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GLOBAL KEY REGULATORY DEVELOPMENTS

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It’s regulatory déjà vu all over again.

The European Union (EU) reached a provisional agreement last month on the
Markets in Crypto-Assets (MiCA) regulation, which would introduce harmonized
digital asset rules across its common market. MiCA could become the de facto
global standard for crypto regulation as other jurisdictions lag behind the EU
in developing their own crypto rules of the road.

The notion of an EU regulation becoming a de facto global standard might feel
familiar, and with good reason. In 2018, the EU’s General Data Protection
Regulation (GDPR) entered into force and established the bloc as the global
leader on data privacy regulation. GDPR still serves as the unofficial global
privacy standard in the absence of action by other major jurisdictions and acts
as a reference point for those seeking to develop their own privacy rules. 

While MiCA is subject to further drafting and is unlikely to enter into force
until 2024, the provisional agreement has already provided the certainty that
many within the crypto industry were waiting for. It is also a step toward
establishing the EU as a global leader in setting crypto regulatory standards,
similar to its data privacy leadership. While the recent crypto market
turbulence has driven regulatory activity in other jurisdictions (more below),
the EU is well-positioned to set global standards–a development that certainly
feels familiar.

As the EU and other jurisdictions around the world consider digital asset
regulations, it is more important than ever for the DLT industry to stay
involved. To help keep you informed, we prepared this month’s Regulatory Roundup
as some background reading.

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 * The EU reached provisional agreements on two significant digital asset
   regulations as part of its Digital Finance Package. In addition to the MiCA
   legislation, the EU also reached a provisional agreement on the Transfer of
   Funds Regulation (TFR), which would introduce know-your-customer (KYC) rules
   for crypto-asset service providers (CASPs) that go beyond those in place for
   traditional banks. TFR includes requirements for CASPs to not only verify
   their clients’ details (required of banks) but also those of the party the
   client is transferring funds to (not required of banks) for self-hosted
   wallet transactions under certain circumstances.
 * There has been increasing focus on digital assets in the United States.  On
   Capitol Hill, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY)
   introduced the Responsible Financial Innovation Act, which aims to establish
   a more coherent and consistent regulatory framework for the digital assets
   industry. This legislation would classify most digital assets as commodities
   and increase the Commodity Futures Trading Commission’s (CFTC) oversight in
   digital asset spot markets. 
 * The House Agriculture Committee Subcommittee on Commodity Exchanges, Energy,
   and Credit held a hearing titled, “The Future of Digital Asset Regulation,”
   in which Vincent McGonagle, Director of the CFTC’s Division of Market
   Oversight, said that the CFTC is well-positioned to oversee digital asset
   spot markets due to its experience in the space.
 * The Senate Agriculture Committee is drafting legislation that would grant the
   CFTC primary oversight of digital asset spot markets. The increasing momentum
   surrounding this led to several statements from Securities and Exchange
   Commission (SEC) Chairman Gary Gensler. Chairman Gensler publicly argued that
   while a few digital assets are certainly commodities, citing bitcoin as an
   example, he still believes “many if not most” digital assets are securities
   and are therefore required to register with the SEC. 
   
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International Bodies



UN Sees ‘Massive Opportunities’ in Digital Assets
United Nations International Computing Center director Sameer Chauhan praised
CBDCs as “more powerful than fiat, or government-issued money”. Chauhan explains
how he sees crypto and related technologies as revolutionary tools. More here.

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IMF Against Crypto in Developing World
International financial organizations, including the International Monetary Fund
(IMF), World Bank, and the Bank for International Settlements (BIS) fear that
cryptocurrency adoption in developing nations would open the door for widespread
money laundering and subject citizens to severe price volatility. More here.

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United States
 

NYDFS Issues Guidance on Stablecoins
The New York Department of Financial Services (NYDFS) published a series of
requirements that New York stablecoin issuers must follow. One such requirement
calls for each stablecoin to be fully backed by US Treasury bills, notes, or
bonds. More here.

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CFTC Supports Lummis-Gillibrand bill
CFTC Chairman Rostin Behnam said that he appreciates the delineation between
commodities and securities made in the Lummis-Gillibrand bill (Responsible
Financial Innovation Act). He added that he believes this bill will enable the
CFTC to appropriately function as a significant crypto regulator. More here.

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DOJ Released Report on International Coordination to Address Illicit Crypto Use
In one of roughly a dozen reports mandated by President Biden’s digital asset
executive order, the Department of Justice (DoJ) released guidance on
strengthening international cooperation and protection of digital assets. More
here.

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Coin Center Sues US Treasury Over 'Unconstitutional' Tax Reporting Rule
Coin Center filed a lawsuit against the US Treasury Department (Treasury) and
Internal Revenue Service (IRS) over their cryptocurrency tax reporting
requirement, which would take effect in 2024. This reporting rule would require
those who receive over $10,000 in cryptocurrency to report personal information
of the senders, including their Social Security numbers. More here.

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New York City Mayor Adams Opposes PoW Ban
The New York State Assembly passed a bill that places a two-year ban on
proof-of-work (PoW) mining that is not conducted with 100% renewable energy.
Mayor Eric Adams fears this bill would have serious economic consequences and is
encouraging Governor Kathy Hochul to veto the bill. More here.

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Gensler says Lummis-Gillibrand Bill Undermines Market Protections
SEC Chair Gary Gensler has argued that his agency should be the crypto
industry’s primary overseer.  Gensler was fairly critical of the recent
legislation introduced by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand
(D-NY), which would expand the spot market jurisdiction of the CFTC for crypto
markets, arguing that it may inadvertently cause existing stock exchanges and
mutual funds to be noncompliant, harming investors and economic growth. More
here & here.

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Gensler Speaks on Crypto
Chair Gensler, in response to recent crypto market volatility, said that many
projects in the crypto sector are “likely to fail.” Gensler did not address
whether the SEC would ever approve a bitcoin exchange traded fund, but he has
repeatedly encouraged crypto projects to register with the SEC. More here.

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SEC Launches Inquiry into Insider Trading at Crypto Exchanges
The SEC has begun investigating crypto exchanges to see if they sufficiently
protect against insider trading. More here.

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Federal Reserve says Stablecoins Have Risks
In its Monetary Policy Report, the Federal Reserve (Fed) said there are
‘structural fragilities’ in the digital asset market. This report follows a
recent collapse of the stablecoin TerraUSD. The Fed warned that stablecoins are
not safe or appropriately regulated and offer risks to investors. More here.

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Senators Disapprove of SEC Staff Accounting Bulletin
Sen. Bill Hagerty (R-TN) and four co-signers sent a letter to SEC Chair Gensler
asking for the withdrawal of a staff accounting bulletin that calls upon
cryptocurrency trading platforms to list digital assets as liabilities on their
balance sheets. The Senators argued that this bulletin is in violation of the
Administrative Procedure Act. More here.

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Hsu Speaks on Crypto
Michael Hsu, acting Comptroller of the Currency (OCC), said he opposes allowing
cryptocurrencies into the wider financial system. Hsu has generally remained
hesitant about crypto adoption since taking the office last year. More here.

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Fed Evaluating SEC Position on Digital Assets Custody
Following the SEC’s accounting directive calling for public companies to list
their customers’ digital assets on the company’s own balance sheet, US Federal
Reserve Chairman Jerome Powell argued that custody assets have historically been
off balance sheet. Powell noted that the Fed will work very closely on this
issue with the banks it oversees. More here.

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Lawmaker Argues in Favor of US CBDC
Rep. Jim Himes (D-CT) published a 15-page white paper arguing in favor of a
digital dollar to support the US dollar. Rep. Himes argued that a US CBDC would
support underbanked individuals and be safer than other cryptocurrencies. More
here.

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Asia-Pacific and Russia



South Korea Enforces Strict KYC and AML Guidelines
Major exchanges in South Korea have delisted Litecoin (LTC), claiming it does
not adhere to the Specific Financial Information Act.  South Korea has stringent
cryptocurrency regulations, including KYC and AML policies as well as a
prohibition on anonymous transactions. More here.

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Uzbekistan Supports Eco-Friendly Bitcoin Mining
The National Agency of Prospective Projects (NAPP) announced it will only allow
cryptocurrency mining in Uzbekistan that uses solar energy.  Moreover, the NAPP
banned mining of anonymous cryptocurrencies; however, all currency generated
from mining will not be taxed. More here.

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Singapore Regulator’s Clampdown on Crypto
The Monetary Authority of Singapore’s (MAS) chief financial technology officer,
Sopnendu Mohanty, said bad actors in crypto markets will be severely
punished. MAS has also extended  additional AML and CFT requirements on
businesses hoping to provide services outside of the country. More here.

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Russia Introduces Bill to Ban Digital Asset Payments
Russian legislator Anatoly Aksakov introduced a bill that would prohibit the
civilian use of digital assets to pay for any goods or services. This bill
follows Russian legislators’ recent movement toward institutionalizing
cryptocurrency as an investment asset and tool for foreign trade, while
maintaining the ruble as the only Russian monetary unit. More here.

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Europe
 

Lithuania Concerned over MiCA timeline
The EU’s MiCA law is unlikely to take effect until 2024. Some countries fear
that unless regulation is enacted soon, the integrity of European cryptocurrency
markets could dwindle.  Vice Minister of Lithuanian Finance, Mindaugas
Liutivinskas, said, although he fully supports MiCA, Lithuania needs to take
steps to immediately strengthen its regulatory framework before 2024. More here.

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Bermuda Still Building Crypto Hub
Bermuda’s Minister of Economy and Labor, Jason Hayward says despite the recent
volatility and market downturn, the government still plans to become a
cryptocurrency hub. More here.

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French Lawmaker Calls for Clear Crypto Strategy
French lawmakers calls for recognition of DAOs and NFTs within the French legal
system as well as a ban on crypto mining that uses fossil fuels. These
initiatives are part of a government push for consistency in recognition,
regulation, and taxation of cryptocurrencies moving forward. More here.

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Swedish Central Bankers Target Bitcoin Mining
The Riksbank, Sweden’s central bank, published a report on the environment
impacts of PoW mining. The report argued for the ban of energy intensive crypto
mining. More here.

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EU Commissioner Calls for Crypto Law
EU Finance Commissioner Mairead McGuinness encouraged EU lawmakers to reach a
political compromise on a crypto-asset regulatory framework. McGuinness said the
MiCA framework contains the right rules to protect consumers, market integrity,
and financial stability. In response to the fear that Russia is using
cryptocurrencies to evade sanctions, McGuinness said, as it stands now, MiCA
would enable sanctions against Russia that extend to cryptocurrencies. More
here.

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Ukraine Joins the European Blockchain Partnership
Ukraine became the third non-EU country to join the European Blockchain
Partnership. The Ministry of Digital Transformation of Ukraine announced its
goal to expand blockchain network partnerships with other countries. More here.

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Middle East and Africa

 

Ugandan Central Bank Flips on Crypto
In April 2021, the Ugandan central bank issued statements condemning
cryptocurrency transactions, claiming they opened the country up to money
laundering and scams. The bank also stated that financial services providers
would have their financial licenses revoked if they were found trading
cryptocurrencies. More recently, however, the bank indicated it would allow the
Blockchain Association of Uganda to participate in its Regulatory Sandbox, a
framework that could increase digital financial services in the country. More
here.

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Kazakhstan Central Bank Supports Crypto
The Chairman of the Kazakhstan central bank, while refusing to comment on
potential legalization or specific policy regulations, said that he will not
ignore cryptocurrencies and that he wants to see maximum profit from these new
technologies. More here.

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Central African Republic President Launches Crypto Initiative
The President of the Central African Republic (CAR) announced that the country
will begin developing its own blockchain infrastructure called Sango. The
country’s goal is to have a legal framework for cryptocurrencies in the CAR by
end of 2022. More here.

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Bank of Israel Experiments with Central Bank Digital Currency
The Bank of Israel conducted its first technological experiment on CBDCs. The
experiment focused on KYC and AML checks along with user privacy and smart
contracts. More here.

      
 
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