things) promote a consistent understanding regarding the criteria for stablecoins to receive a preferential "Group 1b" regulatory treatment.

The standards must be implemented by 1 January 2026.

For more on the BCBS prudential framework for cryptoasset exposures, see our briefings here and here.

7. FSB: Consultation on recommendations to promote alignment and interoperability across data frameworks related to cross-border payments

On 16 July 2024, the FSB published a consultation on recommendations to promote alignment and interoperability across data frameworks related to cross-border payments. This is the first of two consultations and forms part of work on enhancing the interaction between data frameworks and cross-border payments, a priority action identified by the FSB to take forward the G20 Cross-border Payments Roadmap.

Standard setters working on improving cross-border payments consider the transfer of data across borders to be essential to the functioning of the cross-border payments system. As part of the consultation process,  the FSB reviewed national and regional data frameworks relevant to the functioning, regulation and supervision of cross-border payments. The recommendations seek to lessen unintended frictions in cross-border payments, while maintaining the underlying objectives of data framework. The recommendations centre on: balancing regulatory and supervisory obligations; promoting the alignment and interoperability of regulatory and data requirements related to cross-border payments; mitigating restrictions on the flow of data related to payments across borders; and reducing barriers to innovation.

The FSB confirms that it is planning to set up a Forum of public sector stakeholders relevant to cross-border payments.

8. FSB: Consultation on strengthening consistency in regulating and supervising banks and non-banks providing cross-border payment services

On 16 July 2024, the FSB issued a consultation on proposed policy recommendations for improving consistency in the regulation and supervision of banks and non-banks in the provision of cross-border payment services. Stakeholders consider that variances in coverage/application of regimes to banks and non-banks providing cross-border payment services impede efforts to meet G20 targets concerning cross-border payments.

Areas covered by the recommendations include: 

• ways to identify, understand and assess risks across the PSP sector and the effectiveness of existing laws, regulations, and supervisory frameworks in addressing these risks;
• guidance on supervisory expectations to promote the safe and efficient provision of payment services;
• the role of licensing or registration requirements in relation to PSPs; and
• expanding information and data sharing both within and across jurisdictions.

9. BIS: Speech by Klaas Knot: Acta, non-verbal - interlinking fast payment systems to enhance cross-border payments 

On 16 July 2024, BIS published a speech by Klaas Knot, Chair of the Financial Stability Board and President of the Netherlands Bank, at the CPMI conference on the "Progress and priorities on the G20 cross-border payments roadmap". 

The speech provided an overview of the Roadmap, noting various milestones such as quantitative targets to define the ambition of the Roadmap, published in 2021, and February 2023 priority actions. The speech also stressed the importance of consistency in legal, regulatory and supervisory frameworks for cross-border payments and also noted various actions undertaken under the Roadmap, such as work by the FATF on updating its wire transfer rules. The speech also confirms that another organisation will be joining the Roadmap. 

The speech also refers to the importance of data standards, with Mr Knot noting that inconsistent use of ISO 20022 could undermine associated benefits (such as enhancing straight-though processing). 

Mr Knot also notes that fragmentation of data across jurisdictions can prevent automation of cross-border payments and recommendations that the FSB is proposing to address this.

10. GLEIF and Global Digital Finance: Standards for digital assets industry

On 16 July 2024, GELIF announced that it had created a partnership with Global Digital Finance  to develop standards for the digital assets industry. The initiative supports the implementation and use of the Legal Entity Identifier (LEI) and verifiable LEI (vLEI). 

The initiative considers that data standardisation is critical in fostering interoperability between the digital asset ecosystem and traditional finance. The press release also cites the IVMS 101 interVASP data model standard (developed in 2020 by the Joint Working Group on interVASP Messaging Standards) and the integration of LEI into IVMS 101 as an example of LEI "promoting transparency and trust within digital transactions."

11. ESAs: Consultation paper: Draft Guidelines on templates and the standardised test for the classification of cryptoassets under MICA

On 12 July 2024, the ESAs published a joint consultation paper on draft guidelines on templates for explanations and opinions, and the standardised test for the classification of crypto-assets, under MiCA.

The draft guidelines set out: 

• templates on the content and form of the explanation accompanying the cryptoasset white paper referred to in Article 8(4) of MiCA;
• templates on the content and form of the legal opinion on the qualification of ARTs referred to in point (b)(ii) of Article 17(1) and point (e) of Article 18(2) of MiCA; and
• a standardised test for the classification of cryptoassets (noting that the regulatory classification of a cryptoasset requires case-by-case assessment).

The deadline for comments is 12 October 2024. The guidelines will apply two months after the publication of their translation in all official languages of the EU.

12. ESMA: Q&As on MICA

On 12 July 2024, ESMA made available a number of Q&As in respect of aspects of MiCA.

Areas covered

• Treatment of staking services in MiCA.
• Whether entities providing cryptoasset services registered under national arrangements transposing AML/CFT framework into national law benefit from the grandfathering clause set out under Article 143(3) MiCA.
• Whether financial entities referred to in Article 60 MiCA providing cryptoasset services according to applicable law before 30 December 2024 can rely on the transitional provision of Article 143(3) MiCA.
• Whether entities authorised under national law to provide cryptoasset services according to a registration regime under the EU AML/CFT framework on 30 December 2024 can benefit from the simplified authorisation procedure set out under Article 143(6) MiCA.
• Cryptoasset transfers as component of another cryptoasset service or as a separate cryptoasset transfer service.
• Status of entities not authorised as CASPs by the end of the transition period.
• Entities who have not applied for, or whose application for authorisation as CASPs has been refused by the end of the transition period.

13. ECB: Report: Digitalisation: key assessment criteria and collection of sound practices 

On 11 July 2024, the ECB issued a report on key assessment criteria and sound practices for digitalisation. This notes that banks are adapting to changing customer preferences, new technologies and a different competitive landscape. The report states that ECB Banking Supervision is closely monitoring developments and updating its methodological toolbox accordingly. The report looks out how banks shape and implement their digitalisation strategies, focusing on risk identification and mitigation. It also sets out steps taken by institutions deemed to be adequately managing the digitalisation trend. 

Sound practices adopted by banks include:

• assessing both the opportunities and risks related to their digital strategy;
• banks’ supervisory board members engaging in proactive and information-based discussions to allow for a digitalisation strategy to be adequately defined and for oversight of its execution; and
• holistic assessment of the digital strategy’s impact on the bank’s overall risk profile.

14. ESRB: Annual Report 2023

In July 2024, the ERSB published its 13th Annual Report covering the period between 1 April 2023 and 31 March 2024. Part of the ESRB’s work during the review period was on systemic risks pertinent to both bank and non-bank financial institutions (including the systemic implications of cryptoassets and decentralised finance). 

The ERSB notes progress made globally in relation to the regulation of cryptoassets, particularly in relation to consumer protection considerations, and also refers to market developments and turbulence in the crypoassets sector. The ERSB stresses the importance of capacity building of public authorities in monitoring potential contagion channels between the cryptoasset sector and the traditional financial sector.

15. EBA: Statement on the application of MiCA to ARTs and EMTs

The EBA has published a statement on the application of MiCA to ARTs and EMTs.

Notable points

• The EBA expects any person who intends to begin ART/EMT activities to comply fully with MiCA as from 30 June 2024.
• Issuers who have issued ARTs in accordance with applicable law prior to 30 June 2024 may continue to do so in accordance with the transitional arrangements set out in Article 143(4) and (5) MiCA. There are no similar transitional arrangement in respect of EMTs.
• All stakeholders providing cryptoasset services should note that from 30 June 2024, all persons undertaking  ART/EMT activities should comply with MiCA. They should therefore set up possible procedures as soon as possible in order to assess compliance with relevant provisions under MiCA concerning provision of services related to ARTs/EMTs.
• Consumers should note that MiCA does not offer protection in respect of the issue, offer, or admission to trading of an ART or EMT not carried out in accordance with MiCA, Consumers should be therefore exercise caution when acquiring such cryptoassets.

Updates and Guidance: UK

16. FCA: Financial promotions Q2 2024 data and examples of intervention

On 7 August 2024, the FCA published a webpage containing its financial promotions quarterly data for Q2 2024. This provides a summary of data generated from FCA action against firms breaching financial promotions rules and referrals.

The FCA also refers to firms operating a so-called widget model under which they provide fiat to crypto on/off ramp services to third party firms (partner firms) via an API integrating into the partner firm's website and apps. Firms operating this model are asked to consider the impact of the financial promotions regime. The FCA refers to its September 2023 letter stressing that businesses supporting unregistered cryptoasset firms must note consumer protection expectations, adding that many partner firms may be communicating financial promotions in breach of section 21 FSMA. Expectations on registered firms include: having a comprehensive understanding of the UK financial promotion regime, and in particular, the requirements of section 21 FSMA; carrying out a thorough review of partner firms to determine compliance with section 21 FSMA; proactive ongoing monitoring procedures to promptly detect potential breaches of section 21 FSMA.

17. FCA: Good and poor practices in relation to firms’ compliance with "back end" cryptoasset financial promotions rules

On 7 August 2024, the FCA published a webpage setting out findings on good and poor practices relating to cryptoasset financial promotion rules.

By virtue of FCA Policy Statement (PS23/6),  COBS 4.10.2AR, COBS 4.12A.15R and COBS 10.1.2R set out rules in respect of financial promotions for cryptoassets. These require firms to provide personalised risk warnings; implement a 24-hour cooling-off period; categorise clients and carry out appropriateness assessments. A modification by consent to the regime delayed the application of the regime from October 2023 to January 2024 in respect of some firms.

The FCA reviewed a sample of crypto firms’ compliance and sought information from firms on their onboarding journey and reviewed their approach to: cooling-off period; personalised risk warnings; client categorisation; appropriateness; record keeping; and due diligence. The FCA sets out good and bad practices for each of these categories.

For more information, please see our briefing here.

18. BoE: Minutes of CBDC Technology Forum 

On 2 August 2024, the BoE published minutes of various CBDC Technology Forum held on 14 May 2024, 22 May 2024 and in July 2024.

CBDC Technology Forum: 14 May 2024

• Presentation by Forum Subgroup on hypothetical privacy model (looking at different types of data and different types of roles e.g. payer, payee, Payment Interface Providers, and ledger operator). This concluded that there were techniques that could be used to support privacy and suggested that the role of ledger operator and alias service operator in the digital pound architecture should be separated. Subgroup 4 presented on the requirements for providing a platform for innovation, focusing on "looking mechanisms" (a type of escrow functionality described in the BoE’s Technology Working Paper). This considered the desirability of locking functionality from a user's perspective and whether locking functionality was important to CBDC design; and how finality and irrevocability would work in an unauthorised payment scenario.

CBDC Technology Forum: 22 May 2024

• Discussion on the BoE report on the digital pound point of sale experiment. It was noted that the CBDC Technology Forum Terms of Reference allows subgroups to publish their own work, provided prior permission is sought from the BoE. The Forum also featured the following presentations: presentation on models of communications between PIPs looking at all potential participants in the digital pound ecosystem; and presentation on core ledger technology, considering various options and trade-offs.

CBDC Technology Forum: July 2024

• Presentation from the BoE on recommendations made by the subgroups.

19. BoE: Discussion paper: BoE’s approach to innovation in money and payments

On 30 July 2024, the BoE published a paper on innovation in money and payments. 

Notable points

• Innovations in the payments landscape: Central banks need to react quickly to risks and opportunities posed by innovations in money and payments. The BoE has carried out a number of initiatives in relation to innovations in payments and settlement.
• BoE's roles and responsibilities in payments and settlement: The BoE faces a number of challenges, some cross border in nature. These include: the renewal of RTGS systems; international initiatives on improving cross-border payments; wholesale CBDC and modernisation of interbank payment systems.
• Innovations in the payments and settlement landscape: These include the use of programmable ledgers in financial markets and the likely increase in usage (e.g. impact of consolidation of functions on back office processes); and the impact of DLT on new forms of private money.
• Response to innovation in the payments and settlement landscape to date: This looks at action undertaken by the BoE such as the RTGS Renewal Programme and Future Roadmap for RTGS; Omnibus Accounts to facilitate wholesale DLT-based settlement; and work with the FCA on the development of a Digital Securities Sandbox.
• Response to innovation in the payments and settlement landscape to date: The BoE summarises innovations in the provision of central bank money, namely various synchronisation approaches and work carried out by the BoE on business cases and synchronisation functionality. It also looks at work being done in relation to wholesale central bank money infrastructure.

Areas where views are sought include: potential functionalities and design of a wholesale CBDC; the likelihood of programmable platforms being taken up at scale by wholesale financial markets; and risks and benefits posed by the use of tokenised deposits and stablecoins.

The deadline for responses is 31 October 2024.

20. Law Commission: Supplemental report and draft Bill: Digital assets as personal property

On 30 July 2024, the Law Commission published a supplemental report and draft Bill (the  Property(Digital Assets etc) Act 2024) seeking to confirm the existence of a third category of personal property for certain digital and other assets. This follows the June 2023 report by the Law Commission which concluded that certain types of digital assets were capable of having property rights despite not fitting within traditional categories of personal property. 

The Commission consulted on the Bill in February 2024 and has made amendments to the Bill in light of feedback. The supplemental report sets out the basis of the Bill and the unique aspects of digital assets which result in them falling outside of the two traditional categories of personal property ("things in action" and "things in possession"). The report states that the draft Bill will allow case law to develop the third category of personal property, its boundaries and the rights attached to it.

The report notes that the introduction of a third category of property by the Bill would allow for the courts to determine applicable remedies to be pursued in respect of digital assets in certain scenarios, such as: where an individual's digital assets are taken/destroyed; proprietary freezing injunctions where digital assets are the subject of a legal dispute and there is a chance that the  holder could dissipate them before that dispute can be resolved; and administration of assets of an estate where an owner becomes bankrupt or insolvent.

For more information see Ashurst briefings here and here.

21. FMLC: Correspondence: Letter to HM Treasury on the MLRs

On 17 July 2024, the FMLC published correspondence between the FMLC and HMT on the MLRs. The FMLC considers the current review of the MLRs being undertaken by the Government provides an opportunity to highlight areas under the MLRs in need of further clarification.

• Referencing the EU CRD Annex I activities for the definition of financial institution and therefore the scope of the MLRs. The FMLC states that listed activities under CRD are not all regulated activities under the RAO or accepted concepts under UK law, giving rise to uncertainty as to which activities are in scope. It notes that "guarantees and commitments" are found in the CRD Annex but are not a regulated activity for the purposes of the regulated activities regime under FSMA. It calls for activities falling in scope of the MLRs to be aligned with those needing authorisation under FSMA. (by incorporating the listed activities into an amended Regulation 10).
• Key concepts in the MLRs are not defined in legislation. The FMLC notes a number of loosely defined terms in the regime such as "customer", noting that advisors are often forced to consult guidance such as JMLSG. The FMLC calls for key concepts to either be defined in the MLRs or by HM Treasury in authoritative guidance.

22. FCA and PSR: Call for information on Big Tech and digital wallets

On 15 July 2024, the FCA and the PSR published a call for information (CP24/9) on BigTech and digital wallets. This follows a series of publications by the FCA in relation to Big Tech, such as a discussion paper (see briefing here), a Feedback Statement (FS23/4), a Call for Input and a Feedback Statement (FS24/1).  

The regulators cite the increasing use of digital wallets as one of the most significant impacts of Big Tech on the payments landscape. The aim of the CfI is to assist the regulators understand the opportunities and risks of digital wallets. The FCA has spoken about potentially bringing large providers of digital wallets and payments apps into the existing regulatory perimeter of prudential and conduct regulation and supervision in the UK.

Areas of interest set out on the CfI include the following:

• benefits digital wallets bring for service users;
• features that mean payments do not work as well as they could for consumers or businesses, or both;
• the role of digital wallets in unlocking the potential of account-to-account payments and how they could impact competition between payment systems; and
• effectiveness of current regulatory framework.

The closing date for the CfI is 13 September 2024. The regulators plan to publish an update by Q1 2025, once information received has been considered.

23. Law Commission: Decentralised autonomous organisations (DAOs): A scoping paper

On 11 July 2024, the Law Commission published a scoping paper on characterising DAOs. According to the paper, DAO is "a new type of online organisation using rules set out in computer code". Noting various approaches to DAO, the paper avoids prescribing a particular type of organisational structure.

Areas covered by the paper include: philosophical development and underlying technology; possible legal characterisation of DAOs under the law of England and Wales, areas of regulation in England and Wales that may affect DAOs, including money laundering and financial services regulation and taxation; and the potential application financial regulation to DAOs as a result of issuance of governance tokens to participants and advertisement of tokens to potential participants.

The paper also looks at the regulation of collective investment schemes noting, that DAOs providing a profit-sharing mechanism for token holders could be deemed a collective investment scheme in some circumstances and that DAO tokens could be classed as units in a CIS.

Initial conclusions include the following:

• no current need for a DAO-specific legal entity for England and Wales (position to be kept under review);
• Companies Act 2006 (as well as law governing other entities such as LLPs) should be reviewed to decide if reform is needed to encourage increased use of technology;
• proceed with planned review of trust law and associated questions such as the need for more flexible trust and trust-like structures;
• further work needed on attractiveness of introducing a limited liability not-for- profit association with flexible governance options;
• consideration should be given to clarifying the position of DAOs and Collective Investment Schemes (as defined in FSMA); and
• future work considering any expansion of the regulated activities framework would benefit from explicitly contemplating DAOs and how they use tokens at a governance level.

For more information, please see our briefing here.

Updates and Guidance: Europe

24. Government of Luxembourg: Blockchain Bill IV

The Government of Luxembourg has introduced a Bill that will amend various Luxembourg laws concerning securities issued and transferred on DLT. The Bill extends the scope of the existing DLT-based securities regime to include alternative issuance models (via the concept of a "control agent" (agent de contrôle) and alternative asset classes that may be constituted via DLT under Luxembourg law. The Bill introduces a new status of "control agent", which can be undertaken by a MiFID investment firm or CRD credit institution authorised under EU law and appointed by the issuer or by a liquidation body as provided by current law. The Bill is now proceeding through the Luxembourg legislative process.

For more information, please see Ashurst briefing here.

25. Interview of Joachim Nagel to the "Tagesspiegel" newspaper

On 15 July 2024, Joachim Nagel, President of the German Central Bank (Deutsche Bundesbank), gave an interview on monetary policy to the German newspaper "Tagesspiegel", during which he briefly touched on the topic of the Digital Euro. Nagel explained that, in view of the increasing use of digital payment means, the Eurosystem's participants are working on providing not only euro cash but also the digital euro. In practice, the digital euro should work on a mobile phone with an app and a digital wallet, while the digital euro can be used for online shopping as well as for sending money to other people. Nagel also underlined that the payment process will be fast, cost-effective and allow users to pay anywhere in the euro area, while ensuring the highest level of privacy protection. As far as the timetable for the introduction is concerned, Nagel mentioned an introduction in four years' time.

26. Bundesbank: Panel discussion "The digital euro, the money of the future?" with Joachim Nagel

On 10 July, Joachim Nagel and economics professor Peter Bofinger, delivered remarks on "the digital euro, the money of the future?" as part of the Bundesbank Invited Speaker Series. In this context, Nagel emphasised the importance of the digital euro, given the current geopolitical situation and the increase in card payments. Nagel highlighted the importance of protecting critical infrastructure and European sovereignty. He also emphasised the special protection of citizens in digital payments afforded by the digital euro and the very high data protection requirements. Furthermore, he noted that the public would have freedom of choice, with the digital euro offering another payment option. Nagel anticipates that the digital euro will be introduced in around four to five years.

Updates and Guidance: APAC

27. South Korea: Crypoassets legislation in effect

On 19 July 2024, the Act on the Protection of Virtual Asset Users took effect in South Korea. This was confirmed by the Financial Services Commission on 17 July 2024. As discussed in the February 2024 edition of the Global Digital Assets Digest, the Act covers: protection of assets held by users of virtual assets; prohibition of unfair trading activities in the virtual asset market; and supervision and sanctions authority over virtual asset service providers and related market activities. The Act also confers supervisory and enforcement powers on the SFC in respect of VASPs. In a bid to ensure safe protections for users, the FSC plans to cooperate with investigative authorities and seek improvements to effectively implement the Act.

28. HKMA and FTSB: Consultation conclusions on the legislative proposal to implement the regulatory regime for stablecoin issuers in Hong Kong

On 17 July 2024, HKMA and the Financial Services and the Treasury Bureau (FSTB) published the consultation conclusions on the legislative proposal to implement a regulatory regime for fiat-referenced stablecoin (FRS) issuers in Hong Kong.  The HKMA and the FSTB received broad support for the introduction of this regulatory regime, and will take into account the views and suggestions from respondents in finalising the legislative proposal for implementing the regulatory regime.  The HKMA and the FSTB currently plan to introduce a bill into the Legislative Council later in 2024.

29. HKMA: Announcement on stablecoin issuer sandbox participants

On 18 July 2024, the HKMA announced the list of participants of the stablecoin issuer sandbox.  The sandbox, launched in March 2024, is part of the HKMA's efforts in facilitating the sustainable and responsible development of a stablecoin ecosystem in Hong Kong. Through the sandbox, the HKMA allows institutions with plans to issue stablecoin in Hong Kong, to conduct testing on their operational plans whilst facilitating two-way communication on the proposed regulatory requirements, with the view to formulating a fit-for-purpose risk-based regulatory regime. 

30. HKMA: Consultation paper on proposed renaming of "Virtual Bank"

On 6 August 2024, the HKMA invited feedback on a proposal to rename "Virtual Bank" as "Digital Bank".  Having regard to present day circumstances and developments in the banking sector, particularly the adoption of a wide range of financial technologies and innovations in the operation of banks, the HKMA considers that "Virtual Bank" may no longer be the most appropriate description.  The HKMA proposes to replace the term "Virtual Bank" with "Digital Bank", as it is thought that "Digital" has broader connotations of "internet" and "technology". The consultation ends on 5 September 2024. 

Updates and Guidance: Australia

No new entries.

Updates and Guidance: North America

31. State Attorney Generals release Amicus Brief on SEC’s authority to regulate cryptocurrency

A group of state Attorney Generals have filed an amicus brief with the U.S. District Court for the Northern District of Texas in a litigation between the SEC and a cryptocurrency business. The brief is not in support of any of the parties but questions the SEC's regulatory reach. It cites securities case law and  refers to "rulemaking by district court enforcement action" and the "pre-emption of state consumer protection and related criminal laws" on the part of the SEC. 

32. TIGTA: Report on virtual currency tax compliance enforcement 

The Treasury Inspector General for Tax Administration (TIGTA) has published a report setting out the results of its review on how effectively the Internal Revenue Service identifies income earned from virtual currency transactions. The review forms part of the TIGTA's Fiscal Year 2024 Annual Audit Plan. The reports notes the challenges posed by virtual currencies from a guidance and an enforcement perspective. The report cites paucity of third party information and anonymity of virtual currency as factors.

33. SEC: Formal approval of Spot Ether ETFs

The SEC formally approved spot Ethereum ETFs in July 2024, with trading beginning on 23 July 2024. This follows the SEC issuing an Omnibus Order approving a rule change in relation to US-listed spot Ethereum ETFs in May 2024 (see Global Digital Assets Digest June 2024 edition) . In January, the SEC approved Bitcoin ETFs (see Global Digital Assets Digest January 2024 edition).

34. CFTC: Interagency Fraud Disruption Conference Focuses on “Pig Butchering”

The CFTC and the DOJ's Computer Crime and Intellectual Property Section’s National Cryptocurrency Enforcement Team (NCET) held the first Fraud Disruption Conference in July 2024. The event focused on to work on efforts to combat “Pig Butchering", a practice whereby  victims are tricked into investing in virtual currency, with the aim of defrauding them of their investment. The working group discussed various strategies such as: using technology to disrupt fraud;  collaboration on enforcement efforts; and  anti-victimisation messaging campaign to encourage vigilance against emerging fraud threats. 

The conference follows various communications issued by US agencies in relation to pig butchering (see Global Digital Assets Digest October 2023 edition).

35. CFTC: Testimony at  US Senate Committee Hearing on oversight of digital commodities

The CFTC has published the testimony of Chairman Rostin Benham at the hearing on oversight of digital commodities held by the U.S. Senate Committee on Agriculture, Nutrition, and Forestry. The testimony focused on state of the digital asset commodity market; enforcement; international progress; and legislative priorities to achieve success.

Key points

• The CFTC has been an advocate for an appropriate regulatory and legislative framework to address the expanding digital assets sector.
• The CFTC has nearly a decade of experience in relation to enforcement action concerning digital assets and has employed its anti-fraud and anti-manipulation authorities.
• It is imperative that the US acts quickly in light of progress made by other jurisdictions in drawing up legislative and regulatory frameworks for the digital assets sector.
• Components of an adequate framework for digital assets would include: principles-based oversight model comprising of core principles, such as compliance with fair and orderly trading and system safeguards; appropriate funding to meet relevant mandates; a disclosure regime for registrants requiring information on a commodity token’s structure, purpose, market-based characteristics, and general risks; and comprehensive authority for anti-money laundering and KYC.

Updates and Guidance: Middle East

No new entries.

Press/Articles

No new entries.

Contributors: Tobias Bauerfeind; Cornelius Hille; Anson Chan; Anna He; Ashleigh Smithson and Angelique Nelis