This week in crypto policy, a US Senator “carefully evaluate the extent to which Binance and Tether are providing material support and resources to support terrorism;”
While in Europe, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly released a consultation paper focused on enhancing the integrity of the crypto market.
In Asia, China’s PetroChina became the first company to use China’s digital Yuan, also known as e-CNY, for settling a crude oil trade transaction involving a million barrels of crude oil.
In the US, as the Senate Banking hearing on illicit finance unfolded, Senator Cynthia Lummis and Republican French Hill urged the Department of Justice (DoJ) to “carefully evaluate the extent to which Binance and Tether are providing material support and resources to support terrorism.”In their letter, they highlighted the transformative potential of crypto assets and distributed ledger technology (DLT) in redefining the US financial markets. Emphasizing the importance of distinguishing between the majority of crypto intermediaries, who aim to comply with US regulations, and the minority that may misuse the technology for illicit activities, they advocate for a balanced view.
Europe: EBA and ESMA Roll Out Draft Guidelines Under MiCA, ESMA Stresses on Seamless Transition to MiCA
To enhance the integrity of the crypto market, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly released a consultation paper detailing two draft joint guidelines. These guidelines pertain to the suitability assessment of both the management body members and shareholders with qualifying holdings of issuers of asset-referenced tokens (ARTs) and crypto-asset service providers (CASPs). This initiative aims at harmonizing the criteria used in these assessments, thereby mitigating the risk of rule application discrepancies. This consultation is open until 22 January 2024, welcoming feedback from the public. The broader context is the joint mandates these bodies have under (Markets in Crypto Assets Regulation) MiCA, that necessitates such guidelines to ensure the integrity and trustworthiness of the crypto market.
Furthermore, the ESMA released a statement emphasizing the importance of gearing up for a hassle-free shift to MiCA. According to the organization’s latest press release, ESMA Chair Verena Ross addressed the Economic and Financial Affairs Council (ECOFIN), calling on Member States to “designate without delay the competent authorities responsible for carrying out the functions and duties provided for under MiCA, and to consider limiting the optional grand-fathering period to 12-months should they choose to offer it in their jurisdictions.” The grand-fathering period will be a transitional measure under MiCA, allowing Member States to permit current crypto service providers in their area to extend their services from 30 December 2024, potentially till 1 July 2026.
This communication extends to entities offering crypto-asset services, as well as the national competent authorities slated to supervise them. Additionally, ESMA underscored potential risks for consumers investing in crypto assets, even after MiCA’s application.
European Central Bank Brings Potential of DeFi into Focus
The European Central Bank has published a report highlighting the transformative potential of Decentralized finance (DeFi) as it employs automated protocols. The shift towards DeFi transforms the financial sector by bypassing conventional intermediaries and employing smart contracts on public blockchains to provide financial services. According to the ECB, despite its remarkable growth, DeFi still represents a relatively small segment within the broader cryptocurrency market. While DeFi leverages open-source technology for composability and claims decentralized governance, though centralization persists in many instances, it does not come without its risks, which include elements reminiscent of traditional finance, such as excessive leverage and liquidity mismatches, further compounded by its intricate interconnectedness and operational vulnerabilities.
Furthermore, ECB’s report pointed out that the regulatory challenges are a significant concern due to DeFi’s decentralized and opaque nature, necessitating innovative approaches and international cooperation.
Asia: China, Hong Kong, and Vietnam See Crypto-Related Developments
PetroChina Settles Oil Trade with Digital Yuan
PetroChina recently became the first company to use China’s digital Yuan, also known as e-CNY, for settling a crude oil trade transaction. While the specifics such as the seller and the total transaction value remain undisclosed, this landmark deal involved the purchase of a million barrels of crude oil at the Shanghai Petroleum and Natural Gas Exchange (SHPGX).
The digital Yuan, introduced in 2021, has been a project of the People’s Bank of China since 2014. The country has been progressively incorporating its CBDC into various sectors, with China being one of the few countries with an operational CBDC.
Hong Kong Addresses Increasing Inquiries on Virtual Asset-Related Products
The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) issued a joint circular on intermediaries’ virtual asset-related activities. The circular sets out new requirements and guidance for intermediaries that wish to distribute VA-related activities to investors or provide VA dealing services. The key changes are related to selling instructions, virtual asset-knowledge tests, suitability obligations, and due diligence requirements.
The circular also provides guidance on other aspects of intermediaries’ virtual asset-related activities, such as the deposit and withdrawal of client virtual assets, risk management, and internal controls.
Vietnam’s Regulatory Landscape is Ready for Change
Vietnam’s surge in the Chainalysis’ global crypto adoption index, securing the third position, captures its accelerated pivot to cryptocurrencies. This shift is rooted in the country’s unique socio-economic dynamics. Most of its citizens, roughly 70%, are unbanked, making decentralized financial solutions like crypto a vital alternative/ A longstanding distrust in the domestic fiat currency has further propelled people towards crypto. The gaming sector – particularly play-to-earn models like Axie Infinity- introduced many to digital currency in Vietnam. Despite these factors, the regulatory landscape remains nebulous. Crypto is currently untaxed, and while the government’s interest in the domain is evident through several initiatives, concrete regulations are still pending.