This week in crypto policy news, the UK’s national taxing authority has published new guidelines to encourage voluntary disclosure of any unpaid taxes on cryptoassets, including exchange tokens like Bitcoin, NFTs, and utility tokens.
The European Banking Authority initiated a public consultation focusing on new guidelines to combat the misuse of funds and certain cryptoasset transfers for money laundering and terrorist financing.
Stablecoin issuer Circle partnered with SBI Holdings to transform Japan’s financial sector and accelerate the adoption of Web3 services. Circle also partnered with Taiwan’s BitoGroup and FamilyMart to introduce a service that enables customers to convert loyalty points into digital currencies.
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UK Issues Guidance on Voluntary Disclosure of Unpaid Tax on Cryptoassets
The UK’s national taxing authority, His Majesty’s Revenue and Customs (HMRC), has published guidelines for individuals who need to disclose unpaid taxes on cryptoassets, including exchange tokens like Bitcoin, NFTs, and utility tokens. This process, aimed at making a voluntary disclosure of any unpaid taxes, is critical for those specifically who have not declared income or gains from such assets.
Published on 29 November 2023, the guidance outlines the steps for making a disclosure, gathering personal details, gathering transaction information, and calculating owed taxes, interest, and potential penalties. It specifies different disclosure requirements based on whether the non-payment was due to reasonable care, carelessness, or deliberate actions, impacting the number of years for which one must report and pay.
It is worth noting that key steps include informing HMRC about any unpaid tax to receive a payment reference number and then fulfilling the payment within 30 days of the disclosure. Furthermore, failure to comply with or provide accurate information can lead to additional checks, higher penalties, and further action.
HMRC’s guidance aims to streamline the process for taxpayers needing to settle unpaid taxes on cryptoassets.
Cyber Resilience Act: EU Strives for Enhanced Digital Product Security
On 30 November 2023, the Council of the European Union and the European Parliament provisionally agreed on the Cyber Resilience Act (CRA), aiming to bolster cybersecurity for digital products. CRA established EU-wide cybersecurity requirements for the design, development, and market availability of digital products, including Internet of Things (IoT) devices.
“Today’s agreement is a milestone towards a safe and secure digital single market in Europe,” said José Luis Escrivá, Spanish minister of digital transformation. “Connected devices need a basic level of cybersecurity when sold in the EU, ensuring that businesses and consumers are properly protected against cyber threats. This is exactly what the cyber resilience act will achieve once it enters into force.”
The regulation introduces responsibilities for manufacturers such as cybersecurity risk assessments and conformity declarations, alongside vulnerability handling processes. Key amendments include a simplified product classification system, defined product lifetime support, and enhanced reporting obligations for vulnerabilities. The act also emphasizes transparency for consumers and business users regarding product security and sets a three-year adaptation period for manufacturers post-enactment.
While the focus is outlining cybersecurity requirements for products with digital elements, there is a risk for crypto policy – namely, open-source software (OSS) and OSS developers would be scoped in. The final text still needs to be rubber-stamped and published, but the Regulation should only apply to free and open-source software supplied during a commercial activity – a welcome narrowing of the scope.
EBA’s New Guidelines on Preventing Cryptoasset Abuse for Money Laundering and Terrorist Financing
The European Banking Authority (EBA) initiated a public consultation on 24 November 2023, focusing on new guidelines to combat the misuse of funds and certain cryptoasset transfers for money laundering and terrorist financing. These guidelines, known as the ‘travel rule,’ prescribe specific actions for Payment Service Providers (PSPs), Intermediary PSPs, cryptoasset service providers (CASPs), and Intermediary CASPs to detect and handle transfers lacking essential information.
The aim is to create a unified approach across the EU for the consistent application of these rules and to strengthen anti-money laundering and counter-terrorism financing measures. The consultation will remain open until 26 February 2024.
The EBA plans to supersede the 2017 guidelines with the new comprehensive guidelines in place, to ensure robust measures against financial crimes in the digital asset domain.
International Standard Setters Published Two Noteworthy Reports Could Impact Crypto Policy
FSB Publishes Report on Risks of Multi-Function Cryptoasset Intermediaries
On 28 November 2023, the Financial Stability Board (FSB) published a significant report assessing the financial stability risks posed by multi-function cryptoasset intermediaries (MCIs). These entities, exemplified by firms like the now-defunct FTX, combine various cryptoasset services typically separated in traditional finance, such as trading platforms, proprietary trading, and lending.
The report highlights that MCIs share common vulnerabilities with traditional finance, such as leverage and liquidity mismatch. The FSB warns that these vulnerabilities could be exacerbated by poor governance, lack of operational transparency, and conflicts of interest.
While the current threat to global financial stability from MCI failures is deemed limited, the FSB stresses the importance of comprehensive, consistent global regulations and enhanced cross-border cooperation to manage these risks effectively.
BIS published a report on Project Tourbillon: exploring privacy, security and scalability for CBDCs
Project Tourbillon, initiated by the Bank of International Settlement (BIS) Innovation Hub Swiss Centre on 29 November 2023, delves into the realms of privacy, security, and scalability for retail Central Bank Digital Currencies (CBDCs). This project addresses the global trend of declining cash usage and the corresponding rise in digital payments, which has sparked concerns over privacy erosion.
In response, Project Tourbillon has developed two CBDC prototypes focused on three key aspects: ensuring payer anonymity to enhance privacy, implementing quantum-safe cryptography for heightened security, and testing scalability by managing an increasing volume of transactions. These prototypes are a direct response to public demand for privacy in digital payments, as highlighted in various central bank consultations.
Crypto Policy Developments in APAC
Paxos’ Strategic Expansion in Asia with MAS-Approved USD-Backed Stablecoin
Paxos, a leading regulated blockchain and tokenization infrastructure platform, announced a significant expansion into Asia on 15 November 2023. The company received in-principle approval from the Monetary Authority of Singapore (MAS) for its new entity, Paxos Digital Singapore Pte Ltd to offer digital payment token services. This approval enables Paxos to issue a new US dollar stablecoin in Singapore, aligning with MAS’ upcoming stablecoin regulatory framework.
“Global demand for the US dollar has never been stronger, yet it remains difficult for consumers outside the US to get dollars safely, reliably, and under regulatory protections,” said Walter Hessert, Paxos Head of Strategy. “This in-principle approval from the MAS will allow Paxos to bring its regulated platform to more users around the world. Because Paxos upholds the highest standards of compliance and oversight, global enterprises partner with us to power stablecoin solutions that drive their businesses and respond to their customers’ needs.”
StraitsX Gains MAS Approval for Issuing Stablecoins in Singapore
These stablecoins are 1-1 pegged to the Singapore Dollar and US Dollar, aligning with MAS’ forthcoming stablecoin regulatory framework. StraitsX’s stablecoins will be backed by reserve assets, including cash or debt securities issued by the MAS or the US Department of the Treasury, and will undergo independent external audits twice a month.
“We are deeply honored to be among the first to be recognized by the MAS as being substantively compliant with the requirements of the upcoming stablecoin framework, in advance of the legislative framework coming into force, and will remain committed to being transparent and trusted by our customers, said Kenny Chan, Head of StraitsX. “Beyond XSGD, StraitsX intends to fully maintain the same high degree of value stability for future stablecoins we may issue, such as XUSD, allowing for timely redemption for our users, and for StraitsX to continue upholding strong prudential standards.”
Circle and SBI Holdings Forge Strategic Alliance to Propel USDC and Web3 in Japan
In a landmark move, stablecoin issuer Circle and Japanese financial giant SBI Holdings announced a strategic partnership aimed at transforming Japan’s financial sector and accelerating the adoption of Web3 services. Central to this alliance is the expansion of the USDC, a stablecoin issued by Circle and pegged to the USD, within the Japanese financial system.
This initiative is poised to streamline cross-border transactions, boost liquidity in digital asset markets, and introduce cutting-edge financial products and services. This collaboration also aligns with Japan’s focused efforts on Web3 adoption, following Prime Minister Fumio Kishida’s push for digital transformation and the establishment of a dedicated Web3 policy office.
This collaboration introduces an innovative ‘Points-to-Crypto’ service, enabling customers to convert loyalty points into digital currencies like USDC through Taiwan FamilyMart App and BitoPro Exchange. This service aims to maintain the value of loyalty points over time and offers zero transaction fees, thus democratizing access to cryptocurrencies.
The initiative underscores the pivotal role of loyalty points in Taiwan’s retail landscape, where convenience stores and their loyalty programs are integral to daily life.