Digital Assets Digest August 2022

1. BIS: Speech by Joachim Nagel: Digital euro - opportunities and risks

On 10 August 2022, BIS issued a speech by Joachim Nagel, President of the Deutsche Bundesbank, at the Center for Financial Studies and the Institute for Monetary and Financial Stability Special Lecture, Goethe University.

Mr Nagel notes that the introduction of a digital euro could support progress in payments and argues that the Eurosystem could build on the "European Payments Initiative," with the common digital wallet proposed containing a digital euro in the future. Mr Nagel also argues that a wholesale version of the digital euro could be beneficial for large-value payments, which are common amongst Eurosystem banks and counterparties.

Mr Nagel states that two possible design options for digital euro available for retail payments are being considered: an online version allowing payments to be processed by a third party; and an offline version in which payments are made directly from person to person.

2. IMF Blog: Crypto is More in Step With Asia’s Equities, Highlighting Need for Regulation

The IMF has published a blog post calling for effective regulation in light of what it calls "co-movement of cryptocurrency and equities markets" in Asia. The blog argues that increasing acceptance of crypto-related platforms and investment vehicles in the stock market and at the over-the-counter market, as well as increase adoption of cryptoassets by retail and institutional investors in Asia could be the main causes of this trend.

It refers to its January 2022 Global Financial Stability Note, which pointed to growing interconnectedness between the equity and cryptoclasses in Asia, accompanied by a sharp rise in crypto-equity volatility spillovers and the potential for destabilizing transmission of shocks.

The IMF calls for data gaps preventing regulators from fully understanding the ownership and use of crypto and its intersection with the traditional financial sector to be addressed.

3. Coinbase Institute: White paper on stablecoins

The Coinbase Institute has issued a white paper on stablecoins. Areas covered by the paper include: policy considerations: financial stability and run risk; operational resilience; prevention of financial crimes; consumer protection and market integrity; and legal rights of stablecoin holders. It argues that stablecoins can complement CBDCs and that CBDCs will not replace stablecoins. The paper warns against regulatory frameworks imposing a one-size-fits-all approach and also argues against a ban on algorithmic stablecoins, calling for a focus on better disclosures for consumers and a clear differentiation between algorithmic stablecoins and fiat-backed stablecoins.

4. BoE: Minutes: Fourth meeting of the CBDC Engagement Forum

On 12 August 2022, the CBDC Engagement Forum issued minutes in respect of its meeting held on 1 July 2022. The minutes contain details of a Bank of England debrief in respect of the July 2022 Technology Forum. The minutes also contain details of a presentation given by a member of the Forum on potential business models for Payment Interface Providers in a CBDC ecosystem The Minutes also contain details of a presentation given in relation to the October 2021 G7 Principles on CBDC . This discusses four principles where the private sector relevant experience would be useful for the Bank and HM Treasury when designing a CBDC: operational resilience and cyber security; competition; illicit finance; and data privacy.

5. FCA: Updated webpages on change in control and cryptoassets

On 11 August 2022, the FCA updated its webpage on change in control notification forms to include links to the following forms for use by persons intending to acquire control over an FCA registered cryptoasset firm:

• Cryptoasset Partnership Change in Controller Form
• Cryptoasset Individual Change in Controller Form
• Cryptoasset Trust Change in Controller Form
• Cryptoasset Corporate Change in Controller Form

Under new rules introduced by the Money Laundering and Terrorist Financing (Amendment) (No 2) Regulations 2022 (SI 2022/860), a person deciding to acquire 25 per cent or more control of an FCA registered cryptoasset firm must receive prior FCA approval before completing the transaction. The person must comply with the change of control regime set out in Part 12 of the Financial Services and Markets Act 2000, as modified by the Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692).

For more information, please see our briefing.

6. UK Jurisdiction Taskforce: Public consultation on the issuance and transfer of digital securities under English private law

On 8 August 2022, the UK Jurisdiction Taskforce issued a public consultation on the issuance and transfer of digital securities under English private law. This follows a November 2018 statement issued by the taskforce in relation to the status of cryptoassets and smart contracts. That statement had argued that cryptoassets were property and smart contracts were contracts under English law.

In April 2021, the UK Jurisdiction Taskforce published its Digital Dispute Resolution Rules to be incorporated into on-chain digital relationships and smart contracts.

The deadline for comments is 23 September 2022, following which the taskforce will be hosting a public consultation event to discuss the results.

7. FCA: Policy statement: Strengthening our financial promotion rules for high risk investments and firms approving financial promotions (PS22/10)

On 1 August 2022, the FCA issued a Policy Statement "Strengthening our financial promotion rules for high risk investments and firms approving financial promotions" (PS22/10). This follows a January 2021 consultation proposing a tripartite classification for high risk investments with various restrictions. The FCA is also introducing measures to strengthen the consumer journey such as: strengthening risk warnings, banning inducements to invest, introducing positive frictions, improving client categorisation and introducing stronger appropriateness tests.

The FCA confirms that it will publish final rules for cryptoasset promotions once the relevant legislation to bring qualifying cryptoassets within the financial promotions regime has been made.

8. Law Commission: Consultation paper on digital assets

On 28 July 2022, the Law Commission published its landmark consultation paper setting out recommendations for reform to ensure that the law recognises and protects digital assets, given the difficulties caused for legal and regulatory frameworks by their intangible nature. This consultation paper represents arguably the most significant contribution to date, and shows the UK positioning itself at the forefront of innovation with regards to regulation and recognition of distributed ledger technology underpinned digital assets (including crypto-tokens).

The consultation follows a string of related activity by the Law Commission, including the call for evidence in April 2021 and the interim report published in November 2021.

For more information, please see our briefing here.

9. UK Finance: Paper: Designing interoperability for a potential UK CBDC

On 27 July 2022, UK finance issued a report on designing operability for a potential UK CBDC. The paper is the latest instalment in a series of reports by UK Finance looking at the potential impact of the issuance of a UK CBDC. This follows a discussion paper and other publications by the Bank of England into the potential for a UK CBDC.

The report notes that a decision has yet to be made on whether to introduce a UK retail CBDC, but that the BoE has indicated that a UK retail CBDC would be done in collaboration with the private sector. As a result, the report identifies three areas that require particular investigation: the level of interoperability between a CBDC and other forms of money; the potential commercial considerations of private firms offering CBDC services; and the impact of CBDC implementation on credit creation for the UK economy. The report notes that currently both Financial Market Infrastructures and payment service providers provide services or systems supporting interoperability for the market.

10. CLLS: Minutes: Financial Law Committee meeting 6 April 2022

On 27 July 2022, the minutes of the Financial Law Committee, held on 6 April 2022, were published. The minutes contain details of issues discussed by members, including a new statutory framework to recognise electronic trade documents as legally equivalent to paper trade documents and recommendations on various criteria for an electronic document to qualify as being capable of possession. The minutes also refer to a discussion on the impact of this development in relation to digital documents held in DLT systems, and it was noted that there are difficulties in identifying location of these assets and there is no relevant case law in the UK or elsewhere. It was noted that a discussion paper was expected in relation to rules concerning conflict of laws as they apply to emerging technology, including smart legal contracts and digital assets.

11. UK-US financial regulatory working group issues joint statement following sixth meeting

On 26 July 2022, HM Treasury published a joint statement by the UK-US Financial Regulatory Working Group following the sixth meeting, which was held virtually on 21 July 2022. The Working Group was formed in 2018 to deepen bilateral regulatory cooperation with a view to the further promotion of financial stability; investor protection; fair, orderly, and efficient markets; and capital formation in both jurisdictions.

Among topics discussed was regulation of cryptoassets and, in particular, developments relating to stablecoins and CBDCs. It was agreed that participants would continue to co-operate to support safe financial innovation and strengthen regulatory outcomes for stablecoins across jurisdictions.

12. Speech by Sir Geoffrey Vos: The economic value of English law in relation to DLT and digital assets

On 25 July 2022, a speech by Sir Geoffrey Vos was published in relation to DLT and digital assets. 

• General: In order to provide responsible global structures allowing for the use of digital assets, lawyers need to be alive to the objectives of those in the decentralised finance sector. Blockchain does not appear to lend itself to multiple private law systems, so it is likely that one or two systems of private law will dominate and underpin use of DLT and digital assets in general. English private law is ideally positioned to provide the legal foundation for the use of DLT and cryptoassets internationally and notable changes are being made to the English legal framework.
• Significance of domestic legislation: The UK is about to introduce its Electronic Trade Documents Bill, which will provide that electronic trade documents are to have the same effect as paper ones.

13. Financial Services and Markets Bill 2022-23

On 20 July 2022, the Financial Services and Markets Bill 2022-23 was introduced to Parliament. Plans to introduce the Bill were laid out in the April 2022 Queen's Speech.

The Bill gives HM Treasury a power to bring digital settlement assets used for payments within the UK regulatory perimeter.

Key provisions of the Bill include:

• granting HM Treasury the power to establish an FCA authorisation and supervision regime, based on existing electronic money and payments regulation and addressing conduct, prudential and market integrity risks for issuers of, and payment service providers using, stablecoins;
• enabling HM Treasury to recognise operators of systemic payment systems and systemic service providers using digital settlement assets for regulation by the Bank of England, subject to meeting relevant thresholds and following HM Treasury’s publication of a recognition order;
• enabling HM Treasury to apply a bespoke administration regime (the Financial Markets Infrastructure Special Administration Regime (FMI SAR)) in respect of digital settlement asset firm, as consulted on earlier this year (see our briefing); and

The Bill also permits HM Treasury to establish one or more FMI sandboxes, which will enable participating firms to test and adopt new technologies and practices. FMI entities include existing recognised CSDs, and operators of multilateral trading facilities.

14. HM Treasury: Payments Regulation and the Systemic Perimeter: Consultation and Call for Evidence

On 20 July 2022, HM Treasury issued a consultation and call for evidence on payments regulation and the systemic perimeter. In the paper, the Government confirms plans to introduce mechanisms clarifying how the relevant regulatory authorities will work together in the co-supervision of the regulatory framework for stablecoins.

The Government also refers to its ealier consultation setting out its intention to apply the Financial Market Infrastructure Special Administration Regime (FMI SAR), in amended form, to the operators of, and/or service providers to, systemic digital settlement asset-based payment systems (see our briefing). The Government confirms that where a systemic payments actor was co-supervised by the FCA and Bank, these entities should also be principally overseen by the Bank (meaning that the FMI SAR should take precedence).

The paper also refers to plans set out in the Future Regulatory Framework Review, which sets out plans for moving to a comprehensive "FSMA model"’ of financial services regulation, based on the model of regulation established in the Financial Services and Markets Act 2000. The paper notes that the regulation of payments is the responsibility of three different regulatory authorities and does not form part of the FSMA framework.

15. Courts and Tribunals Judiciary: Speech by Mark Pelling QC: Issues in crypto currency fraud claims

On 20 July 2022, a speech by Mark Pelling was issued a speech in relation to cryptocurrency fraud claims.

Key points

• Cyber currency fraud claims have increased steadily in the last 12 to 18 months.
• The claims pose significant procedural and jurisdictional difficulties and the same common themes arise.
• The key issue is that, in most of cases, key actors will be located outside England and Wales as will the exchanges administering the wallets through which the assets of victims have passed.

16. FCA: Annual Report and Accounts 2021/22

On 19 July 2022, the FCA issued its annual report and accounts.

Notable points

• The FCA has continued to challenge cryptoasset firms seeking registration under the UK Money Laundering Regulations.

• The FCA has been working with the Advertising Standards Authority on crypto advertisements, who have banned inappropriate adverts following 17 cases referred to it.

• As of 31 March 2022, the FCA registered 33 cryptoasset firms. Many firms could not meet required standards under the MLRs and so applications were withdrawn.
• The FCA concluded its assessment of the Temporary Registration Regime (TRR) for existing crypto asset businesses, and the TRR is now closed.
• The IOSCO Fintech Taskforce will focus on cryptoassets and the FCA will lead work for it on market integrity.

17. FCA Perimeter report

On 19 July 2022, the FCA issued its perimeter report.

• Censures: The FCA issued 2 consumer focussed warnings relating to specific firms and 3 notices to firms reminding them about their obligations including under sanctions and MLRs.
• Stablecoins: The FCA is working with the Treasury, the Bank of England and the PSR to develop an appropriate regime, including considering whether any adaptations may be needed to FCA rules and guidance, to support innovation while protecting consumers and the market.
• Cryptoassets as investments: The FCA will work with the Treasury on what further regulatory or legislative change is required to build a future regime for cryptoassets used as investments, and how it can best reduce risks to both consumers and markets. The FCA will collaborate with international partners to develop common standards for digital assets.

18. PSR: Annual report and accounts 2021/22

On 19 July 2022, the PSR issued its annual reports and accounts 2021/22, which sets out achievements over the past year. The document contains a section on the cryptoassets sector.

The PSR notes the increase in uptake and participation in the cryptoassets sector and states that it is working with other authorities to ensure the UK has the right regulatory approach, and to prevent undue risk to consumers.

The PSR also provides an overview of PSR contributions and responses to consultations on the cryptoassets sector. The PSR refers to the April 2022 response to the HM treasury consultation on a regulatory approach to cryptoassets and stablecoins, noting that regulation of designated stablecoin payment systems would fall to the PSR.

The PSR states that it has met with a number of cryptoasset providers to understand their business models, review the risks and opportunities within the sector and regulate effectively. This includes ensuring any crypto-based payment systems have appropriate consumer protections and access provisions, and operate a competitive ecosystem.

19. Joint letter by Blockchain for Europe and the Digital Euro Association: Impact of MICA restrictions on E-Money Tokens referencing USD

Blockchain for Europe and the Digital Euro Association issued a joint letter in relation to certain provisions in the Markets in CryptoAssets Regulation concerning e money tokens referencing USD and also calling for clarification of the term "means of exchange" in MICA. The letter notes that the draft agreement of MICA appears to contain restrictions applicable to transactions involving e-money tokens not denominated in an official currency of an EU member where these transactions breach certain thresholds. The letter argues that the three largest stablecoins: USDT, USDC and BUSD, are at risk of breaching the thresholds set out in MICA and that their activities could be severely curtailed.

The letter argues that it is unrealistic to expect EUR-referencing stablecoins to catch up with USD-referencing stablecoins in trading volumes in the foreseeable future (talk less of within a 12 month timeframe of MICA).

The letter suggests amending the text of MICA to clarify that the restrictions to the issuance and use of e-money tokens as a means of exchange exclude transactions in and out of unbacked crypto assets using stablecoins, in particular in exchanges, and in DeFi pools.

20. European Parliament's Economic and Monetary Affairs Committee: CRR III amendments – exposures to cryptoassets

On 17 August 2022, the Economic and Monetary Affairs Committee of the European Parliament issued a series of proposed amendments to the proposed Regulation amending the Capital Requirements Regulation (CRR III). This follows the publication in June 2022 of a draft report on CRR III prepared by Rapporteur Jonás Fernández.

The European Commission issued CRR III in October 2021 (see our briefing here), which contained a provision that the European Commission should review whether a dedicated prudential treatment for cryptoassets would be needed and to adopt if appropriate legislative proposals, taking into account the work of the Basel Committee (see our briefing here).

Amendments published in August 2022 by the European Parliament's Economic and Monetary Affairs Committee include a draft clause on the treatment of exposures to crypto assets. The draft clause suggests that the following instruments should be categorised as class 1 crypto-asset exposures: DLT financial instruments, as defined in the EU DLT Pilot Regulation; asset reference tokens; and e-money tokens as defined in MICA Regulation. The clause provides that other crypto assets as defined in MICA Regulation should be classified as class 2 crypto-asset exposures.

The clause also suggests that: institutions should determine the allocation of class 1 crypto-asset exposures between the banking book and the trading book according to the boundary criteria applied to the reference asset; class 1 crypto-exposures allocated to the banking book should be subject to the same risk weights as the reference asset; class 2 crypto-asset exposures should receive a risk weight of 1250% to the greater of the absolute value of the aggregate long positions and the absolute value of the aggregate short positions in the crypto-asset; an institution’s total exposure to class 2 crypto-asset exposures must not be higher than 1% of the institution’s Tier 1 capital at all times; and the EBA, after consulting the ESRB should, on the basis of the ESMA assessment of the risks posed by DLT, assess whether a dedicated prudential treatment for DLT financial instruments is warranted.

ECON is expected to vote on the draft report in December 2022.

21. MAS: Greenshoots seminar on digital asset

On 19 July 2022, the Monetary Authority of Singapore (MAS) announced its intention to organise a dedicated "Green Shoots seminar" to share its strategies to develop Singapore as a digital asset hub. In particular, the MAS will explain its position on cryptocurrencies, stablecoins, blockchains, tokenisation, smart contracts, digital assets, etc, and their respective risks, opportunities, shortcomings and potential in greater detail. The remarks were made at the MAS Annual Report 2021/2022 Media Conference.

22. Zipmex: Bankruptcy filing

On 22 July 2022, Zipmex, a Singapore-based cryptocurrency exchange primarily operating in Southeast Asia, filed for bankruptcy protection under Section 64 of Singapore's Insolvency, Restructuring and Dissolution Act 2018. In particular, Zipmex is now seeking global moratoriums to prohibit and restrain the commencement or continuation of proceedings against Zipmex's Groups entities for a period of up to six months. The entities that have sought the moratorium relief include entities incorporated in Thailand, Indonesia and Australia. Zipmex explained that it was working to address its $53 million exposure to cryptocurrency lenders Babel Finance and Celsius Network (the latter of which had also filed for bankruptcy in July). The official statement released by Zipmex is available here.

The High Court (on 15 August 2022) has since granted Zipmex bankruptcy protection from creditors for a period of three-and-a-half months until 2 December 2022.

23. MAS: Recission of in-principle approval to Hodlnaut

In August 2022, the MAS rescinded its in-principle approval to Hodlnaut, a Singapore-based cryptocurrency lender. Hodlnaut had previously received (in March 2022) in-principle approval by the MAS to offer token swaps under the Payment Services Act (PSA), pending fulfilment of various documentation and administrative requirements. However, Hodlnaut has since withdrawn its application for a licence to provide digital payment token services in Singapore, and will therefore no longer be allowed to conduct regulated activities. In addition, Hodlnaut has suspended withdrawals, swaps and deposits due to "recent market conditions" and to focus on stabilising its liquidity and preserving assets. Reports are available on The Straits Times and on Singapore Law Watch.

24. MAS: Review of financial conditions of digital payment token service providers

The MAS has announced that it is evaluating the financial conditions of the digital payment token service providers that had previously submitted licence applications, and is closely monitoring risks and developments in the crypto ecosystem. In particular, the MAS is also enhancing its regulatory framework for cryptocurrency services, and will be consulting on the proposed measures in the upcoming months.

This was revealed in a statement by Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS.

25. VASP regime in Hong Kong for Cryptoasset service providers

The Hong Kong Government has announced a new licensing regime for virtual asset service providers (VASPs) which will come into effect on 1 March 2023. This will be via proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).

In addition to the introduction of a licensing regime for VASPs, the proposed amendments will also impose statutory anti-money laundering and counter-terrorist financing obligations on VASPs. The licensing regime will be administered by the SFC, and awarded licenses are open-ended.

The proposed amendments have arisen from the implementation of the requirements from the Financial Action Task Force (FATF), that require virtual asset service providers to be subject to the same AML and CTF requirements as financial institutions. These proposed amendments follow the Financial Services and Treasury Bureau’s (the FSTB) public consultation in May 2021.

Businesses providing (or holding themselves out to be providing) virtual asset services will be subject to the amendments. VASPs who are required to apply for a licence must file their application within the first 9 months of the commencement of the licensing regime (i.e. by 1 December 2023), and confirm that they will comply with the regulatory requirements set out by the SFC until a decision has been made on their application.

26. Reserve Bank of Australia: Announcement on upcoming research project with the Digital Finance Cooperative Centre to explore the possible uses of a CBDC in Australia

On 9 August 2022, the RBA announced that it is collaborating with DFCC on a research project to explore the possible use cases of a CBDC in Australia.

Key issues

• To date, the RBA has undertaken considerable research into the feasibility and possible design of a CBDC, but there has been less exploration into the possible use cases for the currency in Australia, and the potential economic benefits of introducing the currency.
• The announced research project with the DFCC, which is expected to run for a year, will involve the development of a limited-scale CBDC pilot that will operate in a ring-fenced environment.
• Interested industry participants will be invited to submit specific use cases for a CBDC to demonstrate how it could be used in Australia to provide innovative payment and settlement services to households and businesses. The RBA and DFCRC will then select a range of use cases to participate in the pilot, based on their potential to provide insights into the possible benefits of a CBDC in Australia.
• At the end of the pilot, a report will be published detailing the findings from the project, which will contribute to the ongoing research into the desirability and feasibility of a CBDC in Australia. The Australian Treasury will also be participating in the pilot, as a member of the steering committee, to further its research into the viability of a CBDC in Australia.
• A paper will be published in the coming months which will explain in more detail the objectives and approach of the pilot, and will detail how industry participants can become involved.

• The RBA currently conceptualises of a CBDC as a digital form of money to be issued by the RBA, either in the form of digital bank notes for retail (general public) use, or for wholesale use, where it is accessible only to a more limited range of wholesale market participants for use in wholesale payment and settlement systems. For more information on the RBA's approach towards CBDCs, see this link.

27. Announcement on "token mapping exercise"

In a statement released by Treasurer Jim Chalmers, it was confirmed that the Australian government will carry out "token mapping" work in 2022 to identify how crypto assets and related services should be regulated, with a public consultation to be issued shortly. Other aims will be continuing work on a licensing framework, reviewing innovative organisational structures, looking at custody obligations for third party custodians of crypto assets and providing additional consumer safeguards.

28. Federal Reserve: additional information for banking organizations engaging or seeking to engage in crypto-asset-related activities

On 16 August 2022, the Federal Reserve issued a supervisory letter containing additional guidance in relation to actions Board-supervised banks should take prior to engaging in crypto-asset-related activities.

The supervisory letter also stresses that Board-supervised banking organizations should have adequate systems and controls in place to conduct crypto-asset-related activities in a safe and sound manner before beginning such activities.

29. Federal Reserve: Guidelines for Reserve Banks to access Federal Reserve accounts

On 15 August 2022, the Federal reserve issued guidelines for Federal Reserve Banks to use in evaluating requests for access to Reserve Bank master accounts and services. The number of institutions offering new types of financial products/with novel charters has increased in recent years and many have requested access to "master accounts" and payment services offered by Federal Reserve Banks. The new guidelines include a tiered review framework to clarify the level of due diligence and scrutiny that Reserve Banks will apply to different types of institutions with varying degrees of risks. Institutions that carry out "novel" activities for which authorities are still considering appropriate supervisory and regulatory frameworks would be subject to a more extensive review.

30. US Digital Commodities Consumer Protection Act

In August 2022, a bipartisan bill was introduced into the Senate. The Bill would define "digital commodity" as "a fungible digital form of personal property that can be possessed and transferred person-to-person without necessary reliance on an intermediary," including cryptocurrency or virtual currency, such as Bitcoin and Ether, and excluding securities or a digital currency backed by the full faith and credit of the U.S. The bill categorizes digital commodity as a "commodity", granting the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction. In addition, the bill:

• Requires any digital commodity platform to register with the CFTC as a digital commodity broker, custodian, dealer or trading facility, comply with applicable core principles, and be a member of a registered futures association;
• Authorizes the CFTC to make rules governing margined, leveraged or financed digital commodity trades;
• Establishes the process by which digital commodity trading facilities may list for trading digital commodity contracts; and
• Prohibits digital commodity brokers and digital commodity dealers from trade in a contract for digital commodity that is readily susceptible to manipulation or that is determined to be inconsistent with the Commodity Exchange Act.

31. US Lummis-Gillibrand Responsible Financial Innovation Act

The bipartisan bill, available here, seeks to effect comprehensive changes to a number of US statutes to regulate and accommodate digital assets. Among other things, the bill:

• Codifies precedents under the test established under the 1946 US Supreme Court decision in SEC v. W.J. Howey Co., and provides that an ancillary asset provided to a purchaser under an investment contract is presumed to be a commodity, unless the asset is debt or equity or provides profit sharing or similar rights.
• Assigns regulatory authority over digital asset spot markets to the CFTC, while imposing disclosure obligations for ancillary assets that will be supervised by the SEC. Digital assets that meet the definition of a commodity, such as Bitcoin and Ether, will be regulated by the CFTC.
• Creates requirements for stablecoins aimed at protecting consumers and markets and promoting faster payments, setting forth an optional framework for banks and credit unions to issue payment stablecoins, and authorizing a special depository institution charter under both state law and the National Bank Act for payment stablecoin issuance, with tailored capital requirements and holding company supervision.
• Imposes disclosure requirements on digital asset service providers aiming to ensure that consumers understand the product and can make informed decisions when engaging with digital assets.
• Creates an advisory committee composed of a diverse set of stakeholders, to continuously study the quickly changing industry and develop guiding principles, empower regulatory agencies and advise lawmakers on fast-developing technology.
• Directs the Federal Energy Regulatory Commission to analyze and report on energy consumption in the digital assets industry.
• Directs the CFTC and SEC to consult with Treasury and the National Institute of Standards and Technology to develop comprehensive, principles-based guidance relating to cybersecurity for digital asset intermediaries.

32. CTFC: Keynote Address of Chairman Rostin Behnam at the Brookings Institution Webcast on The Future of Crypto Regulation

On July 25 2022, the Commodities and Futures Trading Commission issued a speech by Chairman Rostin Behnam at the Brookings Institution.

In the speech, Mr Benham notes that cryptoassets are becoming part of mainstream portfolios. Mr Benham refers to the crypto winter and states that this suggests that a technology-neutral regulatory approach is required. Mr Benham notes that the digital assets industry does not fall within a single overarching regime but rather "a patchwork blanket that is increasingly proving inadequate as temperatures drop and vulnerabilities lay bare". Mr Benham expresses support for efforts to introduce guardrails around the digital asset economy and to increase transparency, accountability, stability, customer protections, and oversight in the digital assets sector.

33. Uniform Law Commission approves proposed amendments to the Uniform Commercial Code addressing digital assets

In July 2022, the Uniform Law Commission approved proposed amendments to the Uniform Commercial Code (Proposed UCC) addressing transactions involving emerging technologies such as virtual currencies and distributed ledger technologies. Sponsored by the Uniform Law Commission and the American Law Institute, the Proposed UCC seeks to address digital assets, both in their current form and with potential future evolution. When adopted by the states, these new rules will provide much-needed clarity in the treatment of digital assets lacking under most states' commercial laws.

The amendments span almost every article of the UCC and add a new Article 12 addressing certain types of digital assets defined as “Controllable Electronic Records". Among other things, the amendments provide new default rules to govern transactions involving these new technologies and clarify the UCC’s applicability to mixed transactions involving both goods and services.

For a comparison of key features of the Proposed UCC and those of the Uniform Commercial Code amendments adopted by the State of Wyoming in 2019, please see our article here.

34. U.S. Treasury Seeks Comments on Digital Assets

The Treasury requested comments from the public pursuant to Executive Order 14067 (the Order), "Ensuring Responsible Development of Digital Assets", which outlines principal U.S. policy objectives concerning digital assets: consumer protection, U.S. and global financial stability, mitigation of illegal activity, reinforcement of U.S. leadership in global financial system and competitiveness, access to safe and affordable financial services, and support of technological advances.

In particular, the Treasury requests comments in five categories:

1. Adoption to Date and Mass Adoption – data on current adoption of digital assets and factors that could lead to large-scale adoption – for example, use and acceptance of cryptocurrencies as a common and regular payment method for goods and services.
2. Opportunities for Consumers, investors, and Businesses – data and specific use cases highlighting the pros and cons of various digital asset opportunities, both in use and prospective.
3. General Risks in Digital Assets Financial markets – risks arising from current market conditions and potential mitigating factors, including market transparency, data accuracy, technological risk and jurisdictional and legal conditions.
4. Risks to Consumers, Investors and Businesses – risks that arise through engagement with digital assets, including frauds, theft, failure/insolvency of wallets, custodians or other intermediaries, among others.
5. Impact on the Most Vulnerable – ways in which digital assets can benefit, or pose risks to, the underserved and the most vulnerable.

The deadline for comments was 8 August 2022.

35. FT: European banking regulatory "concerned" about finding staff to oversee crypto

This article refers to an interview with José Manuel Campa, chair of the European Banking Authority, about the implications of MICA. Campa expresses concern about the logistics of planning for its new powers under MICA as the EBA may have to wait until 2025 to find out which digital coins it has authority for supervising. Campa also states that the EBA is also concerned that, unlike bank supervision, the set of institutions it will have to supervise is not defined.

36. Bank Underground: Blog: Cryptoassets, the metaverse and systemic risk

This article published by the Bank Underground, a blog for Bank of England staff to share views, looks at the metaverse and systemic risk. The article argues that if an open and decentralised metaverse grows, existing cryptoasset risks could increase to become systemic financial stability consequences. The article notes that these financial stability risks have already been explored in other areas. The article states that some of the risks posed by cryptoassets are new and argues that widespread adoption of crypto in the metaverse, or any other setting would require compliance with robust consumer protection and financial stability regulatory frameworks.

37. Tether: statement on assurance opinion on reserves

On 19 August 2022, Tether issued a statement referring to a quarterly assurance opinion completed by an accountancy firm which it argues confirms the accuracy of Tether’s Consolidated Reserves report (this breaks down the assets held by the group as of 30 June 2022). This has been released amidst greater scrutiny of the stablecoin markets and the reserves of stablecoins. Tether also stated that it would release monthly reports by the end of 2022 and that it has reduced its commercial paper holdings by more than 58 per cent and is committed to making further reductions in this regard.