Weekly Wrap Up – BlockReg Advisors

 Category Weekly Wrap up

November 24, 2023

Regulatory News

European Union (EU)

Bank of Spain Governor discusses progress on Digital Euro Project - Pablo Hernández de Cos, Governor of the Bank of Spain, highlighted the progress made in the digital euro project during a speech at the Annual Convention of the Asociación de Mercados Financieros. He emphasized the motivations behind considering a digital euro, including complementing cash in a digitalized environment, promoting innovation in the European payments system, and safeguarding strategic autonomy. De Cos outlined key features of the potential digital euro, such as accessibility, privacy, and functionality. The project has entered the preparation phase, focusing on defining operational rules, selecting platform providers, and addressing concerns about potential impacts on deposits.

MiCA Regulations gain traction in Europe following FTX collapse and Binance settlement - European Commission policy officer Ivan Keller, speaking to CoinTelegraph, highlights the need for Markets in Crypto-Assets (MiCA) regulations in response to FTX's 2022 collapse and Binance's recent $4.3-billion settlement. Keller emphasizes that MiCA would mitigate risks, offer clearer regulatory oversight, and supervise entities effectively. MiCA, enacted in June 2023, aims to balance innovation with addressing consumer risks, market integrity, and financial stability. The regulations, applicable to all EU member states, are set to govern stablecoins in June 2024 and crypto-asset service providers in December 2024. Keller notes ongoing efforts to draft technical standards, with scrutiny expected before MiCA's full implementation in June 2024.

Belgium advocates European blockchain and AI initiatives during EU presidency - Belgium aims to accelerate the development of a European blockchain infrastructure for official documents storage and management during its EU Council presidency in 2024. Minister for digitization, Mathieu Michel, proposes revitalizing the European Blockchain Services Infrastructure (EBSI) project, renaming it Europeum and structuring it as the European Digital Infrastructure Consortium (EDIC). The initiative, part of four priorities promoting digital sovereignty, seeks to create a common blockchain infrastructure for public administration, supporting applications like digital euros and digital twins. Belgium also suggests establishing a European Algorithms Agency and a system to certify self-taught skills. Michel emphasizes the need for a more governance-focused approach in AI regulation.

European Parliament releases final eIDAS text with emphasis on privacy - The European Parliament's ITRE Committee published the consolidated version of the European Digital Identity (eIDAS) text on November 16. This version, aligning closely with the agreed trilogue outcome, emphasizes the integration of privacy-preserving technologies like zero knowledge proof into the European Digital Identity Wallet (EDIW). The regulation ensures that relying parties can validate statements without revealing underlying data, prioritizing user privacy. After technical review, the amendment awaits endorsement by the EP and Council, with publication in the Official Journal expected in Q2 2024. This marks a crucial step toward a secure digital identity framework in the EU.

United Kingdom (UK)

UK Government unveils Digital Securities Sandbox proposal to boost crypto innovation - The UK government has revealed plans for a Digital Securities Sandbox (DSS) as part of its legislative proposal to create a testing environment for crypto technologies and services. The Autumn Statement outlined 110 measures for economic growth, with the DSS aimed at facilitating the adoption of digital assets in financial markets. The government will introduce a statutory instrument (SI) to implement the DSS, following through on the Edinburgh Reform announcement for a Financial Market Infrastructure Sandbox in 2023. The initiative is expected to commence in the first quarter of 2024.

UK Investment Association unveils Blueprint for Asset Management Tokenization - The UK's Investment Association has released an interim report outlining a blueprint for tokenization in the asset management industry. The report details a staged approach, with the first stage focusing on using permissioned distributed ledger technology (DLT) for the unit register. While this approach may not pose significant regulatory issues in the UK, it depends on the fund's specific assets. The report suggests that using DLT for the client registry and asset register would offer more significant benefits but may require legal changes. The Investment Association is seeking industry input for the next stages, aiming to move quickly in adopting tokenization.

LATAM

Brazil's Crypto Regulatory Clarity Boosts Competitiveness, says Coinext CEO - José Ribeiro, CEO of Coinext, a Brazilian crypto exchange, shared insights on Brazil's cryptocurrency landscape and regulatory environment. Ribeiro highlighted that regulatory clarity in Brazil has increased competitiveness in the country's payments sector, attracting global crypto exchanges like Binance, OKX, and Coinbase. He predicted a record level of Bitcoin transactions in Brazil in 2023, attributing it to the growing interest and lower interest rates. Ribeiro emphasized the importance of regulatory frameworks, noting that compliance with tax authorities is a priority. He acknowledged that while regulations are necessary, engaging in discussions with regulators is vital for fostering innovation.

Global News

"On Par: A Money View of Stablecoins" - BIS Working Paper No. 1146 - This week BIS presents a money view analysis of stablecoins, a recent crypto innovation that has witnessed both significant growth and notable collapses. Drawing parallels between on-chain and offshore activities, the paper extends the analogy to stablecoins and Eurodollars, shedding light on the primitive nature of the on-chain liquidity mechanism supporting par settlement in existing stablecoin models. The analysis emphasizes that, in the context of par settlement, liquidity, rather than solvency, emerges as the primary challenge for on-chain stablecoins.

FSB Plenary in Basel addresses global financial stability, EMDE concerns, and crypto-asset regulations - The Financial Stability Board (FSB) Plenary recently convened in Basel, discussing the global financial stability outlook, with a focus on emerging market and developing economies (EMDEs). Members emphasized the need to address banking vulnerabilities, property markets, and operational resilience amid a transition to higher interest rates. The meeting delved into the challenges faced by EMDEs, such as high debt levels and the "sovereign-bank nexus," with attention given to implementing FSB recommendations for crypto-assets and stablecoin arrangements. The FSB prioritized resolution reforms, particularly in the insurance sector, and provided updates on the implementation of crypto-asset recommendations globally. Looking ahead to 2024, the FSB outlined its work program, including enhancing non-bank financial intermediation resilience, advancing crypto-asset market regulations, addressing climate change-related financial risks, and strengthening cyber resilience.

IMF Paper explores Central Bank Digital Currencies (CBDCs) in countering crypto-asset usage - On November 14, the International Monetary Fund (IMF) released a comprehensive paper, examining Central Bank Digital Currencies (CBDCs) and emphasizing three key themes: "Why Might Central Banks Explore CBDCs?," "How Should Central Banks Explore CBDCs?," and "Macro-Financial Implications of CBDC." The paper acknowledges that CBDCs could serve as a strategic response to the increasing use of crypto assets, particularly stablecoins, in facilitating cross-border payments. The IMF highlights the potential of CBDCs to mitigate the impact of crypto assets on the global financial landscape. This insightful analysis underscores the importance of central banks' exploration of CBDCs as a viable solution to address the challenges posed by the use of alternative digital currencies, such as stablecoins.

IOSCO's Recommendations for regulating crypto-asset activities - In response to concerns surrounding market integrity and investor protection in crypto-asset markets, the International Organization of Securities Commissions (IOSCO) has issued 18 Recommendations. These recommendations, aligned with IOSCO Standards, address conflicts of interest, market manipulation, cross-border risks, custody, operational risk, and retail access. Recognizing jurisdictional differences, IOSCO adopts a functional, economic approach rather than a one-size-fits-all taxonomy, emphasizing outcomes-focused, principles-based regulation. The Recommendations leverage existing policy frameworks, mapping them to crypto-asset infrastructure and services provided by Crypto-Asset Service Providers (CASPs). IOSCO's approach is informed by a comprehensive examination of existing policies, aligning them with identified risks in crypto-asset markets based on their expertise as securities regulators.

Ukrainian Officials enhance virtual asset investigation skills - Fourteen Ukrainian supervisory and law enforcement officials received advanced training in investigating financial crimes involving virtual assets in Vienna, Austria, from November 14 to November 17. The course, organized by OSCE and UNODC, equipped participants with advanced techniques and tools to combat crimes involving cryptocurrencies. The initiative aims to strengthen Ukraine's capacity to address money laundering and financial crimes associated with virtual assets. The training included practical knowledge on tracing criminal transactions on different blockchains and the use of specialized analytics software. This initiative is part of an OSCE-led project supported by the United States, the United Kingdom, Germany, Romania, and Poland to mitigate money-laundering risks linked to virtual assets in Ukraine, Moldova, and Georgia.

Industry News

European Union (EU)

Raiffeisen Bank expands services to include crypto trading in 2024 - Austria's Raiffeisen Bank is set to launch crypto trading services in 2024, in collaboration with crypto trading platform Bitpanda. The service, initially available to retail customers in Vienna, marks the bank's entry into the digital asset custody business. Raiffeisen Bank, with 16.7 million customers across Austria and Central and Eastern Europe, aims to be the first traditional credit union in the EU to include crypto within its digital investment offering. The move follows a trend of European banks entering the crypto custody space, with Commerzbank in Germany and HSBC in the UK obtaining crypto custody licenses. The partnership with Bitpanda reflects the growing regulatory clarity in Europe's crypto industry.

Santander Private Banking International offers cryptocurrency trading to Swiss account holders - Santander Private Banking International, a segment of Banco Santander, is set to offer high-net-worth clients with Swiss accounts the ability to trade and invest in major cryptocurrencies such as bitcoin (BTC) and ether (ETH). The service, provided upon client request through relationship managers, will include assets held in a regulated custody model, with the bank storing private cryptographic keys in a secure environment. Over the coming months, Santander plans to extend the offering to include additional cryptocurrencies meeting the bank's screening criteria. This move stands out in contrast to the typical approach of major banks, showcasing a willingness to engage with open-access blockchains and cryptocurrencies.

LATAM

Nubank Expands crypto offering, adds support for five altcoins - Brazilian neobanking unicorn Nubank has extended its crypto adoption initiative by incorporating trading capabilities for five additional altcoins on its banking app. The newly supported altcoins are Polkadot (DOT), Avalanche (AVAX), Stellar Lumens (XLM), Arbitrum (ARB), and Optimism (OP). Nubank, which initially launched crypto trading features in May 2022 with Bitcoin (BTC) and Ethereum (ETH), has consistently expanded its crypto offerings. The bank's proactive approach to crypto includes plans to purchase Bitcoin using its balance sheet, and it recently introduced its own crypto-asset, Nucoin. Nubank's move aims to enhance user engagement with promotional commission rates of 0.9% for the next four weeks.

Stablecoins to remain essential in Argentina despite economic changes - Ripio CEO Sebastián Serrano anticipates stablecoins maintaining a crucial role in Argentina's economy, regardless of incoming President Javier Milei's reforms. Serrano notes the crypto community's enthusiastic response to Milei's election, with Ripio experiencing a significant rise in new users. Stablecoins, like the U.S. dollar-pegged UXD, have become indispensable due to challenges in accessing traditional currency. Serrano highlights the potential importance of stablecoins in a scenario of dollarization with limited access to physical dollars. He emphasizes the need for stablecoins amid economic uncertainties, including concerns about the Central Bank of Argentina and high inflation rates.

Global News

U.S. Justice Department seeks over $4 Billion from Binance to conclude investigation - The U.S. Justice Department is reportedly seeking more than $4 billion from Binance as part of a proposed resolution for a lengthy investigation into the cryptocurrency exchange. Negotiations include the possibility of criminal charges against Binance founder Changpeng Zhao, known as "CZ," related to alleged money laundering, bank fraud, and sanctions violations. Zhao, residing in the UAE, could face charges if he voluntarily comes to the U.S. An announcement on the resolution might come by the end of the month. The investigation, one of the largest involving a cryptocurrency company, could result in significant penalties.

Canton of Zurich issues CHF 100 million digital bond settled with wholesale CBDC via SIX Digital Exchange - The Canton of Zurich issued a CHF 100 million ($113 million) digital bond through SIX Digital Exchange, settling the transaction with a wholesale central bank digital currency (CBDC) from the Swiss National Bank. The bond involving Zürcher Kantonalbank, UBS and Raiffeisen Switzerland, will be listed on SIX Digital Exchange and the main SIX Swiss Exchange after settling with CBDC on December 1. This pilot stands out for its use of live wholesale CBDC on SDX's production platform. Settlements for on-exchange trades on SDX and SIX occur through their respective central securities depositories.

Osaka Digital Exchange launching Japan's first Digital Securities Trading on December 25 - Osaka Digital Exchange (ODX) announces Japan's inaugural digital securities trading on December 25, featuring security tokens from Ichigo Inc. Regulatory approval for ODX's proprietary system, Start, granted on November 16 contributes to the global trend of adopting digital securities trading.

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The MiCA chronicles, number five.Cyprus as a Crypto Business-Friendly Ecosystem.