digital assets digest may 2023

 

UPDATES AND GUIDANCE: INTERNATIONAL BODIES

1. ESAs: Report on Risks and Vulnerabilities

On 25 April 2023, the European Supervisory Authorities (ESAs) published a report on risks and vulnerabilities. The report refers to the increase in financial risk owing to the high level of uncertainty in global financial markets and also discusses certain events in cryptoassets sector.

Points to note:

• As of end-2022, total market capitalisation of cryptoassets reached around EUR 770 billion representing a 70% fall since its historical peak of EUR 2.6 trillion in November 2021. It increased back to EUR 1 trillion in February 2023.
• One stablecoin broke its peg due. The sell-off was distinct from previous sell-offs (e.g., Terra/Luna or FTX),owing to the fact that it originated in a "traditional" bank run outside of crypto markets. It nevertheless highlights the high contagion risks within crypto markets.
• MICA is a laudable initiative and continued coordination and efforts to achieve convergence at the international level remain a high priority in light of borderless nature of crypto-assets.

2. EBA: Report: EBA Consumer Trends Report 2022/23

On 24 April 2023, the EBA published a report on consumer trends. The report identifies issues facing consumers in the EU and that are expected to shape the EBA’s consumer protection priorities over the next two years. The report includes quantitative data for mortgage credit, consumer credit, payment accounts, payment services, electronic money and deposits. It is based on information provided by national authorities of EU Member States, national and EU consumer associations and EU industry associations (among others). The report notes that several NCAs and other stakeholders reported issues arising from fraudulent payments executed for a specific scope, the purchase of cryptoassets.

3. ECB: Speech by Fabio Panetta on the digital euro

On 24 April 2023, the ECB published an introductory statement by Fabio Panetta, Member of the Executive Board of the ECB, at the Economic and Monetary Affairs Committee of the European Parliament.

Mr Panetta comments that the digital euro project is now entering the end of the investigation phase and that the ECB’s Governing Council recently endorsed a third set of design options for the digital euro. Mr Panetta also refers to a report on the digital euro.

Key points

• Widespread acceptance and broad access are necessary to ensuring the digital euro would be a public good that meets the expectations of consumers and merchants.
• Throughout the next project phase (expected to start later in 2023) , the ECB expects to adapt to any adjustments to the design of the digital euro arising from legislative deliberations.
• The Eurosystem would bear its own costs e.g. for settlement activities and managing the common standards for making and receiving payments in digital euro.
• The Eurosystem should be able to regulate (achieved via consultation with relevant stakeholders) to ensure that the use of a digital euro is as standardised as using cash as is.
• Legislative safeguards should prevent merchants from being overcharged by intermediaries if they are obliged to accept digital euro as legal tender.
• The ECB is looking forward to the European Commission's legislative proposal on the digital euro and considers that a digital euro would place Europe at the forefront of the work on CBDCs among the G7.

4. ECB: Progress report on digital euro and study on possible features of a digital wallet

On 24 April 2023, the ECB published the third progress report in relation to the Euro, together with a study concerning people’s views on the features of a potential digital wallet. The report follows on from previous reports published in September 2021 and December 2022 setting out the first two sets of digital euro design and distribution option.

The progress report contains the Eurosystem's views on digital euro access, holdings and onboarding, distribution aspects, as well as digital euro services and functionalities.

Key points

• The digital euro would be available to euro area residents, merchants and governments in its initial releases. Non-resident euro area citizens would have access in some circumstances.
• Individuals would be subject to uniform holding limits, which would cover day-to-day payments in each euro area Member State.
• Onboarding (e.g. the identification and authorisation steps necessary for intermediaries to open a digital euro account for an end user) of the digital euro would follow the procedures already established for opening a payment account with intermediaries.
• PSPs would be responsible for the distribution of the digital euro. Scheme access criteria for PSPs distributing the euro would be based on the PSD2 in addition to other relevant legislation.
• End users would be able to access and use the digital euro, either through PSPs' existing online banking/payment apps, or through an app provided by the Eurosystem.

5. EU: Proposal for a Regulation on information accompanying transfers of funds and certain cryptoassets

On 25 April 2023, the Council of the EU published an information note recommending that the Committee of the Permanent Representatives of the Governments (COREPER) confirm agreement to the European Parliament's position in relation to the proposed Regulation on information accompanying transfers of funds and certain cryptoassets. The Regulation was introduced in July 2021 by the European Commission as part of a wider set of AML legislative measures (see our briefing here). The European Parliament voted on 20 April 2023 at its plenary session and adopted a compromise amendment.

6. European Parliament: Formal approval of MiCA

On 20 April 2023, it was announced that the European Parliament had formally approved MiCA. MiCA was introduced by the European Commission in September 2020 as part of the EU Digital Finance Package (see our briefings here and here for more information) and has been making its way through the EU legislative process. It introduces a regime for cryptoasset service providers and issuers of stablecoins. MiCA is now expected to be formally approved by the Council of EU before being published in the Official Journal.

For more information, please see our briefing here.

7.BIS/Bank of England: Project Meridian: innovating transactions with synchronisation

On 19 April 2023, BIS published a report in relation to Project Meridian, a joint project between the Bank for International Settlements (BIS) Innovation Hub London Centre and the Bank of England looking into how advancements in financial technology could be used to deliver innovations in real-time gross settlement (RTGS) systems.

The project experiments with the concept of synchronisation by building on the existing concept of interlinking asset ledgers with RGTS systems. The Meridian prototype involves a synchronisation network using DLT and aims to show how a DLT network could connect to conventional centralised systems used by participants in a transaction using open-standard application programming interfaces.

The report argues that synchronisation using central bank money could reduce the time, cost and risk of transactions.

8. European Commission: Opening remarks by Commissioner McGuinness at the European Parliament plenary joint debate on cryptoassets

On 19 April 2023, opening remarks by Mairead McGuinness at the European Parliament plenary joint debate were published.

Points to note include the following:

• MiCA is expected to be published in the Official Journal by the end of June 2023, with entry into force in July 2023.
• MiCA provisions on stablecoins will start to apply in July 2024.
• Provisions concerning issuers of other cryptoassets and cryptoasset service providers will start applying in January 2025, together with the Transfer of Funds rules.
• The EU has had discussions with US counterparts in relation to the regulation of cryptomarkets.

UPDATES AND GUIDANCE: UK

9. DRCF: 2023/24 Workplan and Annual Report

On 27 April 2023, the Digital Regulator Co-operation Forum, DRCF, published its 2023/24 workplan and annual report. The DRCF is charged with applying regulation to digital market issues and currently consists of four UK regulators: the CMA; the FCA; the ICO; and Ofcom.

The report outlines how the DRCF’s work promoted the three overarching goals set out in its Terms of Reference and 2022/23 Workplan: coherence between regimes; collaboration on projects; and capability building across regulators.

10. FCA: Speech by Sarah Pritchard: Regulation of digital assets in the UK

On 25 April 2023, the FCA issued a speech given by Sarah Pritchard, Executive Director, on the regulation of digital assets in the UK.

Key points

• None of the cryptoasset FCA-registered firms have been approved to offer crypto ATM services.
• The UK AML regime requires UK-based cryptoasset exchanges and custodians to apply for registration with the FCA, but the regime does not reach overseas firms looking to target UK based consumers.
• Firms should be preparing for impending changes to the financial promotion regime concerning qualifying cryptoassets. The FCA will take robust action where it sees firms promoting cryptoassets to UK consumers in breach of financial promotion rules.
• Regulatory regimes for cryptoassets in many jurisdictions around the world are still in their infancy.

11. House of Commons: Answer to written questions: Treasury

On 25 April 2023, a response was published in response to a query on whether the Treasury was providing support for the development of a digital currency by the Eastern Caribbean Central Bank. It was confirmed that HM Treasury is not providing support to the Eastern Caribbean Central Bank on its development of a digital currency.

12. House of Commons (Treasury Committee): Correspondence on the cryptoasset industry

On 25 April 2023, correspondence was published between the Treasury Select Committee and the Bank of England in relation to the Bank of England's approach to stablecoins, the CBDC and cryptoassets. In a letter to Harrriet Baldwin MP,Chair of the Treasury Select Committee, Jon Cunliffe, Deputy Governor, Financial Stability, offers responses to follow-up questions posed by the Committee following the 28 February 2023 evidence session attended by stakeholders.

• Bank of England’s thinking on options for compensation protection for holders of regulated stablecoins: Pursuant to soon-to be acquired powers under the Financial Services and Markets Bill (see our briefing here), the Bank is in the process of designing the Financial Market Infrastructure regime for systemic stablecoins. The Bank considers that the Financial Services Compensation Scheme would be challenging to replicate in respect of non-systemic stablecoins. The reasons given for these is that the small number of issuers make it difficult to pool risks. Pooling the risks of stablecoins with those of banks may not be appropriate, owing to their different business models.
• Privacy concerns in relation to the digital pound and the use of digital wallets: The Bank intends for the digital pound to be subject to rigorous standards of privacy and data protection. Under the proposed framework set out in the consultation, the Payment Interface Providers (PIPs) would control and process user data in wallets and would be subject to existing data protection laws. HM Treasury and the Bank will not pursue government or central bank-initiated programmable functions. Instead, it would be the user’s choice how and whether their money is programmed. User consent would be required in each "programmability" decision.
• The regulation of private sector wallet providers and ensuring that competition is not hindered: The Bank expects participation from a wider variety of firms, and not just tech giants. A new regulatory framework may be appropriate for the digital pound wallet providers but wallet providers would act as simple payment initiation and messaging services between the end-users. Digital wallet providers are unlikely to be subject to extensive prudential regulation.
• Resilience of CBDC: The digital pound Technology Working Paper cites resilience as a core design consideration. Current RTGS and CHAPS services have a target uptime of at least 99.95% (this would represent a minimum expectation for Bank-managed digital pound infrastructure).

13. House of Commons Treasury Committee: Correspondence on the work of the FCA

On 25 April 2023, correspondence between the FCA and the Treasury Select Committee was published in respect of the work of the FCA. In the letter, FCA CEO, Nikhil Rathi, provides response to a series of follow-up questions posed to the FCA following up on an evidence session held with the Treasury Select Committee. Part of the letter covers the FCA's approach to regulating the cryptoassets sector.

Notable points

• The FCA expects to consult on rules for issuers and custodians covering areas such as prudential and organisational requirements, safeguarding and wind down in light of HM Treasury's February 2023 consultation on regulating the cryptoassets sector (see our briefing here). The FCA also confirms that it has begun to seek information from a variety of firms (such as e-money firms, overseas stablecoin issuers, custodian banks and crypotasset firms) about their plans.
• The FCA anticipates that only a small number of firms will be seeking authorisation as fiat-backed stablecoin issuers and seeking to provide associated custody services. The FCA is looking to expand its resources in response the expansion of the regulatory perimeter to include financial promotions for qualifying cryptoassets. The FCA anticipates an increase in firms seeking to register under the MLRs 2017 given confirmation that cryptoasset firms will be able to approve their own financial promotions.
• The FCA does not have power to suspend websites and other harmful content promoted online from overseas, such as social media posts/and or adverts in breach of legislation and FCA rules. Where the FCA sees fraudulent websites and/or online harm, it publishes an alert on its website requesting that the website host/social media platform disables or takes down the content. The FCA considers that the Online Safety Bill and provisions concerning fraudulent advertising will address harmful advertising distributed through a number of platforms.

14. HM Treasury: India-UK 2nd Financial Markets Dialogue: Joint Statement

On 19 April 2023, the HM Treasury issued a statement confirming that governments of India and UK had held the second meeting of the India-UK Financial Markets Dialogue. The Dialogue was led by senior officials from the Indian Ministry of Finance and HM Treasury, with participation from Indian and UK independent regulatory agencies. The Dialogue focused on key themes including payments and cryptoassets. Participants discussed developments in relation to CBDCs, the importance of a sound regulatory framework, as well as the need for progress in delivering the G20 Roadmap for enhancing Cross-border Payments. Reference was also made to the India-UK Financial Partnership (IUKFP) and its report on "Harnessing the power of FinTech and data". The Finance Minister of India and the UK Chancellor of the Exchequer launched the India-UK Financial Partnership IUKFP in 2014 to strengthen financial services links between both countries.

15. House of Commons Treasury Committee: Correspondence from the Economic Secretary to the Treasury and City Minister relating to the financial promotions and cryptoassets

On 18 April 2023, correspondence between the Economic Secretary to the Treasury, Andrew Griffith MP, and Harriet Baldwin MP, Treasury Select Committee Chair, was published. The letter refers to recent changes concerning the UK financial promotions regime and certain types of cryptoassets via the publication of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023. It notes that the proposed regime will mean that a person not authorised by the FCA must have any promotion of qualifying cryptoassets approved by an authorised person before they are communicated, unless an exemption applies. The letter states that that this legislation should be in force by late 2023 (subject to parliamentary time and approval).

16. Bank of England: Minutes of Money Market Committee meeting – March 2023

The minutes of the Money Market Committee meeting have been published. Members gave an update in relation to RTGS renewal programme and associated projects, noting the importance of industry collaboration. The Bank proposed engaging MMC members alongside the broader industry as part of its "co-creation" process. Members discussed the recent consultation paper on digital pound (see our briefing here) and the potential impacts of a CBDC on bank funding and money markets, notably the potentially disintermediation of retail deposit markets.

17. Bank of England: Speech by Sir Jon Cunliffe, Deputy Governor, Financial Stability: The shape of things to come: innovation in payments and money

On 17 April 2023, the Bank of England published a speech by Sir Jon Cunliffe, Deputy Governor, Financial Stability, on payments and e-money. Mr Cunliffe notes the development of "digitalisation of everyday life". The speech also discusses developments in existing payment systems, infrastructure and regulatory frameworks: New Payments Architecture; the renewal of the RGTS programme; and the expansion of the Open Banking framework.

Mr Cunliffe looks at four areas where the tokenisation of money is being explored and also explores developments in relation to cross-border payments.

• Stablecoins used for payments: It is unlikely that any of the current offerings of stablecoins would meet the standards for robustness and uniformity applicable both to commercial bank money and to the existing payment systems. The future regulatory and legislative framework and expectations and international standards should ensure that framework is appropriate. The issue of liquid liabilities that can be used as money in return for illiquid debt obligations is the banking business model and issuers of tokenised money who wish to pursue credit creation will need to be regulated as bank.
• Tokenisation of commercial bank deposits: Some banks have been looking into this area, with majority of efforts focused in wholesale as opposed to retail financial transactions. Tokenised deposit money could be able to circulate freely and potentially bypass current requirements to have bank accounts. This raises questions around deposit insurance in the event of bank failure, as well as single customer view of liabilities.
• Bank of England’s Digital Pound: Focus on a retail CBDC (rather than wholesale financial markets) does not mean that bank is unaware of the transformative effect on wholesale financial markets of the tokenisation of financial assets, atomic settlement, smart contracts and other emerging technologies. The Bank has been looking at tokenising wholesale money, central bank reserves and developing a ledger system for transferring tokens between wholesale players.

UPDATES AND GUIDANCE: EUROPE

18. BaFin: Podcast on crypto-assets and retail protection

On 2 May, 2023, BaFin published an episode of its retail protection podcast on "The world of crypto-assets". The podcast covers questions like "what are crypto-assets?", "how many different crypto-assets exist?", "how risky is an investment in crypto-assets?" from a perspective of the responsible BaFin staff.

19. Deutsche Bundesbank: Speech of the Vice-President of the Deutsche Bundesbank on crypto-assets

On 20 April, 2023, Claudia Buch, the Vice-President of the Deutsche Bundesbank gave a speech titled "Are crypto-assets a threat to financial stability?" at the University of Hohenheim. In the speech, Ms Buch stated that crypto-assets promise more innovative ways of providing financial services than the traditional financial system, but they also entail risks that are strikingly similar, such as high market concentration, complexity, common exposures, and high operational risk. Ms Buch states that preventive actions against these risks should be taken through preventive regulation, better reporting systems and good monitoring and limiting regulatory arbitrage.

20. BaFin: Announcement on the application of ESMA guidelines on DLT market infrastructure

On 19 April, 2023, BaFin announced that it applies ESMA's Guidelines on the operation of DLT market infrastructures (ESMA70-460-213).The Guidelines cover standard forms, formats and templates, to be used to submit information to apply for any specific permission to operate a DLT market infrastructure. They set out information to be provided for all applicants and specific additional information depending on the applicant's regulatory status and on the nature of its application request.

21. ACPR: Public consultation on the regulation of DeFI

The ACPR recently published a public consultation, as well as a discussion paper. seeking to elicit the views of stakeholders in relation to the supervision and regulation of DeFI. The discussion paper analyses the structure and risks of disintermediated/DeFI and its various components. The consultation is open until 19 May 2023.

The discussion paper and the consultation questionnaire are available here in English.

22. French Association for the Development of Digital Assets: Study on web 3 and crypto in France and Europe

On 14 April 2023, the French Association for the Development of Digital Assets (ADAN) published the results of a study (accessible here in French) with the aim of updating the figures concerning the level of adoption by the general public of digital assets and to offer an overview of the different applications existing in the industries.

23. AMF: MiCA regulation adopted by the European Parliament – next milestones

On 21 April 2023, the AMF published a press release (accessible here in French) in relation to MiCA following its adoption by the European Parliament: Areas covered include: the main changes to be introduced by the MiCA regulatory framework; preparation for the transition to MiCA, notably the interaction with the DDADUE law which provides for a transitional regime prior to MiCA; and the next steps, i.e. the entry into force of the text in July 2023 (subject to adoption by the Council of the European Union), and the applicability of the Regulation from January 2025.

24. French Directorate General for Enterprises: Public consultation on metaverse

Until 2 May 2023, the French Directorate General for Enterprises is organizing a public consultation on virtual immersive worlds (metaverse). The aim of the consultation is to allow various stakeholders (citizens, companies, associations, researchers) to express their expectations on this evolving subject in order to design a French strategy capable of anticipating this transition from the point of view of the important technological bricks and to propose an alternative to the virtual immersive universes currently offered by the international players.

The consultation questionnaire is available here in French.

25. French National Assembly: Proposed Bill to regulate commercial influence and to fight against the abuses of influencers on social networks

On 30 March 2023, the French National Assembly adopted a Bill regarding the regulation of the commercial influence and the abuses of influencers on social networks (accessible here in French). Notable aspects of the Bill include: defining the status of influencers; and prohibiting such influencers from promoting financial investments and digital assets on social networks that carry a risk of loss for consumers. This Bill was adopted by the French National Assembly on 30 March 2023.

This Bill is part of a general desire by the French public authorities to regulate the profession of influencer. To this end, Bruno Le Maire, the French Minister of the Economy, Finance and Industrial and Digital Sovereignty launched a public consultation on 8 January 2023 to allow all French people to express their views on 11 measures divided into four themes (the rights and obligations of influencers, intellectual property, consumer protection and sector governance). At a press conference on 24 March 2023, Bruno Le Maire presented the first measures to support influencers and protect consumers resulting from this work. The press file to see the measures and the guide of good conduct for influencers are available here (both in French).

This Bill will be debated in the Senate on 9 and 10 May 2023.

26. French National Assembly: Publication of the so called 2022-2023 DDADUE law

On 10 March 2023, the 2022-2023 DDADUE law was published in the Journal Officiel of the French Republic, and came into effect the following day (accessible here in French).

As a reminder, this law impact the French current DASP regime by creating a reinforced registration procedure with the AMF and includes provisions to adapt French law to the DLT Pilot Regime Regulation, and authorise the French Government to take measures to adapt French law to MiCA within one year (please refer to the Global Digital Assets Digest of February 2023).

UPDATES AND GUIDANCE: APAC

27. HKMA: Annual report

On 28 April 2023, the Hong Kong Monetary Authority published its Annual Report. The report sets out HKMA's work priorities in a number of areas, as well as work priorities.

Points to note:

• HKMA will continue its work on a regulatory regime for stablecoins addressing potential risks, while at the same time supporting financial innovation.
• HKMA plans to issue more detailed regulatory requirements, taking into account factors such as the latest market developments, international regulatory recommendations and good practices, as well as feedback on the discussion paper on cryptoassets and stablecoins.
• HKMA will also continue to take part in international discussions concerning stablecoins and to monitor developments in cryptoassets in major markets.

28. Securities and Futures Commission: Speech by Keith Choy at the Hong Kong Web3 Festival 2023

On 12 April 2023, the Securities and Futures Commission published a speech by Keith Choy at the Hong Kong Web3 Festival 2023 on the impact of technological innovation on financial services.

Notable points

• There are financial stability implications arising from interconnectedness between DeFi and virtual asset ecosystems, as well as between DeFi and the traditional financial worlds. There is also limited transparency on these interconnections and linkages owing to the paucity of data.
• The "pseudonymous nature of DeFi" makes identifying the developers and operators of a DeFi protocol in real life challenging.
• Events of the crypto winter have demonstrated the importance of introducing rigorous standards for the regulation of virtual asset trading platforms with appropriate guardrails in place.

UPDATES AND GUIDANCE: AUSTRALIA

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UPDATES AND GUIDANCE: NORTH AMERICA

29. Federal Reserve: Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank

On 28 April 2023, the Federal Reserve Board released a report summarising the review of the supervision and regulation of Silicon Valley Bank, led by Vice Chair for Supervision Michael S. Barr. The report explores the management of the bank and the supervisory and regulatory issues surrounding the failure of the bank. The four takeways highlighted in the report are: Silicon Valley Bank’s board of directors and management failed to manage their risks; supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity; when supervisors did identify vulnerabilities, they did not take adequate steps to ensure that Silicon Valley Bank solved those problems quickly enough; and a shift in the stance of supervisory policy prevented effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.

30. FDIC: Report on the supervision of Signature Bank

On 28 April 2023, the FDIC published a report detailing the FDIC’s supervision of Signature Bank. The report evaluates the agency’s supervision of Signature Bank from 2017 until March 2023. Signature Bank was closed by the New York Department of Financial Services on 12 March 2023 and appointed the FDIC as receiver.

The report finds that main cause of the failure of the bank was illiquidity (caused by contagion effects in the wake of the announced self-liquidation and failures of other institutions). The report also points to overreliance on deposits from certain industries and vulnerability of the bank to turmoil occurring in late 2022 and into 2023.

31. Federal Reserve: Speech by Governor Christopher J Waller at the Cryptocurrency and the Future of Global Finance, Sarasota, Florida

On 20 April 2023 the Federal Reserve issued a speech by Governor Christopher J Waller at the Cryptocurrency and the Future of Global Finance, Sarasota, Florida. The speech explores the issue of innovation and the future of finance, with a special focus on cryptoassets and tokenisation. The speech notes that tokenisation and other forms of innovation could play a prominent role in banking and in the wider economy, but that it is important to weigh benefits of innovation against risks. Mr Waller notes that blockchain can enhance efficiencies and reduce liquidity risks, adding that atomic settlement can lessen settlement and counterparty risks and could be a more robust way of achieving delivery-versus-payment and payment-versus-payment functionality.

32. SEC: Cryptoasset trading platform and former CEO charged for operating an unregistered exchange

On 17 April 2023, the SEC charged crypto asset trading platform Bittrex, Inc. and its co-founder and former CEO William Shihara for operating an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Bittrex, Inc.’s foreign affiliate, Bittrex Global GmbH, for failing to register as a national securities exchange in connection with its operation of a single shared order book along with Bittrex.

Since at least 2014, Bittrex has held itself out as a platform that facilitated buying and selling of crypto assets that the SEC’s complaint alleges were offered and sold as securities. From 2017 through 2022, Bittrex earned at least $1.3 billion in revenues from, among other things, transaction fees from investors, including U.S. investors, while servicing them as a broker, exchange, and clearing agency without registering any of these activities with the Commission.

The complaint further alleges that Bittrex and Shihara, who was the company’s CEO from 2014 to 2019, coordinated with issuers who sought to have their crypto asset made available for trading on Bittrex’s platform to first delete from public channels certain “problematic statements” that Shihara believed would lead a regulator, such as the SEC, to investigate the crypto asset as the offering of a security. For example, in an effort to avoid regulatory scrutiny, before Bittrex would make an asset available on its platform, Bittrex and Shihara instructed issuer-applicants to delete statements related to “price prediction[s],” “expectation of profit,” and other “investment related terms.”

The SEC’s complaint, filed in the U.S. District Court for the Western District of Washington, alleges that Bittrex and Bittrex Global should have registered as an exchange because they brought together, using a shared order book, the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interacted, and the buyers and sellers entering such orders agreed to the terms of a trade.

The complaint further alleges that Bittrex should have registered as a clearing agency because it acted as an intermediary in making payments and deliveries upon matching sell and buy orders and maintained custody of customer assets. Finally, the complaint alleges that Bittrex should have registered as a broker because it regularly engaged in the business of effecting transactions for the accounts of others in crypto assets that were offered and sold as securities.

The complaint can be found here.

33. SEC: Comment period reopened for proposed amendments to Exchange Act Rule 3b-16 and supplemental information provided

On 14 April 2023, the SEC reopened the comment period and provided supplemental information on proposed amendments to the definition of “exchange” under Exchange Act Rule 3b-16. The SEC initially proposed the amendments in January 2022.

The reopening release reiterated the applicability of existing rules to platforms that trade crypto asset securities, including so-called “DeFi” systems, and provides supplemental information and economic analysis for systems that would be included in the new, proposed exchange definition. The reopening release also requested information and public comment on crypto asset securities trading on such systems and certain aspects of the proposed amendments applicable to all securities.

The public comment period will remain open for 30 days after publication of the reopening release in the Federal Register.

34. Wyoming Stable Token Act

On 17 March 2023, the State of Wyoming enacted SF0127 - Wyoming Stable Token Act, creating the Wyoming stable token commission which is authorized to issue Wyoming stable tokens. These tokens are a virtual currency that are redeemable for one United States dollar. All funds received from the issuance of the token will be placed in a trust account and invested exclusively in United States treasury bills.

A summary of the Wyoming Stable Token Act can be found here.

UPDATES AND GUIDANCE: MIDDLE EAST

35. The Dubai Financial Services Authority: Consultation Paper on various aspects of regulatory regime

On 27 April 2023, the Dubai Financial Services Authority published a consultation paper containing proposals in relation to money services, crypto tokens and crowdfunding regimes.
The closing date for comments is 26 May 2023.

PRESS/ARTICLES

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Contributors: Francesco Assi, Senior Associate; Nathan Huynh, Senior Associate; Tobias Bauerfeind, Senior Associate; Cornelius Hille, Associate; Greta Muller, Junior Associate; Sarah Campo, Trainee; Ankita Rao, Trainee