Published May 5, 2022
By Ben Whitby
Ben’s Regulatory Radar – April Highlights
VP Strategic Partnerships and Regulatory Affairs
Ben grew up coding and exploring computers, and went on to build the world’s first interest rate swap trading platform in 2001. He later led regulatory teams at Accenture and PwC, before spending eight years with HSBC as a Regulatory Conduct and Financial Crime Specialist — a role that involved writing the bank’s first policy on Bitcoin in 2013.
Welcome to the latest edition of the Regulatory Radar!
This month I share some personal insights and commentary on several of the most interesting things going on in crypto regulation & compliance.
Here are my highlights from April activity:
1) Stablecoin Transparency Act
As the name suggests, the Stablecoin Transparency Act bill introduced in both the House of Representatives and Senate in April aims to bring more clarity and certainty around the reserves backing crypto stablecoins.
Stablecoins have grown to become an integral part of the crypto ecosystem, facilitating trading by individuals and institutions alike across assets, and my prediction that 2022 would be the year stablecoins entered mainstream FX markets is looking ever more accurate.
The pricing certainty provided by digital assets tied to fiat currencies such as the US dollar has proved in high demand, but the reserves which maintain those pegs have come under question multiple times.
Given that they represent digital equivalents of government-issued currencies, stablecoins have attracted considerable attention from states and regulators.
The sector is set to come under some form of regulation sooner or later, and this first bill provides an insight into how that legislation may look when it comes to fruition as the US government accelerates its efforts to create a workable framework for crypto.
Rep. Trey Hollingsworth (R-Indiana), who introduced the bill to the House and Senate alongside Sen. Bill Hagerty (R-Tenn.), told CoinDesk that the legislation was aimed at separating good actors in the space from the bad.
And on top of that, the legislation clearly signals the intent of legislators and regulators in the months to come.
“Even presenting this and dropping this to Congress is a signal to (the) industry where we are headed,” Hollingsworth told CoinDesk. “They can begin to make decisions and move in that same direction.”
2) UK accelerates crypto plan
It’s no secret that the UK has not rolled out the red carpet for the cryptoasset industry, and I’ve written previously that the signs for DeFi’s future in the country seemed ominous.
As one of the world’s major finance and tech hubs, it seemed natural that London would add crypto to the long list of sector’s which call the city home.
But the approach of the UK government and regulators such as the Financial Conduct Authority has been one of either ambivalence or suspicion towards the sector, with the few concrete rules to emerge from the country focussed on protecting consumers.
Over the past few months that has all changed, and the UK government appears to have begun to embrace crypto.
Given that London is home to significant institutional capital which is eager to get off the sidelines and enter the crypto fray, a more open approach by the UK authorities could unleash a wave of investment and innovation in the sector.
The UK is not alone in appealing to the market, with other countries such as Switzerland and the UAE making their own push to attract business to their own hubs, but all signs point to a chance of tack from authorities which holds much promise for the country’s future in the industry.
As John Glen, UK Treasury Minister, put it in a recent event in the heart of the City of London: “If there is one message I want you to leave here today with, it is that the UK is open for business — open for crypto businesses.”
Details remain scant, but it is clear that the UK is finally jumping into the cryptoasset world with both feet.
3) US ETF is coming
When oh when will we see a spot crypto exchange-traded fund being approved in the US?
Numerous futures-based ETFs now exist and are regularly traded by institutions and individuals alike seeking crypto exposure, but the Securities and Exchange Commission has several times kicked the can down the road on a final decision for a spot-based fund.
The list of funds which have been rejected has also continued to grow, as the regulator stands firm on its concerns about the potential for such a fund to be affected by fraudulent trading or market manipulation.
Cryptoasset manager Grayscale took the matter one step further last month by enacting a legal challenge against the SEC’s delays, saying that the regulator’s distinctions between futures and spot-based ETFs are arbitrary.
The argument rests on the regulator’s recent approval of a Teucrium futures crypto vehicle which was authorized under spot trading rules.
In a letter submitted to the SEC, Grayscale said that it believes “the Teucrium order confirms the fundamental point . . . [that] when it comes to approving [exchange traded products], there is no basis for treating spot bitcoin products differently from bitcoin futures products.”
How the regulator responds to the complaint remains to be seen, but with momentum gathering and the legal objections to the product growing thinner, it is only a matter of time before a spot Bitcoin ETF comes to the market.
4) Australia ETF failure to launch
While all eyes have been on when the US will approve a spot crypto ETF, Australia forged right ahead and gave the green light for three such funds to list on the CBOE Australia exchange platform.
Then it emerged almost at the last minute that the launch was pulled due to concerns raised by a still unidentified broker, with both the fund managers and CBOE saying that some checks remained to be fulfilled.
Meanwhile Canada-based manager 3iQ Digital Asset Management has taken advantage of the delay and lodged disclosure documents with the Australian Securities and Investments Commission for its own spot ETF.
The delays ultimately hinged on technical rather than regulatory issues, and so the prospects remain positive, but the episode demonstrates the challenges that the authorities, fund managers and exchanges face in making such ETFs a reality.
5) EU Travel Rule
We have written before about how important the FATF Travel Rule is going to be for the cryptoasset market going forward.
The issue is picking up pace, and at the beginning of April the European Union approved its own version of the rule as part of its Markets in Cryptoassets (MiCA) legislation package.
The move has prompted concern about the future of digital assets companies in the bloc, with predictions that it could lead to an exodus to more accommodating hubs such as Switzerland or Singapore.
In essence, MiCA requires all sizes of transactions in crypto markets to undergo full Know-Your-Customer (KYC) checks, bringing regulation of the digital asset sector in line with mainstream financial services in the jurisdiction.
Despite concerns about crypto leaving the EU, the market remains one of the largest and most lucrative in the world, and companies will have to find a way of living with the rules if they are to tap into the huge potential that Europe offers cryptoassets.
Check out Qredo’s bespoke Travel Rule Solution for more information about how to prepare your business for these regulatory challenges.