Global Fintech & Payments Blog

Hong Kong Monetary Authority Consults on Stablecoin Regulation

Posted in Blockchain, Cryptoassets

The HKMA’s discussion paper seeks feedback on its proposed regulatory approach to stablecoins, with responses due by 31 March 2022.

By Simon Hawkins and Adrian Fong

On 12 January 2022, the Hong Kong Monetary Authority (HKMA), Hong Kong’s principal regulator for banks and payment systems, published a discussion paper seeking the public’s views on its proposed approach to the regulation of stablecoins (Discussion Paper). The HKMA outlines its views on the development of stablecoins and proposes questions and its initial outlook for establishing an effective regulatory framework for stablecoin activities in Hong Kong.

The Discussion Paper comes three months after the HKMA issued its technical whitepaper on retail central bank digital currency in October 2021, which considers a proposed architecture for issuing e-HKD. These publications, together with recent consultation conclusions from the Financial Services and the Treasury Bureau on implementing a regulatory regime for virtual asset service providers, (see Latham’s blog post), indicate that Hong Kong regulators are moving quickly to create guardrails as financial innovation accelerates. Continue Reading

UK to Regulate Cryptoasset Promotions

Posted in Cryptoassets

HM Treasury has confirmed that it will bring certain unregulated cryptoassets within scope of the financial promotions regime.

By Stuart Davis, Rob Moulton, and Charlotte Collins

On 18 January 2022, the UK government confirmed its intention to bring the promotion of certain cryptoassets into scope of regulation. HM Treasury has been considering for some time whether, and if so how, to bring unregulated cryptoassets within the regulatory perimeter, having originally consulted on these proposals in 2020. Continue Reading

Singapore: MAS Issues Guidelines on Promoting Digital Payment Token Services

Posted in Cryptoassets, Digital, Payments

The guidelines set out the MAS’ expectation that digital payment token service providers should not promote their services to the general public in Singapore.

By Simon Hawkins, Farhana Sharmeen, and Tan Gen Huong

On 17 January 2022, the Monetary Authority of Singapore (the MAS) issued new guidelines (the Guidelines) setting out restrictions on the promotion of services related to digital payment tokens (DPTs) in Singapore. The Guidelines apply to banks and financial institutions providing DPT services in Singapore, and entities providing DPT services in Singapore that have either been granted a licence under the Payment Services Act (PSA) or that are currently operating under transitional exemptions under the PSA (collectively, DPT service providers). Continue Reading

US Infrastructure Law: Top Impacts on the Digital Asset Industry

Posted in Cryptoassets

The industry will have two years to learn the new requirements and develop systems to ensure compliance.

By Elena Romanova, Stephen P. Wink, Adam Zuckerman, and Deric Behar

On November 15, 2021, President Biden signed the US$1.2 trillion Infrastructure Investment and Jobs Act into law (the Law). Two provisions of the Law could have a wide-ranging impact on the digital asset industry: (i) the Law includes a broad definition of “digital asset,” and (ii) the Law redefines “broker” to include certain persons providing services to transfer digital assets. Continue Reading

PWG Issues Clarion Call for US Legislation on Stablecoins

Posted in Cryptoassets

The report addresses the market risks and regulatory challenges presented by stablecoins and urges Congress to act quickly.

By Alan W. Avery, Yvette D. Valdez, Stephen P. Wink, Pia Naib, and Deric Behar

On November 1, 2021, the President’s Working Group on Financial Markets (PWG) in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) published its long-anticipated Report on Stablecoins (the Report). Regulators worldwide have become acutely aware of how stablecoins function as a bridge between traditional financial markets and digital asset markets. As a result, regulators are seeking to address the risks, opportunities, and regulatory gaps presented by this burgeoning asset class.

The Report first describes how payment stablecoins function, before identifying key gaps in prudential authority over stablecoins in the US financial system. It then presents recommendations for addressing those gaps. Continue Reading

CNIL Publishes White Paper on Digital Payments and Data Privacy

Posted in Data Privacy, Cybersecurity, and AI, Payments

The French Data Protection Authority’s white paper discusses how companies can comply with data privacy and security obligations.

By Christian F. McDermott, Myria Saarinen, Calum Docherty, Charlotte Guerin, Jiou (Alex) Park, and Amy Smyth

The use of card, contactless, and innovative digital payment solutions has significantly increased in recent years, fueled by the immediate impacts of the ongoing COVID-19 pandemic and the longer-term growth of e-commerce and open banking. In this context, the legal and regulatory environment around payment data is no longer limited to traditional actors in the banking sector or the long-established ambit of banking secrecy rules. As such, stakeholders from fintech startups to established technology giants face an increasing patchwork of compliance obligations. Continue Reading

DOJ and Treasury Take Crypto Enforcement to the Next Level

Posted in Cryptoassets

The DOJ’s National Cryptocurrency Enforcement Team and Treasury’s OFAC are setting their sights on cryptocurrency use in cybercrimes.

By Benjamin A. Naftalis, Eric S. Volkman, Douglas K. Yatter, Nima H. Mohebbi, Jessie R. Michelin, and Deric Behar

The US Department of Justice (DOJ) is sharpening its focus on combatting cryptocurrency use in criminal activity. On October 6, 2021, the DOJ announced the creation of a National Cryptocurrency Enforcement Team (NCET) — a unit aimed to be the centerpiece in “a nationwide enforcement effort to combat the use of cryptocurrency as an illicit tool.” The DOJ identifies cryptocurrency as the “primary demand mechanism for ransomware payments” and “preferred means of exchange of value” to facilitate crimes on the dark web. The stated purpose of NCET is to conduct complex investigations and prosecutions of criminal misuse of cryptocurrency by individuals and entities operating in the digital asset space.

Underlying NCET is the DOJ Cyber Digital Task Force’s first published report, which highlighted the need to address threats posed by the use of cryptocurrency in cybercrimes, as well as its October 2020 Cryptocurrency Enforcement Framework (the Framework), which highlighted the emerging threats and enforcement challenges posed by cryptocurrency use and infrastructure abuse. In the Framework, the DOJ asserted broad and diverse jurisdiction over crimes involving cryptoassets to pursue violations of US law even if those violations were conducted by individuals or entities based outside the US, so long as those entities maintained a nexus of activity involving US persons (see this Latham post for more information). Continue Reading

BIS Issues Consultation on Stablecoin Regulation

Posted in Cryptoassets

The global central bank cooperative body envisions stablecoins within the context of international standards for payment, clearing, and settlement systems.

By Alan W. Avery, Stuart Davis, Simon Hawkins, Stephen P. Wink, Pia Naib, and Deric Behar

Among the different types of digital assets, global authorities seem most focused on stablecoins.

This concern is the result of a few factors:

–Stablecoin use has ballooned in a very short time, going from less than US$3 billion in market capitalization at the beginning of 2019 to approximately US$130 billion as of October 2021.

–Stablecoins are intimately connected with the financial system because they function as an intermediary between traditional markets and cryptoasset markets.

–Stablecoin arrangements are in many cases opaque regarding the nature of the asset reserves underlying their currency peg.

–Stablecoins remain mostly unregulated.

Understanding and containing the systemic risks in this burgeoning asset class is therefore a top priority for regulators worldwide.

Continue Reading

The Token Safe Harbor Lands on Capitol Hill

Posted in Blockchain, Cryptoassets, Digital

The Clarity for Digital Tokens Act of 2021 would give token issuers the guardrails they need to innovate with far less regulatory anxiety.

By Stephen P. Wink and Deric Behar

US Securities and Exchange Commission (SEC) Commissioner Hester Peirce has always been something of a maverick. She has been a lone dissenting voice on the Commission on many topics, applying her libertarian leanings to question the need for regulations that could hobble free markets or stifle innovation.

Those who follow the digital assets markets also know Commissioner Peirce by her nickname “Crypto Mom,” for her relentless support of digital asset innovation and calls for clear regulatory guidance when she perceives they are lacking. To remedy some of those issues, Commissioner Peirce published a Token Safe Harbor Proposal on February 6, 2020, and reissued a revised version (Proposal 2.0) on April 13, 2021 (previously discussed in this post).

Proposal 2.0 never quite gained traction at the SEC, but it has found an ally in Congress. On October 5, 2021, Representative Patrick McHenry, the ranking member on the House Financial Services Committee, introduced a bill titled the Clarity for Digital Tokens Act of 2021 (the Bill) that substantially embodies Commissioner Peirce’s Token Safe Harbor Proposal 2.0. Continue Reading

New US Digital Assets Bill Casts Wide Net

Posted in Cryptoassets

An ambitious proposal could bring digital assets into the mainstream regulatory fold.

By Yvette D. Valdez, Stephen P. Wink, Adam Bruce Fovent, Adam Zuckerman, and Deric Behar

During an eventful summer for the digital assets industry, it may have been easy to miss US Representative Don Beyer’s introduction of the Digital Asset Market Structure and Investor Protection Act (the Bill) on July 28, 2021. The Bill is perhaps the most promising effort to date by Congress to enact legislation that would address some of the legal ambiguities for digital assets and better define their place within existing financial regulatory structures.

Rep. Beyer described the current legal landscape for digital assets as “ambiguous and dangerous for investors and consumers.” Broadly, the Bill seeks to address deficiencies and/or ambiguities relating to consumer protection, trade reporting and transparency, and anti-money laundering / know your client (AML/KYC) procedures for digital assets.

The Bill also seeks to address a wide range of practical issues, from the fundamental (such as defining industry terms and categorizing cryptoassets) to the more nuanced (such as establishing standards for transaction reporting and consumer protection and advisories). Continue Reading

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