Global Digital Assets Digest April 2024

Welcome to this month's Global Digital Assets Digest. In the UK, we have news on the consultation concerning the digital securities sandbox, as well as the latest minutes from the CBDC forum. In the EU, ESMA has been busy issuing publications in relation to its various mandates under MiCA. ESMA has also provided an update on the status of the implementation of the EU DLT Pilot Regime.

In the US, there are some noteworthy speeches from regulators, while in Dubai there's news on the finalisation of digital assets legislation.

Updates and Guidance: International Bodies

1. BIS: Stablecoins: regulatory responses to their promise of stability

2. ESMA: TRV article on cryptoassets

3. ESMA: Letter from ESMA Chair on EU DLT Pilot Regime implementation

4. ECB: Eurosystem exploratory work on settlement of wholesale money

5. BIS: Webpage on Project Agorá

6. ECB: Letter to Irene Tinagli on technical considerations concerning the provision of multiple digital euro accounts to individual end users

7. ESMA: Consultation on third package of MiCA RTS and guidelines

8. ESMA: Final report on first package of RTS and ITS under MiCA

9. ESMA: Final report on technical standards on co-operation between competent authorities, ESAs and third-country authorities under MiCA 

10. ECB: Press release: Creation of seven additional workstreams of the digital euro Rulebook Development Group

11. ESMA: SMSG advice on digitalisation and the MIFID investor protection framework.

Updates and Guidance: UK

12. BoE: Minutes: Minutes of the CBDC Academic Advisory Group - March 2024 

13. FCA: Update to webpage on perimeter report 

14. BoE: Minutes of the CBDC Technology Forum - February 2024

15. BoE/FCA: Consultation paper: Digital Securities Sandbox

16. HMT: Accelerated Settlement Taskforce publishes report

17. The Technology Working Group: Second report on fund tokenisation

18. FCA: Finalised guidance on financial promotions on social media

19. The Economic Crime and Corporate Transparency Act 2023: Measures relating to cryptoassets come into force

20. FCA: Business Plan 2024/25

Updates and Guidance: Europe

21. Deustsche Bundesbank: Speech by Joachim Nagel on the future of digitalisation and finance

22. BaFin: Speech by Thorsten Pötzsch on capital markets in the digital age

Updates and Guidance: APAC

23. MAS: Speech by Gillian Tan "Beyond the Horizon: Unlocking Value in the Future of Alternative Investments" 

24. HKMA launches Phase 2 of the e-HKD Pilot Programme

25. HKMA launches the stablecoin issuer sandbox arrangement

Updates and Guidance: Australia

26. ASIC: Continued testing regulatory boundaries in ASIC v Finder Wallet

Updates and Guidance: North America

27. CFTC: Opening Remarks of Commissioner Kristin N. Johnson: The South African Reserve Bank Fintech Summit

28. U.S. House of Representatives Committee on Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion: Hearing on CFPB proposed rule

29. CFTC: Global Markets Advisory Committee advances a Recommendation concerning digital assets

30. FDIC: Remarks by Vice Chairman Travis Hill at the Mercatus Center on “Banking’s Next Chapter? Remarks on Tokenization and Other Issues”

31. CFTC: FY 2025 President's Budget

Updates and Guidance: Middle East

32. DIFC: New Digital Assets Law 2024

Press/Articles

33. President of Deutsche Bundesbank gives interview

Updates and Guidance: International Bodies

1. BIS: Stablecoins: regulatory responses to their promise of stability

On 9 April 2024, BIS published a paper examining the regulatory framework for issuers of single-fiat pegged stablecoins. The paper compares regulatory regime in seven jurisdictions, highlighting emerging trends and commonalities. Areas covered include: licensing and authorisation; reserve asset requirements; governance and risk management; disclosure and marketing; vertical integration; AML/CFT requirements; and prudential requirements.

Key conclusions highlighted in the report include the following:

• although some commonalities can be found in regulatory responses, the regulatory landscape is diverse and fragmented;
• ensuring the interoperability of stablecoins with CBDCs and other digital assets is key to promoting an integrated financial system; and
• authorities need to establish a framework that achieves a balance between fostering innovation and mitigating risks.

2. ESMA: TRV article on cryptoassets

ESMA has published an article on patterns in crypotasset secondary markets. The article is based on an analysis of granular trading and orderbook data and examines key differences and similarities between cryptoassets and traditional markets. It also examines current and potential risks posed by cryptoassets to consumers, market order and financial stability.

3. ESMA: Letter from ESMA Chair on EU DLT Pilot Regime implementation

On 4 April 2024, ESMA published a letter from ESMA Chair, Verena Ross, to various representatives at EU bodies in relation to mandates under the EU DLT Pilot regime (see our briefing here for background on the regime).

ESMA notes that as no DLT market infrastructures have been authorised since the entry into application of the DLT Pilot regime Regulation, it will not be publishing the various reports it is required to under EU DLT Pilot Regime Regulation.

The letter also seeks clarification from the Commission on aspects of the EU DLT Pilot Regime Regulation

Notable points

• There are challenges arising from the absence of central bank solutions, although this affords the opportunity for innovative solutions for cash settlement. It has been difficult for DLT Pilot Regime applicants to find cash leg providers, owing in part to timing mismatch between MiCA authorisations starting date and the DLT Pilot Regime. The DLT Pilot Regime only allows settlement of payments using e-money tokens where issued by credit institutions (and not by e-money institutions). ESMA welcomes the planned Eurosystem trials on central bank settlement of wholesale financial transactions recorded on DLT platform.
• There are challenges in relation to the interoperability between DLT market infrastructures and traditional market infrastructures, as well as among DLT market infrastructures.
• Confirmation from the Commission that the DLT Pilot Regime could be extended would provide assurance to market participants that there is adequate time to implement and operate projects.
• ESMA will continue to work with NCAs in relation to interaction between the MiFID II and the DLT Pilot Regime and the investor protection implications of the direct access.

For more information on the DLT Pilot Regime, please see our guide here.

4. ECB: Eurosystem exploratory work on settlement of wholesale money

On 4 April 2024, the ECB issued a press release confirming that the Eurosystem will start exploratory work on new technologies for settlement of wholesale transactions in central bank money on 13 May 2024, in a collaboration between financial firms and central banks. The ECB approved the participation of ten market participants (entities with access to TARGET) and six market DLT operators.

The ECB also confirmed that the list of participants in the first wave had been finalised but that the call for expression of interest to join the second wave of trials and experiments would remain open util 30 April 2024.

5. BIS: Webpage on Project Agorá

On 3 April 2024, BIS published a webpage in relation to Project Agorá, a project bringing together a number of central banks exploring the tokenisation of cross-border payments. The project will investigate how tokenised commercial deposits can be integrated with tokenised wholesale central bank money in a public private programmable core financial platform. The project will look at reducing structural inefficiencies in relation to cross border payments and will also look at use of financial integrity controls.

FATF: Status of implementation of Recommendation 15 by FATF members and jurisdictions with materially important VASP Activity

On 28 March 2024, FATF published a report on the status of implementation of Recommendation 15 by FATF members and jurisdictions with materially important VASP Activity. Jurisdictions were identified based on two criteria: trading volume and userbase, based on open source datasets from January to December 2022 and cross-checked against data from blockchain analytics companies. FAFT notes that Recommendation 15 is yet to be fully implemented in certain jurisdictions.

Jurisdictions are expected to review the results and consider if it merits them designating as a higher risk VASPs from jurisdictions deemed to not be effectively implementing licencing or registration requirements.

6. ECB: Letter to Irene Tinagli on technical considerations concerning the provision of multiple digital euro accounts to individual end users

On 25 March 2024 the ECB published a letter from Piero Cipollone, Member of the Executive Board, to Irene Tinagli and a technical note. These concern the technical considerations in relation to the provision of multiple digital euro accounts to individual end users.

The proposal for a Regulation on the establishment of the digital euro provides for digital euro users to have one or several digital euro accounts with the same or different PSPs. In its opinion on the legislative proposal the ECB stated that this feature would result in technical difficulties, particularly in relation to the management of the consolidated holding limit. The technical note examines the potential impact of users holding multiple accounts, looking at aspects such as: user experience; enforcement of holding limits; management of offline holding limits; and joint accounts. The note concludes that providing users with multiple accounts in conjunction with an individual holding limit is technically feasible but may require trade-offs (such as in user experience, as well as technical and operational implementation for PSPs).

The ECB confirms that it plans to continue investigation into the technical aspects raised in the note.

For more on the digital euro, please see our briefing here.

7. ESMA: Consultation on third package of MiCA RTS and guidelines

On 25 March 2024, ESMA issued a consultation paper on RTS and guidelines under MiCA. This third consultation package includes all remaining mandates required under MiCA:

• arrangements, systems and procedures for detecting and reporting suspected market abuse in cryptoassets, reflecting a mandate under Article 92(2) of MiCA;
• certain aspects of the suitability requirements and format of the periodic statement for portfolio management activities under MiCA (mandate under Article 81(15) of MiCA);
• procedures and policies, including the rights of clients, in the context of transfer services for cryptoassets (mandate under Article 82(2) of MiCA); and
• maintenance of systems and security access protocols in conformity with appropriate EU standards, reflecting a mandate under Article 14(1) of MiCA.

The deadline for comments is 25 June 2024. ESMA expects to publish a final report and submit the draft technical standards to the European Commission for endorsement by December 2024.

For a background on MiCA, see our briefings here and here.

8. ESMA: Final report on first package of RTS and ITS under MiCA

On 25 March 2024, ESMA published the final report on its first package of RTS and ITS under MiCA. ESMA published the consultation paper in respect of these in July 2023.

The final report contains feedback in respect of RTS and ITS concerning the following areas:

• notification by certain financial entities to provide cryptoasset services; Information to be included in the application for authorisation as a crypto-asset service provider;
• complaints-handling procedures of crypto-asset service providers; and
• assessment of intended acquisition of a qualifying holding in a CASP.

The final report in respect of technical standards on conflicts of interests for CASPs will be published at a later date by the EBA. ESMA has submitted its draft technical standards to the European Commission for adoption.

For a background on MiCA, see our briefings here and here.

9. ESMA: Final report on technical standards on co-operation between competent authorities, ESAs and third-country authorities under MiCA

On 25 March 2024, ESMA published a final report on draft RTS and ITS concerning the requirements for co-operation, exchange of information and notification between competent authorities, ESAs and third countries under MiCA.

The standards cover:

• the information to be exchanged between competent authorities, pursuant to Article 95(10) of MiCA;
• the relevant standard forms, templates and procedures for the exchange of information between competent authorities, pursuant to Article 95(11) of MiCA;
• forms for information exchange between competent authorities and ESMA/EBA, pursuant to Article 96(3) of MiCA; and
• the cooperation template with third countries, pursuant to Article 107(3) of MiCA.

For a background on MiCA, see our briefings here and here.

10. ECB: Press release: Creation of seven additional workstreams of the digital euro Rulebook Development Group

On 18 March 2024, the ECB published a press release confirming the creation of seven additional workstreams of the digital euro rulebook. The rulebook contains information in relation to the framework for the digital euro and is being developed via workstreams comprising market participants and Eurosystem representatives. The seven workstreams include: minimum user experience (UX) standards; certification and approval framework; risk management; and implementation specifications.

11. ESMA: SMSG advice on digitalisation and the MIFID investor protection framework.

On 14 March 2024, the SMSG published its advice to ESMA in relation to its December 2023 discussion paper on digitalisation and the MIFID investor protection framework. The discussion paper contains a number of draft proposals on areas such as layering, digital marketing communications, finfluencers, gamification and digital engagement practices (please see our briefing here).

SMSG notes the transformative effect of the digitalisation of financial services, as well as the risks this brings. The advice calls for action to address what it terms digital asymmetry. It also recommends that ESMA expands the existing regulatory focus of the paper to include MiCA. The SMSG also makes recommendations in relation to crypto promotions via unregulated channels (e.g. social media influencers).

Updates and Guidance: UK

12. BoE: Minutes: Minutes of the CBDC Academic Advisory Group - March 2024

On 8 April 2024, the minutes of the first meeting for the CBDC Academic Advisory Group, held on 19 March 2024, were published. The meeting comprised three presentations from members (the future of money and payments; behavioural drivers of payment intentions; and risks and opportunities of CBDCs), as well as a discussion. The discussion looked at the role a digital pound could play given ongoing and future changes occurring in the payments landscape.

13. FCA: Update to webpage on perimeter report

The FCA has updated its webpage on its perimeter report. The report outlines areas concerning the regulatory perimeter and any action that the FCA is adopting in response.

• Cryptoassets: The regime for promotions of cryptoassets is covered by the Financial Promotion (Amendment) Order 2023 (see our briefing here). The Government decided not to bring NFTs within the scope of financial promotions regime but the FCA has seen cases where NFTs have been used as speculative investments and so can have same risks as other types of cryptoassets. There needs to be careful alignment between the financial promotions regime and the future regulated activities regime in order to prevent regulatory arbitrage. The FCA intends to work with HMT as these regimes develop.
• Online Safety Act 2023: The FCA will continue to work closely with Ofcom to create shared understanding of the obligations of platforms under the Online Safety Act and financial promotions legislation. The FCA looks forward to the development of the Online Advertising Programme.
• Financial promotions and social media (including influencers): This has been an area of continued concern for the FCA since it was publicly raised in October 2021. The FCA is working with other regulators, such as ASA, on educating finfluencers about the risks involved and their legal obligations when seeking to promote financial products or services. The FCA published the feedback statement and final guidance in relation to financial promotions and social media in March 2024.
• Open Banking, Open Finance and Smart Data: There has been considerable activity undertaken by the Joint Regulatory Oversight Committee (the Body comprising the FCA, PSR, HMT and CMA charged with designing and overseeing the next phase for open banking). The legislation for the long-term regulatory framework for open banking, and its accompanying principles are to be delivered via a smart data scheme (using powers to be provided in the Data Protection and Digital Information (No.2) Bill).

14. BoE: Minutes of the CBDC Technology Forum - February 2024

On 4 April 2024, the CBDC Engagement Forum published the Minutes of its meeting held in February 2024. The meeting consisted of presentations from two of the four temporary subgroups established to help explore the design options for the digital pound architecture: presentation on models of interaction between PIPs and uses cases to assess against these models; and presentation on core ledger technologies for the digital pound. A preliminary assessment in relation to messaging standards was also discussed, noting that while ISO 20022 gives a useful taxonomy and data dictionary, no specific ISO messages were perfect for the digital pound (ISO 20022 is Extensible Markup Language (XML) based and would be difficult to implement for digital pound APIs).

15. BoE/FCA: Consultation paper: Digital Securities Sandbox

On 3 April 2024, the BoE and the FCA published a consultation paper on a digital securities sandbox. This follows HMT's November 2023 response to its consultation on the DSS. The DSS is the first financial market infrastructure sandbox to be established under powers conferred by FSMA 2023 (see our briefing here).

The DSS regime allows for existing legislation and regulation to be disapplied/ modified so that applicants to the DSS can operate a trading venue and/or settlement services using new technology such as DLT. HMT published secondary legislation in respect of regime in 2023 (see our briefing here). This envisages three possible business models: carrying out the activities of a CSD by becoming a Digital Securities Depository (supervised by the BoE); operating a trading venue (supervised by the FCA); or combining both into one FMI to create a hybrid entity (via the disapplication of Article 18 UK CSDR) to be supervised by both regulators.

The approach set out in the consultation paper envisages a "glidepath" consisting of a series of gates for sandbox entrants to move through (the permitted activity is to increase with each stage) as relevant standards are met.
Areas covered in the consultation paper include: implementation and operation of the DSS: application process to enter the DSS; the use of rule-making powers; approach to managing financial stability and market integrity risks in the DSS; supervision and enforcement; fees levied by the BoE; and managing the limits of DSD activity within the DSS.

The regulators have also published:

• Draft guidance for firms looking to enter the DSS (including information on what will happen following authorisation to undertake activity in the DSS); and
• Information on how existing regulations related to securities depositories will be transposed into "Rules" at different stages of the DSS.

The deadline for comments is 29 May 2024. The regulators aim to open the DSS for applications during summer 2024.

For more information, please see our briefing here. 

16. HMT: Accelerated Settlement Taskforce publishes report

On 28 March 2024, HMT published a report by the Accelerated Settlement Taskforce. The Taskforce was launched in December 2023 as part of a series of policy initiatives introduced by the UK government to encourage growth and competitiveness in the financial services sector. These are known as the Edinburgh Reforms (for more information on Edinburgh Reforms, see our briefing here).

The Taskforce, led by Charlie Geffen, examined the case for trades to be settled more quickly in the UK (i.e. moving to a "T+1" standard settlement period). The report refers to the debate on the merits of "T+0", or "same day" settlement and how new innovations such as DLT may assist in this regard.

HMT confirms that it has accepted the recommendations of the Taskforce, including that:

• the UK should commit to moving to a T+1 settlement cycle no later than 31 December 2027;
• the UK and other European jurisdictions should collaborate closely to establish whether a co-ordinated move to T+1 is possible; and
• the UK should consider whether it wishes to align with any timeline for a transition date committed to by other European jurisdictions.

The report sets out a number of technical and operational changes that would be necessary for the UK to be ready to move to T+1. It also recommended that a new group be set up to determine the details of these technical changes. The terms of reference for this group was also published.

17. The Technology Working Group: Second report on fund tokenisation

On 26 March 2024, the Technology Working Group – a body established by the Economic Secretary to the Treasury’s Asset Management Taskforce to assess the impact of new technology on the asset management sector - published its second report on fund tokenisation. This builds on the first report by the Group, expanding the potential use cases of fund tokenisation first explored in the first report (see Digital Assets Digest for more information). The use cases to be tested are: fully on-chain investment markets, with tokenised funds investing in tokenised securities (e.g. fixed income or other asset classes); and the use of tokenised money market fund units as collateral where eligible under the UK regime for non-centrally cleared derivative contracts.

The report examines the next stages of fund tokenisation: allowing on-chain fund settlement via digital money; enabling funds to hold tokenised assets in their portfolio; and expanding the scope of solutions to include the use of public permissioned networks.

The report provides an update on actions outlined in the first phase report. It also contains a model fund prospectus disclosure for firms to use, as well as summary of emerging technical standards to aid interoperability.

18. FCA: Finalised guidance on financial promotions on social media

On 26 March 2024, the FCA published its finalised guidance (FG24/1) in relation to financial promotions and social media. The FCA issued the consultation in June 2023 at the same time it published its Policy Statement (PS 23/6) on cryptoasset promotions regime (see our briefing here).

The guidance, which will replace previous FCA Guidance (FG15/4), is relevant to: authorised persons communicating/approving financial promotions on social media; and unauthorised persons, including influencers or other affiliate marketers, communicating financial promotions on social media.

The guidance does not introduce new obligations for those promoting financial products and services on social media but does contain information on how to comply with existing regulatory obligations. In respect of unauthorised persons (including influencers/other affiliate marketers), the guidance explains when communications might fall within the FCA regulatory perimeter and how the rules would apply.

The FCA stresses that its financial promotion rules are technology neutral (any type of communication can be a financial promotion where there is an invitation/inducement to engage in investment activity (e.g. chatrooms)). The guidance also notes that financial promotions should be standalone compliant. The guidance discusses the use of memes in promotions, noting that this practice are prevalent in the cryptoasset sector.

In respect of non-UK regulated firms complying with the regime, the FCA suggests the following:

• geo-blocking promotions so they are not accessible to UK consumers; and
• changing the form and content of communications capable of having an effect in the UK so that they do not have invitations/inducements to engage in investment activity.

19. The Economic Crime and Corporate Transparency Act 2023: Measures relating to cryptoassets come into force

The Economic Crime and Corporate Transparency Act 2023 (Commencement No. 2 and Transitional Provision) Regulations 2024 (SI 2024/269) bring into force certain provisions in the Economic Crime and Corporate Transparency Act 2023. These include provisions expanding the civil recovery regime and confiscation under the Proceeds of Crime Act 2002 so as to capture cryptoassets. In January 2024, the Proceeds of Crime Act 2002 (Search, Recovery of Cryptoassets and Investigations: Codes of Practice) Regulations 2024 were also published. These bring into effect two revised codes of practice and one new code of practice as a result of changes to POCA made by the Economic Crime and Corporate Transparency Act 2023.

These come into force on come into force on 26 April 2024.

20. FCA: Business Plan 2024/25

On 19 March 2024, the FCA published its 2024/25 Business Plan. This explains the work the FCA is planning to undertake over the next year to achieve commitments set out in its April 2022 Strategy. The FCA will focus on the following commitments: reducing and preventing financial crime; putting consumers' needs first; and strengthening the UK's position in global wholesale markets. Other plans put forward include the following: supporting asset management industry groups on tokenisation; and supporting industry work on T+1 settlement.

Updates and Guidance: Europe

21. Deustsche Bundesbank: Speech by Joachim Nagel on the future of digitalisation and finance

On 22 March 2024, Joachim Nagel, President of the German Central Bank (Deutsche Bundesbank) delivered a speech on the future of digitalisation and finance at the farewell symposium for Vice President Claudia Buch and Board Member Joachim Wuermeling of the German Central Bank.

In his speech, Nagel stated that the answer to the weak growth in Germany is digitalisation, which could help significantly increase productivity in Germany. Nagel noted that in the past, the productivity boost was not alone provided by digital capital goods, but also by digital intermediate inputs. Nagel argued that accordingly, the entire value chain needs to be looked at when exploiting digital potential. Nagel emphasised that artificial intelligence, cloud computing and robotics promise to lend a new boost in the productivity. Finally, central banks are pushing ahead with digitalisation, for instance with the digital euro, which can help to open the door to further productivity gains in the financial sector.

22. BaFin: Speech by Thorsten Pötzsch on capital markets in the digital age

On 20 March 2024, Thorsten Pötzsch, Chief Executive Director, Securities Supervision / Asset Management at BaFin, gave a speech on capital markets in the digital age at the Fund Operations Conference of the German Investment Funds Association (Bundesverband Investment und Asset Management, BVI).

At the BVI conference, Pötzsch spoke about the opportunities and risks of the digital transformation of the capital markets. According to him, the digital capital markets union requires a minimum of bureaucracy and clear rules, addressing the major problems without regulating every little detail. He cited the European Single Access Point (ESAP), the Consolidated Tape (see our briefing here) and the Financial Data Access Regulation (FiDAR) as examples of European regulatory projects that could significantly advance the digital capital markets union. Pötzsch emphasized that regulations such as ESAP and FiDAR would ensure that more reliable data would be much more readily available in future, which is crucial for AI applications and for a strong competitive advantage. Finally, Pötzsch called on companies to manage the risks associated with digital technologies, such as risks from cyber-attacks and from concentrations in the outsourcing of IT services.

Updates and Guidance: APAC

23. MAS: Speech by Gillian Tan "Beyond the Horizon: Unlocking Value in the Future of Alternative Investments"

On 20 March MAS published remarks made by Ms Gillian Tan, Assistant Managing Director (Development & International) and Chief Sustainability Officer, at the Alternative Investment Management Association Singapore Annual Forum 2024. The speech included developments in relation to digital asset sector, in particular the Global Layer One initiative.

Notable points

•  Under Project Guardian, MAS is collaborating with the asset management industry in relation to pilot asset tokenisation.
• Firms have launched pilots to look at native issuance of tokenised investment vehicles through a Variable Capital Company structure on digital asset networks.
• MAS has launched the Global Layer One Initiative to fundamentally overhaul the underlying financial infrastructure and to bring about interoperable digital asset network and ecosystem.
• The Global Layer One Initiative seeks to bring about a foundational digital infrastructure across multiple DLT networks.

24. HKMA launches Phase 2 of the e-HKD Pilot Programme

On 14 March 2024, the Hong Kong Money Authority (HKMA) announced the launch of Phase 2 of the e-HKD Pilot Programme, with a view to further exploring innovative use cases for an e-HKD in Hong Kong. The HKMA completed Phase 1 of the e-HKD Pilot Programme in October 2023. Building on the success and experience of Phase 1, the next phase will delve deeper into select pilots from Phase 1 where an e-HKD could add unique value, namely: programmability, tokenisation and atomic settlement, as well as explore new use cases that have not been covered in the previous phase. An enhanced e-HKD sandbox, leveraged on the wholesale central bank digital currency (wCBDC) sandbox to be built under Project Ensemble, will support Phase 2 of the e-HKD Pilot Programme to accelerate the prototyping, development and testing.

25. HKMA launches the stablecoin issuer sandbox arrangement

On 12 March 2024, the Hong Kong Monetary Authority (HKMA) announced the launch of the stablecoin issuer sandbox arrangement. Tying in with the consultation on the legislative proposal for implementing the regulatory regime for stablecoin issuers, the HKMA wishes to leverage the sandbox arrangement to communicate supervisory expectations to parties interested in issuing fiat-referenced stablecoins in Hong Kong, as well as to obtain feedback from participants on the proposed regulatory requirements.

Updates and Guidance: Australia

26. ASIC: Continued testing regulatory boundaries in ASIC v Finder Wallet

ASIC continues to test the regulatory perimeter of financial services laws and their application to digital asset based products. On 14 March 2024, the Federal Court dismissed ASIC's case against Finder Wallet in Australian Securities and Investments Commission v Finder Wallet Pty Ltd [2024] FCA 228.

The case concerned Finder Earn, a product offered by Finder Wallet, that allowed consumers to purchase "TrueAUD" stablecoins (TAUD) using Australian Dollars (AUD) and be paid a fixed return for giving Finder Wallet use of the TAUD for a period (called the 'Earn Term'). ASIC alleged that Finder Earn was a debenture, and therefore a financial product. If this was the case, Finder Wallet would be contravening the Corporations Act 2001 (Cth) (Corporations Act) by (amongst other things):

• not holding an Australian Financial Services Licence (AFSL);
• not lodging disclosure documents with ASIC; and
• not complying with Design and Distribution obligations under the Corporations Act.

The Court found that the Finder Earn product was not a debenture under the Corporations Act, and therefore not a financial product as alleged by ASIC.

In coming to its decision, the court considered whether the Finder Earn product met the Section 9 definition of a debenture in the Corporations Act. Section 9 defines a debenture as a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body.

The court applied this definition by considering the following three questions to determine whether the Finder Earn product was a debenture:

• Is there a chose in action?
• Was there money deposited with or loaned to Finder Wallet?
• Was there an undertaking by Finder Wallet to repay moneys "deposited or lent" as a debt?

Ashurst's article on this case provides further insight into this case and the potential implications for providers of crypto asset-based products.

Updates and Guidance: North America

27. CFTC: Opening Remarks of Commissioner Kristin N. Johnson: The South African Reserve Bank Fintech Summit

On 25 March 2024, the CFTC published the remarks of Commissioner Kristin N Johnson at the South African Reserve Bank Fintech Summit. The speech looks at the US regulatory landscape and CFTC's crypto enforcement agenda. The speech also discusses the tokenisation of voluntary carbon credits.

Key points

• The absence of a single definition of digital asset poses a challenge for domestic and international regulators. There has not been consistent coordination between various regulators in the US.
• Regulation of cryptoassets need to address areas including AML; disclosure; segregation of customer funds; and vertical integration and conflicts of interest
• The CTFC's regulations need to evolve with changing market structures so as to ensure that new risks are captured.
• There has been a significant rise in fraud enforcement cases involving digital assets (44 of the 59 fraud enforcement actions in 2024 involved transactions in digital assets).

28. U.S. House of Representatives Committee on Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion: Hearing on CFPB proposed rule

On 13 March 2024, the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion, led by Chairman French Hill (AR-02), held a hearing on the CFPB's Proposed Rule to supervise some providers of digital wallets. The Proposed Rule, published by the CFPB in November 2023 (see Digital Assets Digest November 2023 edition), would expand the CFPB's supervisory authority to include nonbank payment companies in certain circumstances. This would be via a new market under the CFPB's remit ("general use digital consumer payment application"). The proposed market would cover providers of funds transfer and wallet functionalities for personal, family, or household purposes. The measures would apply to entities satisfying certain criteria and the transfer of certain funds.

29. CFTC: Global Markets Advisory Committee advances a Recommendation concerning digital assets

In March 2024, the CFTC confirmed that its Global Markets Advisory Committee had advanced three new recommendations, including a recommendation on a digital asset taxonomy to support US regulatory framework. The CFTC argues that consensus on terms and classification of assets and functions encourages robust markets and effective regulation. The Taxonomy is informed by existing efforts by standard setters and regional authorities.

30. FDIC: Remarks by Vice Chairman Travis Hill at the Mercatus Center on “Banking’s Next Chapter? Remarks on Tokenization and Other Issues”

On 11 March 2024, the FDIC published remarks by Vice Chairman Travis Hill at the Mercatus Center on “Banking’s Next Chapter? Remarks on Tokenization and Other Issues”.

Main points

• Tokenisation and distributed ledgers can overcome obstacles identified for payments in relation to speed and inefficiency (by operating 24/7/365 and offering settlement finality in real time).
• The benefits of tokenisation have already been demonstrated in the institutional setting via the introduction of intraday repo, as well as the increase in settlement times offered by multi-currency digital bond issuances (see here for further details). This could be expanded to retail investors.
• Atomic settlement could offer efficiencies in the foreign exchange market by eliminating settlement lags, as well as in the trade finance industry.
• The banking agencies have failed to adequately follow up on their 2021 roadmap on legal and policy issues concerning digital assets.
• There is a misconception that the FDIC is inherently hostile to activities related to blockchain/DLT. Processes such as the approval process need to be speeded up and agencies need to understand the difference between crypto and the use by banks of DLT.
• The regulatory approach (see Global Digital Assets Digest March 2024 edition), set out by the SEC in Staff Accounting Bulletin 121 (SAB 121), deviates from the traditional approach to accounting for all other assets held in custody. The definition of cryptoassets is broad enough to capture blockchain native assets, as well as tokenised versions of assets. It should be clarified that the application of SAB 121 does not extend beyond blockchain-native assets.

31. CFTC: FY 2025 President's Budget

The CFTC has published the report setting out its annual budget request to Congress for consideration in the FY2024 appropriations process. The report sets out priority initiatives to be funded via the proposed budget. The budget supports the CFTC's enforcement programme in a variety of markets, including digital assets.

Other federal regulators have submitted their budget requests, with some stressing the importance of having adequate resources in order to effectively provide oversight of the digital asset sector.

Updates and Guidance: Middle East

32. DIFC: New Digital Assets Law 2024

The DIFC has enacted the new Digital Assets Law No 2 of 2024. This follows a consultation published in 2023. The legislation clarifies legal principles applicable to digital assets, covering aspects such as definition, characterisation and control and title.

Existing DIFC laws, such as the Contracts Law, Law of Obligations, Law of Security, have been updated to adapt to the regulatory framework concerning digital assets.

Press/Articles

33. President of Deutsche Bundesbank gives interview

On 23 March 2024, Joachim Nagel, President of the German Central Bank (Deutsche Bundesbank) gave an interview to Funke Mediengruppe.

In the interview, Nagel said that he is convinced that the digital euro will be a success. The digital euro is to become a legal tender, making transactions cost-efficient and giving privacy maximum protection. Regarding the security of the digital euro against hackers and cyber-attacks, Nagel pointed out that there is no such thing as cast-iron 100% security, adding that this is why the German Central Bank is constantly working on optimising its IT security. Considering the timeline, Nagel is optimistic that the digital euro will be in use in four to five years.

 

Contributors: Julian Pipolo, Senior Associate; Ankita Rao, Associate; Greta Müller, Junior Associate; Cornelius Hille, Associate; Tobias Bauerfeind, Senior Associate; Ashleigh Smithson, Trainee