In this week’s weekly crypto policy roundup: the digital euro wants to balance innovation and privacy, a potential groundbreaking paper on privacy pools could be a step towards regulatory compliance, and the UK’s Financial Conduct Authority (FCA) is set to implement new financial promotion rules.
In Asia, South Korea’s is working on new crypto laws, Japan has a crypto tax proposal and Australia rejected crypto legislation.
Leaders say Digital Euro Is “being designed” as a Safe Payment Tool
The European Central Bank’s (ECB) digital currency project Chair, Fabio Panetta, addressed the Committee on Economic and Monetary Affairs Members (ECON) on 4 September 2023, to give an update on the progress made in investigating digital Euro. The Chair of the Task Force on Central Bank Digital Currency and member of executive board of the ECB said that “the issuance of a digital euro represents an opportunity, not a risk, for the European financial sector.”
During the last two years of the “investigation phase” of the digital Euro project, policy choices regarding the technical design of the digital euro, the effects on financial stability, monetary policy, and payment services, as well as privacy anti-money laundering, and countering tax evasion was studied by the Task Force. As the ECB prepares opinions on two proposals – legal tender status and privacy – Panetta said, “We are designing it (digital euro) as a safe payment tool in order to preserve the role of public money – that is, money backed by the state – while balancing innovation in payments with the stability of the financial sector and guaranteeing privacy.”
“A digital euro will make our money fit for the digital age,” concluded Panetta. “By providing an electronic form of cash, it will preserve people’s freedom to choose between private and public forms of our single currency for their everyday payments.
Belgium and Austria Also Discuss Retail Central Bank Digital Currency
The National Bank of Belgium and the National Bank of Austria held a discussion on “A Digital Euro for the Digital Era” on 7 September 2023. While addressing the conference, Governor of the National Bank of Belgium said, “A potential introduction of a digital Euro would change significantly the form in which central bank money is made available to the public, and represents an evolution at least as significant as the introduction of Euro banknotes.”
The participants of the conference, including central bankers and policymakers, agreed that the issuance of the digital Euro might not be a reality till at least 2027. Pointing out the obvious hurdle in the way of digital Euro, Governor of Austria’s Central Bank Robert Holzmann noted that “We still need to develop a good storyline of the digital Euro. That is our challenge.”
However, the crypto industry noted that there was a lack of representation as digital asset and crypto firms did not feature at all in the conference.
New Research Says Privacy Pools Are a First Step Towards Regulatory Compliance
While we usually focus only on weekly crypto policy updates, a new paper dropped just in time for policymakers coming back to school. Ethereum inventor Vitalik Buterin, Chainalysis chief scientist Jacob Illum, SpankChain co-founder Ameen Soleimani and University Of Basel PhDs Fabian Schär and Matthias Nadler have co-authored a privacy paper titled “Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium,” calling it the first step towards a future where people could prove regulatory compliance without having to reveal their entire transaction history.
“The paper should be seen as a humble contribution towards a potential future, in which financial privacy and regulation can co-exist,” the privacy paper stated.
G20 to Kick Off with Discussions Around Crypto Regulations
Looking forward in the weekly crypto policy world, the upcoming 2023 G20 summit will see the addressing of key issues related to regulating crypto. There is an understanding that there should be a framework for handling issues related to crypto assets, the Indian Financial Minister has insisted.
Indian FM Nirmala Sitharaman, along with US Treasury Secretary Janet Yellen have reportedly discussed strengthening multilateral development banks, global debt vulnerabilities and crypto assets, in order to make the global framework to regulate crypto assets a reality. “We haven’t suggested outright banning of crypto activities, but it is critical to put in place a strong regulatory framework,” Yellen said while talking to local media.
The International Monetary Fund has also shown support for such a regulatory framework as IMF Managing Director Kristalina Georgieva told reporters after co-chairing a meeting with Sitharaman that banning crypto should be an option.
UK Financial Conduct Authority Set for Crypto Oversight
Meanwhile, the UK’s Financial Services and Markets Bill received Royal Assent, empowering regulators for more comprehensive crypto oversight. The Financial Conduct Authority (FCA) is set to implement new financial promotion rules starting October 8, broadening its regulatory reach to include non-UK and previously unregulated firms.
In support of these policy shifts, the Crypto Council is ramping up its operations in the UK, marking the next 12-18 months as crucial for the country’s digital asset landscape.
Asia Pacific Tackles Crypto Bills, Laws and Tax Reforms
This week was a busy one for crypto policy in Asia Pacific. South Korea is looking to take stricter action against cyberattacks and cryptocurrency theft through new laws. The government plans to track and freeze cryptocurrencies and other virtual assets used by North Korea. A new bill, scheduled to be tabled soon, addresses the funding of Pyongyang’s illicit weapons programs through crypto, and plans to deter such activities through the track and freeze approach. President, Yoon Suk Yeol, said the bill should include practical measures to enhance national security.
South Korean reported that North Korea stole 1.7 trillion won ($1.28 billion) worth of Bitcoin and Ethereum through various hacking outfits in 2022 alone. Furthermore, South Korea found that virtual assets worth a total of $52.46 million from the crypto wallets of North Korean hacking groups had likely been laundered after entering South Korean cryptocurrency exchanges over the past four years. Blockchain analysis company, Chainalysis, found that North Korean hackers have stolen over $3 billion over the past five years.
Meanwhile, a crypto bill has been rejected by the Australia’s Senate Economics Legislation Committee for being at odds with the government’s approach towards crypto. “The Digital Assets (Market Regulation) Bill 2023” was introduced by opposition senator Andrew Bragg, who said that the Labor government has “put regulating crypto in the slow lane.” The rejected bill recommended that the government continue to consult with industry on the development of fit-for-purpose digital assets regulation in Australia.
However, the bill received criticism for lacking detail and certainty. The bill was “not congruent with international regimes” and caused “genuine concern for regulatory arbitrage and adverse outcomes to the industry,” Australia’s Senate Economics Legislation Committee said.
In Japan, the Financial Services Agency (FSA) has submitted legislative requests to the government aimed at scrapping the existing “unrealized gains” tax system for domestic crypto companies. The move has gained the backing of Ministry of Economy, Trade and Industry. Japan’s competitive crypto landscape could use such reforms that promote innovation in the blockchain sector and prevent an outflow of startups.
Despite a ban on cryptocurrencies, China’s judicial system continues to recognise the legal status of virtual assets. A recent report from People’s Court Daily, managed by the Supreme People’s Court of China, clarified that virtual assets should be considered legal property and be protected by law. As the crypto usage remains high in China, the report highlights the need for criminal and civil laws to address crimes involving virtual assets.