This week in crypto policy news, MEPs in Strasbourg enact new instant payment regulations, feedback to the Bank of England, and Hong Kong launches a public consultation on overseeing over-the-counter trading of virtual assets.
CCI flagged to Bank of England that their proposed stablecoin rules could impact the country’s ambitions to be a crypto hub.
Following last year’s successful launch of tokenized debt securities in Hong Kong, UBS has launched the city’s first-ever investment grade tokenized warrant on the Ethereum public blockchain network.
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European Parliament Approves Instant Payments Regulation
In this week’s start to crypto policy, a significant move towards modernizing the European payment system, the European Parliament has adopted the Instant Payments Regulation, which ensures that euro money transfers are completed within ten seconds. Europe Commission’s Mairead Mc Guinness praised the agreement, emphasizing the importance of a swift and smooth implementation process. The regulation, hailed by lead MEP Michiel Hoogeveen as a long-awaited update to the European single market, promises to eliminate the delay of two to three working days previously experienced by customers while accessing their funds. The regulation was passed with an overwhelming majority of 599 votes in favour against seven votes, with 35 abstentions. It mandates that customers be informed within ten seconds about the availability of funds to the recipient. Even member states whose currency is not the euro are required to comply with these rules for accounts conducting regular euro transactions, albeit with a longer transition period and a special derogation for payments outside business hours due to potential liquidity concerns. This development is a significant step forward for individuals and businesses alike, prioritizing the efficiency and convenience of money transfers across Europe.
CCI Submits Comments on EBA’s Prudential Package
The CCI has submitted three comment letters in response to the European Banking Authority’s (EBA) third consultation package under the Markets in Crypto-Assets Regulation (MiCAR). The comments cover draft technical standards and guidelines on stablecoin reporting, liquidity, reserve assets, and own funds and stress testing. CCI supports several aspects of EBA’s proposals on stablecoin reporting but has raised concerns about privacy and security issues related to the use of personally identifiable information (PII). They suggest using pseudonymous unique identifiers instead. CCI also questioned the reliability of data derived from the proposed scope of reporting, given the acknowledged challenges in defining all transactions with certainty. Regarding liquidity and reserve assets, CCI recommended that EBA consider mechanisms to adjust the relevant percentages of reserve assets that need to mature within the following one and five working days, in line with the growth and maturity of the crypto market and bank activities. Lastly, CCI provided feedback on the procedure and timeframe to adjust own funds requirements for issuers of significant asset-referenced tokens or e-money tokens under MiCAR, and the design of stress testing programs for issuers.
CCI Raises Concerns Over Bank of England’s Stablecoin Rules
The CCI has expressed concerns to the Bank of England (BoE) regarding its proposed stablecoin regulations, suggesting that they could potentially hinder the UK’s ambitious to become a hub for cryptocurrency. CCI highlighted several issues, including discrepancies between the BoE and the Financial Conduct Authority’s (FCA) requirements, a lack a clarity on what would be classified as a systemic stablecoin, and overly restrictive rules on backing, capital, and interest. CCI emphasized the need for the BoE and FCA’s regulations to work seamlessly together, as many stablecoins will grow to be systemic over time, necessitating a smooth transition from FCA to BoE rules.
CCI Responds to FCA’s Stablecoin Framework Proposal
The CCI has provided feedback on the Financial Conduct Authority’s (FCA) proposal for a stablecoin framework, advocating for a regulatory environment that supports the UK’s aspirations to become a global crypto-asset hub without compromising market integrity or consumer protections. CCI emphasizes the importance of privately issued stablecoins in the future of payments and the necessity of fostering innovation. They argue for the application of the principle “same risk, same regulatory outcome” to ensure a level playing field with other payment instruments, such as e-money. CCI suggests that the proposed framework should be examined through a competition perspective, considering the FCA’s competition mandate and the UK government’s competitiveness agenda. CCI believes that stablecoins can offer many benefits to UK customers, including improved inclusion and access, lower transaction costs, and quicker settlement speeds.
APAC: Hong Kong and South Korea Make Headlines
Hong Kong Consults on OTC Virtual Asset Trading Regulation
Hong Kong’s Financial Services and the Treasury Bureau has initiated a public consultation on legislative proposals aimed at regulating the over the counter (OTC) trading of virtual assets. This move is part of thegovernment’s commitment to aligning the regulatory framework for virtual assets (VAs) with the principle of “same activity, same risks, same regulation,” as stated in the Policy Statement on Development of Virtual Assets in October 2022. The proposals seek to address money laundering and terrorist financing (ML/TF) risks and enhance investor protection by requiring all persons providing spot trade services of any VA for money in Hong Kong to obtain a license from the Commissioner of Customs and Excise (CCE).
The proposed regulation will cover all VA OTC services, regardless of whether they are offered through physical outlets or other platforms. The consultation, which will run until 12 April 2024 is a critical step in establishing a robust and transparent regulatory environment for the sustainable development of virtual assets and Web3 in Hong Kong.
UBS Launches First Tokenized Warrant in Hong Kong
Following last year’s successful launch of tokenized debt securities in Hong Kong, UBS has launched the city’s first-ever investment grade tokenized warrant on the Ethereum public blockchain network. This marks another significant step in Hong Kong’s ongoing efforts to expand its digital asset capabilities. The warrant, which uses Xiaomi as the underlying stock, was sold to OSL Digital Securities Limited, a licensed virtual asset platform operator, through UBS’s in-house tokenization service, UBS Tokenize. According to UBS, the tokenized warrant offers several key features, including increased accessibility, extended trading hours, increased cost efficiency, and transparency on a decentralized ledger.
South Korea Introduces Strict Crypto Law with Potential Life Sentence
South Korea’s Financial Services Commission (FSC) has announced that individuals involved in illicit activities in the crypto market could face severe criminal punishments, including life imprisonment under the new “Virtual Asset User Protection Act.” The law, set to commence on 19 July 2024 stipulates that violations could result in at least one year of imprisonment or fines ranging from three to five times the amount of illegal gains. Individuals who earned over 5 billion Korean Won ($3.76 million) from such violations could face a life sentence or a penalty of double the proceeds.
The legislations, passed in July 2023 with a one-year grace period, aims to eliminate illicit market activities, such as undisclosed information use for crypto investments, market price manipulation, and fraudulent transactions. It also mandates crypto service providers to safeguard over 80% of deposits in cold storage and enroll in insurance programs for potential user compensation in case of security breaches.