Published Jul 7, 2022
By Qredo Team
Ben’s Regulatory Radar- June 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 June activity:
1) Travel Rule Update
The rule, which was updated in 2018 to require Virtual Asset Service Providers to share information about transactions, has been adopted by several jurisdictions as they ramp up their crypto oversight efforts.
In June, the European Union said that – as part of its Markets in Crypto Assets legislation (more below) – it would implement the Travel Rule, with Europe-based VASPs required to pass on information about transactions.
Meanwhile, the FATF has urged other lawmakers and regulators to speed up their adoption of the Travel Rule as it relates to crypto.
“Countries that have not introduced Travel Rule legislation should do so as soon as possible, and FATF jurisdictions should lead by example,” the FATF said in a report.
“As of March 2022, while 29 out of 98 responding jurisdictions reported having passed Travel Rule legislation, only 11 jurisdictions have started enforcement and supervisory measures.”
Qredo gives VASPs easy access to sharing information with other providers on the network, making Travel Rule compliance simple and cost effective.
2) EU gives MiCA go ahead
After months of back and forth, the European Union has finally reached an agreement for the Markets in Crypto Assets legislation which will govern how the block regulates digital assets.
The bill, which is set to come into effect in late 2023 or early 2024, addresses a number of key regulatory issues. These include reserve requirements for stablecoin issuers, environmental impact and energy usage reporting, as well as a stipulation that exchanges report all transactions to unhosted wallets over €1000.
The legislation marks a watershed moment for crypto regulation, with MiCA among the first concrete frameworks presented to regulate the sector among the world’s major economies.
European officials had previously voiced concern over the fragmented approach taken among the bloc’s 27 member states; not only for the regulatory challenge it presented, but because of the stifling impact this lack of clarity had on crypto innovation.
Notably, the bill does not directly impact Bitcoin and other tokens which have no centralized issuer.
NFTs are likewise absent from the framework, with lawmakers set to present a separate bill to regulate that market in the near future.
Some lawmakers had pushed for the inclusion of a ban on proof-of-work blockchains over energy concerns, but those proposals were dropped from the final package amid stiff opposition from the industry and other stakeholders.
“Today, we put order in the Wild West of crypto assets and set clear rules for a harmonized market that will provide legal certainty for crypto asset issuers, guarantee equal rights for service providers and ensure high standards for consumers and investors,” said Stefan Berger, the lawmaker who led negotiations on behalf of the European Parliament.
3) SEC: Bitcoin is only crypto commodity
The tussle between the various US financial regulatory agencies for oversight of the cryptoasset market continued last month, with Securities and Exchange Commission chair Gary Gensler saying that bitcoin alone counts as a commodity, with other tokens demonstrating characteristics of securities.
Gensler has consistently voiced his position that a significant portion of the digital assets markets should fall under existing US securities law.
However, in the recent broad crypto regulation framework outlined in President Joe Biden’s infrastructure bill, the Commodity Futures Trading Commission (CFTC) was designated as the primary agency tasked with policing the sector.
Given the CFTC’s experience in handling complex markets and the inclusion of bitcoin futures and similar assets on commodity exchanges, it seems unlikely that Gensler and the SEC will have the primary purview over the sector.
"Some, (cryptos are commodities) like bitcoin, and that's the only one, Jim, I'm going to say because I'm not going to talk about any one of these tokens [that] my predecessors and others have said [are] a commodity," Gensler said in an interview with CNBC’s Jim Cramer.
4) US crypto broker reporting
One major takeaway from Biden’s infrastructure bill for crypto was the proposed requirement for digital asset brokers to report information about their customers’ activity.
The concept has drawn criticism from some sectors of the crypto market, but the bill was passed into law last November and the rules were slated to take effect as soon as January 2023, with the IRS beginning to receive information for tax purposes the following year.
However, the definition of what constitutes a broker has proved a sticking point from the get go, and, with the technical challenges of rolling out such a reporting requirement in light of the ongoing regulatory uncertainty around the sector, it seems the implementation has been pushed back.
That will allow more time to firm up the as-of-yet still unclear definitions included in the bill, and give some space for agencies to figure out how such a regulation would work in practice.
5) Japan Stablecoin Law
Japan has become the latest country to pass a law governing stablecoins after the country’s Upper House of parliament approved amendments to the Payment Services Law.
As in other jurisdictions, Japanese officials have raised concerns about the potential risks of unregulated stablecoins linked to the dollar, yen and other currencies, and this legislation places significant restrictions on operators in the market.
Licenses are now required by stablecoin issuers, with banks, money transfer agents and trust companies designated as issuers.
Meanwhile intermediaries such as exchanges responsible for handling stablecoin transactions will now be required to register with the regulator and adhere to relevant anti-money laundering requirements.