Global Digital Assets Digest: November 2024

Welcome to this month's edition of Digital Asset's Digest. In this edition, there are important papers from the FSB and others on cross-border payments and the regulatory framework for digital assets. In the UK, the Mansion House speech reforms have set out further detail on the Government's approach to digital innovation and payments. There's also AFME's response to the European Commission's call for input on use of DLT within EU capital markets. In APAC, there's talk from regulators on supporting asset tokenisation, as well as news on the next steps for the Hong Kong Virtual Asset Regime. Stateside, the market is digesting the impact of recent political events on the digital assets sector, while the SEC's Division of Examinations has announced its 2025 Priorities.

Updates and Guidance: International Bodies

1. EU Publications Office: Commission Implementing Regulation (EU) 2024/2861 on public disclosure of inside information under MiCA

2. IMF: Policy paper: Central Bank Digital Currency: Progress And Further Considerations

3. Euro Banking Association: Report: Improving Cross-Border Payments - Findings of the EBA survey on cross-border payments initiatives

4. EIOPA: Consultation on standard formula capital requirements in cryptoassets

5. EBA: Decision on procedure for the significance classification under MICA and the transfer of supervisory powers between the EBA and competent authorities

6. ECB: Eurosystem launches initiatives to improve cross-border payments by interlinking fast payment systems

7. G20 Cryptoasset Policy Implementation Roadmap: Status report

8. FSB: Report: G20 Roadmap for Enhancing Cross-border Payments: Consolidated progress report for 2024

9. FSB: Implementation of the Legal Entity Identifier Progress report

10. ESMA: Opinion on amendments to draft RTS on authorisations and notifications under MiCA

11. BIS: Project Aperta: Enabling cross-border data portability through open finance interoperability

12. BIS: François Villeroy de Galhau: Fintechs: at the forefront of "new frontiers"

13. BIS: Piero Cipollone: Towards a digital capital markets union

14. CPMI: Final report to the G20: Linking fast payment systems across borders: governance and oversight

15. CPMI: Report to the G20: Promoting the harmonisation of application programming interfaces to enhance cross-border payments

16. IMF: Fintech note: Positioning Central Bank Digital Currency in the Payments Landscape

17. IMF: Fintech note: Implications of Central Bank Digital Currency for Monetary Operations 

Updates and Guidance: UK

18. UK Government: Mansion House Reforms

19. EBA: Guidelines on internal policies, procedures and controls to ensure the implementation of Union and national restrictive measures

20. PSR: Thought piece: Breakfast session: Promoting innovation in payment systems 

21. AFME: Use of DLT and Tokenisation in Financial Markets: A Proposed Vision and Policy Recommendations

22. FCA: Speech by Jessica Rusu: Ten years of FCA innovation: impact and opportunity

23.  ECCTA: Recovery of cryptoassets under POCA: SIs issued

24.  FCA: Blog: Cryptoasset registrations: building strong foundations

25. HM Treasury: UK-Switzerland Financial Dialogue Joint Statement: October 2024

Updates and Guidance: Europe

26. Deutsche Bundesbank: Speech by Joachim Nagel: Introducing a digital euro: the cross-border dimension

Updates and Guidance: APAC

27. MAS: Plans to support commercialisation of asset tokenisation

28. MAS: "Tokenisation in Financial Services: Pathways to Scale"- Opening Keynote Address by Mr Leong Sing Chiong at the Layer One Summit

29. HKMA confirms decision to rename "Virtual Banks" as "Digital Banks"

30. HKMA finalises revisions to E-Banking Risk Management guidance

31. SFC announces next steps for Hong Kong Virtual Asset Regime

32. HKEX to launch Virtual Asset Index Series on 15 November

Updates and Guidance: Australia

No new entries

Updates and Guidance: North America

33. SEC: Speech by SEC Chair "Car Keys, Football, and Effective Administration"

34. SEC: Hobs and Hobbes: Wharton FinTech Lecture

35. SEC: Remarks to the 2024 AIMA APAC Annual Forum

36. SEC Division of Examinations Announces 2025 Priorities

37. Federal Reserve: Centralized and Decentralized Finance: Substitutes or Complements? Governor Christopher J. Waller

38. SEC: Remarks at the Los Angeles County Bar 55th Annual Securities Regulation Seminar

39. US Treasury: Remarks by Under Secretary for Domestic Finance Nellie Liang “Modernizing the Regulatory Framework for Domestic Payments”

40. House Financial service Committee: McHenry, Committee Republicans respond to Federal Banking Regulators’ RFI on Bank-Fintech Partnerships

Updates and Guidance: Middle East

No new entries.

Press/Articles

No new entries.

Updates and Guidance: International Bodies

1. EU Publications Office: Commission Implementing Regulation (EU) 2024/2861 on public disclosure of inside information under MiCA

On 13 November 2024 the Implementing Regulation (EU) 2024/2861 on the technical means for the appropriate public disclosure of inside information and for delaying the public disclosure of that information was published in the Official Journal. It follows the publication of ESMA's July 2024 report.

The inside information regime under MiCA borrows heavily from the Market Abuse Regulation, with the MiCA ITS largely based on the MAR ITS (with some adjustments to provisions to reflect the crypto environment).

The Implementing Regulation will come into force on 3 December 2024.

2. IMF: Policy paper: Central Bank Digital Currency: Progress And Further Considerations

On 8 November 2024, the IMF published a policy paper on CBDC. The IMF’s CBDC virtual Handbook, a live document reflecting findings and policy views, aims to guide and support policymakers in their CBDC explorations. The paper aims to inform the Executive Board of recent global developments in CBDC

The paper looks at: CBDC in the payments landscape; cyber resilience of the CBDC ecosystem; CBDC adoption; and CBDC data use and privacy protection.

The paper notes that no new retail CBDCs have been officially launched since three central banks launched CBDCs in 2023, and that BIS survey indicates that advanced economies believe that the likelihood of the issuance within the next six years of a wholesale CBDC is now higher than that of a retail CBDC.

3. Euro Banking Association: Report: Improving Cross-Border Payments - Findings of the EBA survey on cross-border payments initiatives

On 30 October 2024, the Euro Banking Association (EBA) published the findings of its survey on cross-border payments initiatives. Respondents provided feedback on two areas: the extent to which cross-border payment initiatives address the four key challenges for cross-border payments, as determined by the G20; and relevant prerequisites for the market adoption of any of these initiatives.

The report states that many respondents considered harmonised data standards and harmonised regulatory and compliance network as very important for adoption of the initiatives covered by the survey.

4. EIOPA: Consultation on standard formula capital requirements in cryptoassets

On 24 October 2024, EIOPA published a consultation paper on draft technical advice in relation to standard formula capital requirements for investments in cryptoassets. This follows a May 2024 request for advice from the European Commission in relation to its review of aspects of the Solvency II Delegated Regulation. The consultation paper also follows a 2024 report by EIOPA on the digitalisation of the European insurance sector and 2022 discussion paper on blockchain and smart contracts in insurance.

EIOPA cites the absence of clarity in the treatment of cryptoassets under Solvency II regime and the concerns this causes in relation to  the risk-sensitivity of current classification and the level of prudence. The consultation contains an analysis of  EU insurers' crypto holdings and associated risks. EIOPA recommends that prudential treatment of cryptoassets be reviewed in future given the pace of change in the sector.

The deadline for comments on the draft advice is 16 January 2025.

5. EBA: Decision on procedure for the significance classification under MICA and the transfer of supervisory powers between the EBA and competent authorities

On 22 October 2024, the EBA published a Decision on the procedure for the classification of significant ARTs and EMTs and the transfer of supervisory responsibilities. MiCA provides that the EBA has responsibility for classifying ARTs and EMTs as significant and that following a decision in this regard, applicable supervisory powers will be generally transferred to the EBA (with the EBA also required to reassess whether the significance criteria is no longer met).

The Decision contains (among other things):

• a harmonised reporting calendar for NCAs and respective reference periods and remittance dates;
• reporting obligations for issuers of ARTs and EMTs; and
• procedural steps and information for transition of supervisory competences between the EBA and national competent authorities for issuers of ARTs and issuers of EMTs.

6. ECB: Eurosystem launches initiatives to improve cross-border payments by interlinking fast payment systems

On 21 October 2024, the Eurosystem announced the launch of initiatives to improve cross border payments. The initiative builds on the exploratory technical work started in 2020 with the aim of getting TARGET Instant Payment Settlement (TIPS) ready to settle cross-currency instant payments. The ECB is collaborating with Sveriges Riksbank and Danmarks Nationalbank, which joined the initiative following their decision to onboard to TIPS. The initiatives include: implementation of a cross-currency settlement service in TIPS enabling instant payments originating in one TIPS currency to be settled in another TIPS currency and in central bank money (the euro, Swedish kronor and Danish krone will join the initiative, with potential expansion to other currencies); and exploratory work linking TIPS with other fast payment systems (developing links with parties outside the EU to improve cross-border payments globally).

The initiative supports the G20 Roadmap on Cross-Border Payments, as well as the Eurosystem's retail payments strategy.

7. G20 Cryptoasset Policy Implementation Roadmap: Status report

On 22 October 2024, the FSB published a status report in relation to the implementation of cryptoasset policy. This follows a 2023 IMF-FSB Synthesis Paper that called for a cryptoasset policy implementation roadmap to promote the implementation of policy framework; and enhance global coordination, cooperation, and information sharing (amongst other things).

The report contains a brief overview of recent cryptoasset market developments; summary of progress made by the IMF and the FSB, as well as the relevant SSBs and other international organisations in implementing the roadmap; and key implementation experiences and challenges.

The report notes some progress made, but highlights implementation challenges related to the lack of comprehensive regulation of crypto-asset issuers and service providers; cross-border issues, particularly with respect to offshore jurisdictions; and the lack of specific stablecoin regulatory requirements.

Key conclusions

Cross-border cryptoasset activities emanating from offshore jurisdictions heighten regulatory and supervisory challenges for authorities.

The FSB Framework and other international standards are being undermined by non-compliance with applicable laws and regulations.

There needs to be a tailored regulatory framework for stablecoins and they should be subject to specific regulatory requirements due to their vulnerability to a sudden loss in confidence and to potential runs.

Next steps outlined in the report include the following:

• The FSB is to carry out a review of status of the implementation of the FSB Framework at the jurisdictional level by end-2025;
• IOSCO is to continue to focus on the implementation of its Policy Recommendations for Crypto and Digital Asset Markets alongside targeted efforts on its recommendations concerning DeFi (including an assessment methodology to be tried out in 20205); and
• the BCBS to continue to support the implementation of the final prudential standard for banks’ exposures to cryptoassets ahead of the January 2026 implementation date. The BCBS will also keep a watch on bank-related developments in cryptoasset markets, as well as monitor banks’ exposures to cryptoassets.

8. FSB: Report: G20 Roadmap for Enhancing Cross-border Payments: Consolidated progress report for 2024

On 21 October 2024, the FSB issued a report on progress made by the CPMI and others over the past year on the priority actions set out in relation to improving cross-border payments.

The G20 Roadmap on Cross-Border Payments noted challenges in the existing framework and introduced a set of quantitative targets. The FSB also presented KPIs for monitoring progress against the targets, issuing its second annual update on progress using KPIs. In February 2023, the FSB published an updated Roadmap focused on 15 priority actions to reflect the transition from analyses to practical implementation. Priority actions 1 to 10 are grouped into three themes, with actions 11 to 15 containing cross-cutting contributions across the themes.

The report notes strong progress made on foundational areas for cross-border payments e.g. ISO 20022 harmonisation and the extension of operating hours and the interlinking of fast payment systems (FPS).

The FSB expects more uptake in relation to ISO 20022, particularly in advance of Swift’s implementation in November 2025. The report refers to various CPMI initiatives, such as the CPMI’s harmonised ISO 20022 data requirements; recommendations for harmonising APIs to enhance cross-border payments; and the governance framework for FPS interlinking arrangements.

The report notes good progress against priority actions concerned with tackling frictions arising from the various rules data frameworks for cross-border payments. It confirms that the final version of recommendations to address this issue will be published in December 2024.

The report argues that commitment from stakeholders is critical to achieving the greater alignment and interoperability needed to improve cross-border payments.

The report also considers the key insights from the KPIs monitoring report issued alongside the report.

9. FSB: Implementation of the Legal Entity Identifier Progress report

On 21 October 2024, the FSB issued a progress report on the implementation of the LEI. The FSB considers that LEI could assist with achieving the goals of the G20 Roadmap on Cross-Border Payments. Its July 2022 report set out actions to promote the adoption of the LEI, with the aim of addressing the frictions in cross-border payments.

The report looks at progress made to implement the recommendations, examining initiatives to promote broad adoption of the LEI and then looking at the adoption of the LEI for cross-border payments. Obstacles to wider adoption of the LEI cited in the report include costs (particularly in low-income jurisdictions), and the lack of perceived incentives for voluntary adoption by relevant stakeholders.

Areas of action for FSB member jurisdictions, in collaboration with the ROC and the GLEIF, include the following:

• look at the feasibility of mandating the use of the LEI for certain payment message types for routing message formats migrating to ISO 20022 messages;
• consider ways to promote LEI adoption, especially outside the financial sector, including ways to boost awareness and adoption of the vLEI to enhance trust in digital exchanges via verifiable authentication; and
• consider a staged approach to the introduction of the LEI requirement in payment messages.

10. ESMA: Opinion on amendments to draft RTS on authorisations and notifications under MiCA

On 16 October 2024, ESMA issued an Opinion on changes made by the European Commission to draft RTS on authorisations and notifications under MiCA.

Under MiCA, ESMA is required to prepare RTS on the information to be included in a notification by certain financial entities of their intention to provide cryptoasset services; and  the information to be included in an application for authorisation as CASPs.

ESMA submitted draft versions of both sets of RTS to the Commission in March 2024. The Commission sent a letter to ESMA in respect of the RTS covering notifications and a letter on the RTS covering authorisations, indicating that both sets of RTS would be adopted, but with amendments. The Commission also opined that ESMA had gone beyond its mandate in some respects.

The Opinion recommends that the Commission should amend MiCA by: requiring applicant CASPs and notifying entities to provide the results of an external cybersecurity audit; and adjusting assessment of the good repute of the members of the management body of applicant CASPs to include certain checks.

The Commission will decide whether to adopt both sets of RTS.

11. BIS: Project Aperta: Enabling cross-border data portability through open finance interoperability

On 16 October 2024, BIS Innovation Hub published further details on Project Aperta. Current participants include the UK, UAE and Hong Kong.

The project includes a network connecting domestic open finance infrastructures of different jurisdictions and enables encrypted financial data to be shared via APIs.

Use cases in the project include: cross border portability of a consumer's account and business data to a bank in an another jurisdiction to open a new account; and  trade finance data related to shipping.

12. BIS: François Villeroy de Galhau: Fintechs: at the forefront of "new frontiers"

On 15 October 2024, BIS published a speech by Mr François Villeroy de Galhau, Governor of the Bank of France and Chair of the Prudential Supervision and Resolution Authority (ACPR), at the ACPR-AMF Fintech Forum, Paris. The speech provides an overview of the Banque de France and the ACPR's approach to financial innovation. Mr François notes that ACPR's Fintech Innovation Hub experienced an increase in activity in 2024 in comparison with 2023, and that the ACPR is ready to engage with the industry. The speech argues that the cross-border activities of start-ups is being hampered by variations in application of regulation in EU member states.

The speech also refers to the first issuers of stablecoins accredited in France.

13. BIS: Piero Cipollone: Towards a digital capital markets union

On 15 October 2024, BIS published a speech by Mr Piero Cipollone, Member of the Executive Board of the European Central Bank, at the Bundesbank Symposium on the Future of Payments, Frankfurt.

The speech looks at how recent developments in technology can create an integrated European capital market for digital assets. It argues that tokenisation can offer benefits beyond improving efficiency and could overhaul the structure of financial intermediation. The speech also lays out how central banks can support the transition, adding that the use of central bank money as the settlement asset in wholesale markets should be maintained. The speech calls for timely intervention from regulators to ensure a coordinated and proportionate response to developments.

Cipollone discusses a European ledger/single platform solution that brings together token versions of central bank money, commercial bank money and other digital assets, adding that this would involve T2S evolving into a DLT-based, single financial market infrastructure for Europe. Issues that would need to be clarified include: scope of services, governance structure, operational procedures and potential implications for existing infrastructure and assets.

The speech also refers to ongoing trials being undertaken by the Eurosytem in relation to interoperability solutions and confirms that the eligibility of DLT-based assets for use as collateral in Eurosystem credit operations will be examined.

14. CPMI: Final report to the G20: Linking fast payment systems across borders: governance and oversight

On 15 October 2024, the CPMI published a report on linking fast payment systems (FPS). The report is a deliverable under the G20 cross-border payments programme and seeks to inform governance and risk management of FPS interlinking arrangements as well as oversight approaches.

Notable points

• The current framework for FPS is geared towards domestic retail payments and interlinking FPS from different jurisdictions could bring significant benefits, such as enhancing cross-border payments.
• Establishing workable governance and oversight arrangements is made difficult when interlinking two or more FPS from different jurisdictions, owing to the multi-jurisdictional, cross-border and/or cross-currency nature of these arrangements.
• FPS interlinking arrangements generally do not involve new types of risks but may result in different levels of risks and differences in the way risks materialise compared to those already managed.

15. CPMI: Report to the G20: Promoting the harmonisation of application programming interfaces to enhance cross-border payments

On 15 October 2024, the CPMI published a report on promoting the harmonisation of APIs. API harmonisation refers to the process of ensuring that multiple APIs follow a consistent design and structure. The harmonisation of APIs to improve the safety and efficiency of cross-border payments was prioritised by the G20 in its February 2023 progress report on the G20 roadmap for enhancing cross-border payments.

The report notes increasing use of APIs in the global financial system for various payment functions, adding that the fragmentation of technical standards is hindering the potential of APIs in cross-border payments Factors causing the fragmentation of API standards include the use of legacy systems and the lack of centralised governance and coordination,

The report contains recommendations of the API Panel of Experts (APEX), an initiative led by the CPMI that also includes industry participants. The recommendations focus on four areas: global API harmonisation processes; API design principles and the use of existing international data standards;  enhancing the developer experience; and  promoting pre-validation APIs and implementation.

16. IMF: Fintech note: Positioning Central Bank Digital Currency in the Payments Landscape

The IMF has published a Fintech Note "Positioning Central Bank Digital Currency in the Payments Landscape". This note compares retail CBDC with FPS and e-money systems from a payments perspective. It concludes that all systems could meet central bank objectives such as payments efficiency and supporting financial inclusion; but notes that some benefits are unique to CBDC. The note argues that the design of a CBDC strategy  by central banks should involve assessing the current performance and future potential of existing non-CBDC systems.

17. IMF: Fintech note: Implications of Central Bank Digital Currency for Monetary Operations

On 4 October 2024, the IMF published a Fintech Note on the implications of CBDCs for monetary operations. The note sets out three scenarios (CBDCs substituting cash, commercial bank deposits, and reserves) and the impact of this on balance sheets and reserves. The note argues that the design of CBDCs, (e.g. setting criteria for access, holding quantity and remuneration) can offset adverse effects on monetary operations.

Updates and Guidance: UK

18. UK Government: Mansion House Reforms

On 14 November 2024, UK Chancellor of the Exchequer, Rachel Reeves, delivered her first Mansion House speech, setting out a series of reforms to drive growth and competitiveness in financial services. Ms Reeves confirms that Government intends to focus on five priority growth opportunities in financial services (including Fintech) to take advantage of the UK’s existing strengths and maximise the potential for growth.

The Government also confirmed a pilot to deliver a Digital Gilt Instrument, using DLT.  Earlier in November 2024, UK Finance published a report titled "Digital Gilt Roadmap" on how a digital gilt issuance could be carried out.

The Government also published a National Payments Vision in response to the findings of the independent Future of Payments Review 2023, led by Joe Garner. The paper notes the impact of next-generation technologies like DLT and also outlines how the newly established Payments Vision Delivery Committee will, via BoE and PSR, clarify the upgrades required to the existing Faster Payments System.

Although focused on retail payments, the paper acknowledges the importance of current initiatives such as the BoE RTGS Renewal programme and Future Roadmap, as well as the BoE omnibus account. The paper also contains a discussion on the digital pound (see our briefing here), noting that no decision has yet been made yet on implementation, adding that current efforts being undertaken and experience being gained on proofs of concept and experiments will support private innovation in digital currency technologies (regardless of final decision on the digital pound).

The Government confirms that any implementation of a digital pound would need to be accompanied by primary legislation.

19. EBA: Guidelines on internal policies, procedures and controls to ensure the implementation of Union and national restrictive measures

On 14 November 2024, the EBA published two sets of final Guidelines outlining common EU standards on the governance arrangements and the policies, procedures and controls for complying with EU and national restrictive measures.

Article 23 of the EU Recast Wire Transfer Regulation requires the EBA to issue guidelines on internal policies, procedures and controls to ensure the implementation of EU and national restrictive measures concerning transfers of funds and cryptoassets under the Regulation. The EBA also has its own-initiative Guidelines to address wider internal controls and risk management issues based on various pieces of EU legislation. The guidelines have been prepared owing to divergent expectations by competent authorities of the internal policies, procedures and controls financial institutions need for restrictive measures. The second set of Guidelines specifies what PSPs and CASPs should do to be able to comply with restrictive measures when performing transfers of funds or cryptoassets and clarifies how this interacts with wider governance and risk management frameworks.

The guidelines will be translated into the official EU languages and published on the EBA website.

20. PSR: Thought piece: Breakfast session: Promoting innovation in payment systems

On 12 November 2024, the PSR published a thought piece by Dan  Moore, Head of Strategy, Analysis and Engagement, following the PSR breakfast session " Promoting innovation in payment systems" held on 24 October 2024.

Key takeways

• The existing payments central infrastructure needs to be upgraded in order to unlock new opportunities for innovation.
• Innovation needs to meet specific end user needs and deliver clear benefits.
• Data sharing and digital identity will be key enablers of future innovation in payment systems
• Tokenisation, stablecoins, programmable money and the digital pound present new opportunities.
• The UK has historically enjoyed leadership in payments innovation, particularly in Open Banking but now faces competition from other jurisdictions. Services like Swish and IDEAL are paving the way when it comes to account-to-account payments.

21. AFME: Use of DLT and Tokenisation in Financial Markets: A Proposed Vision and Policy Recommendations

AFME has published its response to the European Commission's call for input on use of DLT within EU capital markets. The paper's aim is to "contribute to a vision for a token economy". The paper argues that DLT-based capital markets can be achieved via Technology Financial Infrastructure (TFI), i.e allowing firms to perform certain aspects of asset registration and settlement functions on the DLT.

The paper argues that the automation, distribution, and innovation brought about by DLT-based capabilities can contribute to key EU policy objectives, such as economic growth and competitiveness; completing the Capital Markets Union; reducing settlement risk and improving settlement choice; and enhancing resilience.

The paper calls for a two-pronged approach to addressing outstanding policy and regulatory barriers, consisting of: short term quick fixes comprising specific targeted reforms to EU DLT Pilot Regime (see our briefing here); and longer-term permanent changes that can be made to EU law to allow for scaling of DLT-based capital markets and for the development of the TFI.

Appendices to the paper contain proposed amendments covering: the EU DLT pilot Regime Regulation; the ECB legal framework; the Financial Collateral Directive; and the Settlement Finality Directive.

22. FCA: Speech by Jessica Rusu: Ten years of FCA innovation: impact and opportunity

On 17 October 2024, the FCA published a speech by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer, delivered at an FCA Innovation 10th anniversary event.

The speech argues considerable progress has been achieved in relation to Fintech, noting that the FCA was the first financial regulator to launch the regulatory sandbox. Ms Rusu adds that the FCA has since supported almost 1,000 firms and that 95 other regulators have introduced the sandbox model. The speech also refers to the FCA's Innovation Pathways services. The speech argues that the FCA's approach is one of partnering with the industry to help shape and support innovation. The speech also refers to the Lookback Report ,which details the services and support that the FCA has provided to firms over the last 10 years

23. ECCTA: Recovery of cryptoassets under POCA: SIs issued

On 17 October 2024, a variety of statutory instruments relating to the Economic Crime and Corporate Transparency Act 2023 were published. The Economic Crime and Corporate Transparency Act 2023 amends POCA 2002 by giving additional powers for law enforcement to seize and recover cryptoassets. The SIs outline various rules on the procedure for converting cryptocurrrencies into fiat currency in certain circumstances.

SIs published include the following:

• The Magistrates’ Courts (Conversion of Terrorist Cryptoassets) Rules 2024 (SI 2024/1040)
• The Magistrates’ Courts (Detention, Freezing and Forfeiture of Cryptoassets, and Miscellaneous Amendments) Rules 2024 (SI 2024/1043).
• The Magistrates’ Courts (Detention, Freezing and Forfeiture of Terrorist Cryptoassets, and Miscellaneous Amendments) Rules 2024 (SI 2024/1042).
• The Magistrates’ Courts (Conversion of Terrorist Cryptoassets) Rules 2024 (SI 2024/1041).

24. FCA: Blog: Cryptoasset registrations: building strong foundations

On 21 October 2024, the FCA published a blog on the MLR registration regime for cryptoassets and the underlying aims of regime.

Key points

• The regime under the MLRs helps to prevent issues such as terrorism, organised crime, sanctions evasion and human trafficking.
• Firms should engage early with the FCA through it pre-application meetings and avail themselves of practical support offered throughout the process. 
• The FCA considers that the guidance, pre-application meetings and practical examples it offers are tailored to each individual applicant.
• The FCA's decisions on registrations looks at controls and systems firms have in place, as well as the operating environment, staff and prospective customers. The time it takes to arrive at decision can therefore vary.
• Firms wishing to register under the MLRs should review the information on the application process in the frequently asked questions on the FCA's dedicated webpage for crypto firms; review the examples of good and poor practice for submitting an application; and ensure they provide complete applications for the FCA to assess.

25. HM Treasury: UK-Switzerland Financial Dialogue Joint Statement: October 2024

On 15 October 2024, the joint statement between HMT and the State Secretariat for International Finance was published following the October 2024 UK-Switzerland Financial Dialogue. This is the first formal meeting since the negotiations of the Berne Financial Services Agreement (BFSA) concluded in December 2023 (see our briefing here). Matters discussed included digital regulation practices, with the BoE and the Swiss National Bank updating on respective wholesale CBDC projects and payments work.  The dialogue also included a discussion on capital markets regulation, including an update on progress made towards achieving T+1 settlement.

Updates and Guidance: Europe

26. Deutsche Bundesbank: Speech by Joachim Nagel: Introducing a digital euro: the cross-border dimension

On 14 October 2024, a speech by Joachim Nagel, President of the Deutsche Bundesbank, at the RBI@90 High-Level Conference was published. The speech looked at CBDC developments, focusing in particular on cross-border payments. The speech examined the potential impact and benefits of the introduction of CBDC for processing cross-border transactions, as well as the Eurosystem's work on a digital euro.

Key points

• Interoperability between CBDCs at the early stage will help to harness benefits of cross-border payments. BIS has been undertaking a number of projects in this regard, including Project Dunbar. A multilateral approach not a unilateral approach is to be adopted to better guarantee success.
• India has made considerable progress in relation to CBDCs with the launch of the digital rupee in December 2022. There are indications that RBI will examine the potential of CBDCs in cross-border payments.
• There are a number of challenges to setting up a digital euro
• Eurosystem is to issue the digital euro but will not distribute it; banks and other payment providers should be the CBDC interface between the Eurosystem and the customers.
• The digital euro would be interoperable with other CBDCs from the beginning e.g. for person-to-person payments or commercial payments from or to firms outside the euro area.

Updates and Guidance: APAC

27. MAS: Plans to support commercialisation of asset tokenisation

On 4 November 2024, MAS laid out plans for promoting tokenisation in financial services. These include: establishing commercial networks to deepen liquidity of tokenised assets; developing an ecosystem of market infrastructures; fostering industry frameworks for tokenised asset implementation; and enabling access to common settlement facility for tokenised assets.

Notable developments

• Project Guardian, an initiative involving over 40 bodies across seven jurisdictions, has conducted more than 15 industry trials. A Guardian Wholesale Network Industry group has been formed, with the aim of setting up a multi-member network to commercialise asset tokenisation trials and scale usage.
• Further progress is being made in relation to Global Layer One (GL1), with plans to expand the scope and enable tokenised assets to be traded across borders. Activities to be undertaken include: promoting alignment on governance, risk management control and settlement arrangement conventions for cross border transactions; and developing specifications for market infrastructures and asset lifecycle to encourage interoperability between diverse systems.
• Industry frameworks such as Guardian Fixed Income Framework (GFIF) and Guardian Funds Framework (GFF)) have been developed.

28. MAS:"Tokenisation in Financial Services: Pathways to Scale" - Opening Keynote Address by Mr Leong Sing Chiong at the Layer One Summit

On 4 November 2024, MAS published a Keynote Address by Mr Leong Sing Chiong, Deputy Managing Director (Markets & Development), MAS, at the Layer One Summit. The speech provides an overview of the approach undertaken by MAS in relation to digital assets and tokenisation.

Key points

• The industry is seeing greater momentum towards tokenisation in financial services, with interest increasing across asset classes, jurisdictions and currencies. Supporting infrastructure is needed to enable good use cases to scale beyond individual networks.
• Key elements for supporting industry-wide use of tokenised assets are: liquidity, foundational infrastructure; standardised frameworks and protocols; and common settlement assets.
• Efforts undertaken by MAS to enhance liquidity across primary and secondary markets include supporting industry’s efforts to establish commercial networks for payments, capital raising and secondary trading of tokenised assets.
• MAS has set up the Singapore Dollar (SGD) Testnet, to enable access to common settlement assets for market testing purposes. SGD Testnet key features include: a settlement facility enabling wholesale CBDC to be issued, transferred and redeemed by financial institutions; programmability to automate and programme conditional triggers for transactions involving tokenised assets; and interoperability.
• The SGD Testnet will be made available to eligible financial institutions participating in MAS’ digital asset and digital money initiatives, including Project Guardian and Project Orchid.

29. HKMA confirms decision to rename "Virtual Banks" as "Digital Banks"

On 14 October 2024, the HKMA published the conclusions on the public consultation to rename "Virtual Bank" to "Digital Bank".  Respondents to the consultation were broadly positive and the majority agreed with the proposed new name.  The HKMA will embark on the amendments to the Guideline on Authorization of Virtual Banks to effect the new name "Digital Bank" shortly.

30. HKMA finalises revisions to E-Banking Risk Management guidance

On 25 October 2024, the HKMA published the revised version of the Supervisory Policy Manual TM-E-1 "Risk Management of E-banking". This revised guideline follows consultations with two industry associations and is part of the HKMA's continued efforts to ensure sufficient supervision of e-banking services and payment card services. The revised guideline (i) expands the scope of the revised SPM module to cover controls over payment card transactions; (ii) consolidates security measures outlined in various supervisory documents; and (iii) provides more principle-based guidance to strengthen Ais' risk management controls.

31. SFC announces next steps for Hong Kong Virtual Asset Regime

On 28 October 2024, the Securities and Futures Commission announced its intention to have more VATP applicants to be licensed by year-end and to have a consultative panel comprising all licensees established in 2025. This panel will focus on drawing lessons from the new licensing frameworks.

32. HKEX to launch Virtual Asset Index Series on 15 November

On 28 October 2024, HKEX announced that launch of the HKEX Virtual Asset Index Series which will offer a reliable benchmark for the fast-emerging asset class. The Index Series supports Hong Kong's development as Asia's leading digital assets hub and provides investors with benchmarks for Bitcoin and Ether pricing in the Asian time zone.

Updates and Guidance: Australia

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Updates and Guidance: North America

33. SEC: Speech by SEC Chair "Car Keys, Football, and Effective Administration"

On 14 November 2024, the SEC published a speech by SEC Chair, Gary Gensler, in relation to effective administration of the law by regulatory agencies. The speech emphasises the importance of "common sense rules" and argues that robust securities regulation creates trust in markets and encourages innovation. The speech also summarises the SEC's stance in relation to various types of digital assets and stresses the importance of adequate disclosure to the public by parties offering or selling securities proper regulation (in relation to conflicts, disclosures, and business conduct) and the registration of intermediaries.

34. SEC: Hobs and Hobbes: Wharton FinTech Lecture

On 1 November 2024 the SEC published a speech by SEC Commissioner, Hester M Pierce. The speech included an overview of the SEC's approach to exchange traded products giving access to cryptoassets. The speech also refers to landmark 2023 decision which changed the SEC's approach to cryptoassets, culminating in the approval of the listing by exchanges of spot bitcoin ETPs in January 2024 (see Ashurst Digital Assets Digest February 2024 edition) and spot ether ETPs in July 2024 (see Ashurst Digital Assets Digest August 2024 edition).

Key points

• A cautious approach in relation to other crypto-based ETPs is needed, with each case needing to be considered on its merits.
• The SEC's approach to the cryptoassets sector has not always been nimble enough to keep pace with the rapid change, with undue focus on enforcement not leading to clarity on jurisdictional boundaries, or guidance on compliance.
• A more open minded attitude from regulators in relation to experimentation undertaken by both crypto natives and traditional financial firms is needed, as opposed to a hostile regulatory environment.
• The SEC is digesting the response to Staff Accounting Bulletin 121 (see Ashurst Global Digital Assets Digest March 2024 edition and October 2024 edition).
• Regulatory uncertainty in the US means other jurisdictions are proving more attractive for firms to carry out asset tokenisation.
• Staff in the SEC’s Division of Investment Management have been looking into tokenised money market funds.
• The SEC could provide guidance in the near future on some aspects of tokenisation and its interaction with securities law. This could include guidance to artists and musicians wishing to tokenise their work; guidance on aspects that might bring a token within the securities laws; and guidance about the application of the existing securities laws to tokenised stocks and bonds.
• The SEC should look to introduce micro-innovation sandbox that could serve as a potential companion to the UK's Digital Securities Sandbox (see briefings here and here for more information on the DSS), with potential for cross-border experimentation.

35. SEC: Remarks to the 2024 AIMA APAC Annual Forum

On 24 October 2024, the SEC published remarks to the 2024 AIMA APAC Annual Forum by SEC Commissioner, Mark T Uyeda. This focused on the following areas: the regulation of private funds in the United States; developments in crypto and digital asset innovation; and the need for regulators in the Indo-Pacific region to engage in international regulatory forums.

Points to note

• A review of the implications of recent court decisions should involve an examination of whether the SEC is acting consistently in relation three-part mission to  protect investors, to maintain fair, orderly, and efficient capital markets, and to facilitate capital formation when it comes to crypto and fintech". The SEC can learn from regulators in the Indo Pacific region in this regard.
• The SEC is less advanced than the Indo Pacific region and has not given sufficient guidance on key issues. More could be done by the SEC in relation to determining whether a cryptoasset is a security. A specific form for issuers seeking to register their crypto offerings does not currently exist, with many issuers forced to use Form S-1.
• There needs to be more engagement with FinTech industry e.g. via sandboxes
• In the US, fund managers often have to consider whether cryptoassets are funds or securities that need to be maintained with a custodian and whether the custodian is a “qualified” custodian under SEC rules.

36. SEC Division of Examinations Announces 2025 Priorities

On 21 October 2024, the SEC’s Division of Examinations (EXAMS) published its report on 2025 Examination Priorities. This  seeks inform market participants of areas of focus by the Division. As in previous years, cryptoassets and emerging financial technologies feature in the risk areas affecting all market participants.

The report states that the examination of registrants will look at the offer, sale and recommendation, advice and trading and other activities related to cryptoasssets. Examinations will consider the ability of registrants to observe standards of conducts and routinely review their compliance practices. The Division will assess registrant practices to address the technological risks associated with DLT.

37. Federal Reserve: Centralized and Decentralized Finance: Substitutes or Complements? Governor Christopher J. Waller

On 18 October 2024, the Federal Reserve issued a speech made by Governor Christopher J. Waller at the Vienna Macroeconomics Workshop, Institute of Advanced Studies.  The speech focused on the role of centralised finance and DeFi and whether DeFi and centralised finance can be thought of as substitutes or complements. According to Waller, DeFi may be viewed as a substitute to centralised finance in that it allows individuals to trade assets without giving up control to an intermediary. Certain aspects of DeFi that offer a faster and more efficient means for record keeping mean it can also be viewed a complementing centralised finance.

38. SEC: Remarks at the Los Angeles County Bar 55th Annual Securities Regulation Seminar

On 17 October 2024, SEC published remarks made by SEC Commissioner Mark Uyeda at the Los Angeles County Bar 55th Annual Securities Regulation Seminar. The speech focused on the benefits of properly functioning capital markets; the challenges to capital formation for smaller private companies; and the concerns with regulation by enforcement, with a particular focus on cryptoassets. Mr Uyeda argues that concrete rules and interpretative guidance are better than implementing regulatory policy via enforcement actions. Uyeda refers to the Howey test under SEC v. W.J. Howey Co, 328 U.S. 293 (1946) for determining whether a cryptocurrency is a security, noting that a case-by-case approach through enforcement actions will mean that it may take a number of years to reach legally binding precedent.

39. US Treasury: Remarks by Under Secretary for Domestic Finance Nellie Liang “Modernizing the Regulatory Framework

The US Treasury published a speech by Under Secretary for Domestic Finance Nellie Liang titled “Modernizing the Regulatory Framework for Domestic Payments” delivered at the Chicago Payments Symposium, hosted by the Federal Reserve Bank of Chicago.

The speech notes the rapid growth in digital payments and developments of new payment infrastructure and the growth in e-money by non-bank payment service providers. The speech sets out the case for a federal payments regulatory framework. He argues that regulatory framework has not adapted quickly enough to the growth in new kinds of money and payments, arguing that a state-level framework with differing requirements also creates barriers to entry and inhibits competition and innovation. The speech cites foundational elements for a federal framework: financial resources; risk management; supervision and enforcement; and affiliation and activities restrictions.

40. House Financial service Committee: McHenry, Committee Republicans respond to Federal Banking Regulators’ RFI on Bank-Fintech Partnerships

The Chairman of the House Financial service Committee, Patrick McHenry and group of Committee republicans have responded to a July 2024 request for information on bank-fintech partnerships. The letter cites potential benefits of bank-fintech arrangements, such as low cost and more accessible financial products and services. It calls for regulators to understand the nature of each type of bank-fintech arrangement. The lawmakers warn against "heavy-handed and unclear examinations of fintech partner banks and ill-fitting regulatory treatment of blockchain technology used by financial institutions". It calls for regulators to allow responsible innovation.

Updates and Guidance: Middle East

No new entries.

Press/Articles

No new entries.

Contributors: Anson Chan; Anna He; and Sasha Sawant