Matrixport View_Regulation #7

The biggest news of this month in the crypto industry is without doubt about the new European Commission’s proposed MiCA regulations. This new legislative proposal pays special attention to stablecoins and plans to introduce more stringent requirements for them. This obviously shows an overture to the crypto industry by the EU, as it determines to establish a regulatory framework to govern the new industry. On the other hand, it certainly poses challenges (financial-wise mainly) to new start-up companies wanting to explore business opportunities in the EU markets. Let’s have a look at this news in details, as well as at other regulatory stories of this month:

Policies and regulations around the globe:


EU to see comprehensive crypto regulation by 2024

The European Union, or EU, plans to incorporate crypto and blockchain technology into its main processes by 2024. Over the next four years, the economic union aims to firm up fresh regulations that will promote blockchain and digital asset usage for international money transfers, according to internal documents that Reuters reported in early September.

European Commission adopts digital finance package for crypto and blockchain

The European Commission is moving to provide more legal clarity and certainty for the cryptocurrency industry in its member states. On Sept. 24, the EC officially adopted a new digital finance package including digital finance and retail payments strategies, as well as legislative proposals on crypto assets. The EC said that the new package represents the first time that the authority proposed new legislation on crypto assets. As part of the new legislative proposals, the EC pays special attention to stablecoins — a type of cryptocurrency that pegs value to an external reference like the United States dollar or an algorithm. Specifically, the proposals aim to introduce more stringent requirements for stablecoin issuers in terms of capital, investor rights, and supervision, the text of the proposal reads. Therein, the EC aims to require stablecoin issuers to complete authorization by a national competent authority if the outstanding amount of stablecoins is above 5 million euro ($5.8 million). The authority also wants to oblige crypto asset issuers to publish a white paper with mandatory disclosure requirements. Small and medium-sized enterprises will be exempted from the publication of such a white paper where the total consideration of the offering of crypto assets is less than 1 million euro ($1.1 million) over a period of 12 months. The exclusion makes sure that “the requirements imposed on crypto-asset service providers are proportionate to the risks created by the services provided.”

Blockchain industry raises concerns over EC’s proposed crypto regulations

Major players in the global cryptocurrency community have addressed the European Commission’s new legislative proposals on digital assets. The International Association for Trusted Blockchain Applications, or INATBA, has released an initial response to the Markets in Crypto-Assets (MiCA) regulations proposed by the EC. The association features major crypto companies like Ripple, ConsenSys, and Iota. In its official response to the EC, the INATBA members expressed the industry’s concerns over the proposed MiCA regulations, calling the authority to bring their forces together in further development of the regulatory framework. While the INATBA generally sees the MiCA as a positive step that aims to establish regulatory clarity, some of its members outlined a number of significant concerns.

For example, they claim that in its present form, the MiCA could “overburden a young and innovative industry with costly and complex compliance and legal requirements that are disproportionate to the policy objectives it pursues.” The association expressed hope that the EC will provide supportive measures to ensure that the MiCA does not stifle innovation within the European Union and cause the EU-based firms to flee to non-EU countries.


Federal payments licensing push could boost crypto adoption

Brian Brooks, Coinbase’s former chief legal officer and the current U.S. Comptroller of the Currency, is pushing to consolidate licensing regulations for payment companies at the federal level in the United States. Federal licensing for payments firms that do not accept deposits could open the door to further mainstream adoption of virtual currencies by allowing crypto payments firms to obtain approval to operate across multiple states. The U.S.’s patchwork of federal and state regulations has deterred many virtual currency firms from setting up shop in the United States. However, analysts predict that many states will push back against federal licensing, citing an ongoing dispute over the OCC’s fintech charter with the New York Department of Financial Services.

US banking regulator authorizes federal banks to hold reserves for stablecoins

Per an interpretive letter from the U.S. Office of the Comptroller of the Currency released on Monday, national banks will be free to hold reserve currencies for stablecoins. The new guidance reads, “We conclude that a national bank may hold such stablecoin ‘reserves’ as a service to bank customers.” Alongside the announcement, Acting Comptroller of the Currency Brian Brooks noted that stablecoin services are already a part of many banks’ activities: “National banks and federal savings associations currently engage in stablecoin related activities involving billions of dollars each day.” The letter does, however, specify that for now, this will only apply to stablecoins backed 1:1 with another currency, meaning that tokens dependent on “baskets” of currencies like Saga or some versions of Libra are excluded.

Commissioner wants to see the SEC approve a Bitcoin ETF

In a virtual fireside chat with the D.C. Bar, SEC Commissioner Hester Peirce criticized the commission’s long-standing resistance to a Bitcoin ETF. Moderator Ashley Ebersole asked about the SEC’s highly public dissatisfaction with a long series of Bitcoin ETF proposals in the U.S. Peirce, who is often known as “CryptoMom,” responded with opposition to those rejects: “I’ve been pretty outspoken about my disagreement with my colleagues on disapproving some of these exchange-traded products.” Bitcoin is not uniquely volatile as a base investment for an exchange-traded fund, Peirce argued. “I would like us to look at how we’ve looked at similar products in the past. Many other products that we have are based on products that are messy,” she continued. “You can still have an orderly product built on top of it.” Ji Kim of Gemini Trust continued along the same line of questioning as to what the SEC’s concern with a Bitcoin ETF is. Peirce answered “You can’t assume that markets are not going to function if they’re not subject to the exact same sort of regulation as securities markets are.”


Russian ministry proposes criminal charges for failure to report crypto tax

Russia’s Ministry of Finance is continuing to push regulations for the cryptocurrency industry by proposing new tax requirements. The ministry now reportedly wants to introduce criminal liability for failure to declare taxes on crypto, including prison terms of up to three years. According to a Sept. 24 report by Kommersant, the ministry proposes that individuals who fail to report an amount of over 1 million Russian rubles ($13,000) in annual crypto operations should serve a three-year prison term or hard labor. The ministry also proposed major fines for smaller unreported amounts. As such, any physical or legal entity in Russia would have to report their annual crypto income if its amount exceeds 100,000 rubles ($1,300). Failure to report such amounts are subject to fines of 30% from the total amount of crypto assets held, but no less than 50,000 rubles ($650), the report notes.


Chinese govt. official: Gambling gangs use crypto to transfer funds abroad

Illegal gambling and casinos result in the outflow of over a trillion yuan annually (around $146.5 billion) from China, said Liao Jinrong, the director general of the International Cooperation Department under the Chinese Ministry of Public Security. He said that the operators of the overseas gambling platforms and casinos collect the funds from gamblers using digital currencies, making the investigation into these activities more challenging for the authorities. Speaking at an event in Beijing, Liao said that the illegal outflow of such a huge amount can erode the economic security of China. He added that if the “gangs” behind the casinos and crypto-based gambling would conspire with the “foreign powers” against the subcontinent, it would pose a financial security risk.


Major Indian exchange proposes new regulatory framework to avoid crypto

Major Indian cryptocurrency exchange BuyUCoin has developed a framework to regulate cryptocurrency in India that it claims has the support of “all the Indian cryptocurrency stakeholders”. However, it is not clear yet which stakeholders helped develop the framework, or ‘sandbox’, which will be officially released on October 2. BuyUCoin, which has more than 350,000 users and handles billion-dollar transactions, described the framework as a draft set of community driven rules, propositions and implementation methods. The framework will be presented to the Indian Government. It comes after the Indian Supreme Court in March struck down the Reserve Bank of India’s circular banning banks and other financial institutions from dealing with crypto companies. Bloomberg reported last week however the Indian government planned to introduce a new bill to ban the trade of cryptocurrencies during the monsoon session.


Crypto mining activities are now regulated by the Venezuelan government

Venezuela’s National Superintendency of Crypto Assets and Related Activities, or SUNACRIP, has issued the first decree to officially regulate all crypto mining activities. In order to qualify, miners will need to meet specific requirements. An official announcement was first published in the Gaceta Oficial and signed by the head of the SUNACRIP, Joselit Ramirez. It stated that residents in Venezuela who are interested in mining Bitcoin (BTC) and other cryptocurrencies must request a license and join the so-called “national pool.” The legal framework asks people to disclose what kind of activities they would like to do in crypto mining, such as trading, importing, or using mining equipment. The government will also issue a special license for those who want to manufacture ASIC mining hardware or build mining farms.


Kazakhstan on track for $700M crypto mining investment goal, says minister

According to the Digital Development Minister of Kazakhstan, Bagdat Mussin, the country is in negotiations regarding investments in its cryptocurrency mining sector amounting to 300 billion tenges ($714 million). Earlier in June, another Kazakh minister, while arguing against the ban on cryptocurrencies during a parliamentary discussion, had claimed that the country may get more than $700 million investment for its cryptocurrency mining farms over the next three years. While addressing a government meeting, Mussin said that the country has set up thirteen cryptocurrency mining farms and was working on four more to attract more investments, Reuters reported in September.


New Swiss laws provide solid ground for blockchain and crypto

Swiss parliamentarians in September passed a new set of finance and corporate law amendments that recognize the blockchain and cryptocurrency industry. As per a Swiss Info report, the government has amended several laws ranging from company bankruptcy to securities trading. The new set of laws define the legalities of exchanging digital securities and also the legal process of reclaiming digital assets from companies that go bankrupt. It further defines the legal requirements for running cryptocurrency trading exchanges such that it may mitigate the risks of money laundering using cryptos. These amendments come after the members of the House of Representatives passed the “Blockchain Act” without any opposition in the summer of 2020. It is likely that the new form of the existing laws will come into effect early next year. With that, the blockchain and cryptocurrency industry and decentralized finance are expected to gain a massive boost in Switzerland. At present, Switzerland is home to more than 900 blockchain and cryptocurrency companies, including Facebook’s Libra, that employ approximately 4,700 people.

Updates and news on the most important players/topics in the industry:

Privacy coins

Privacy coins ‘pose less risk of money laundering than other coins’

Privacy coins including Monero, Dash, Grin, and Zcash pose less of a risk of money laundering than other cryptocurrencies according to a report by a global law firm. According to a new white paper released by U.S. international law firm Perkins Coie, anti-money laundering (AML) measures taken by regulatory bodies worldwide have been sufficient to address any issues caused by privacy coins, and additional oversight may not be necessary. The paper cited coins fitting within the current financial regulatory structure used by the U.S. Financial Crimes Enforcement Network (FinCEN), the New York Department of Financial Services (NYDFS), Japan’s Financial Services Agency (FSA), the U.K.’s Financial Conduct Authority (FCA), and the Financial Action Task Force (FATF).

Financial industry participants

Visa, Goldman Sachs and Mick Mulvaney join leading blockchain trade association

In September, the Chamber of Digital Commerce announced the addition of Visa, Goldman Sachs and Six Digital Exchange (SDX) to its executive committee. Mick Mulvaney, a former White House Chief of Staff and a co-founder of the Congressional Blockchain Caucus will also be joining the chamber’s board of advisors. Mulvaney left the White House in March. On the board, he will be joining a number of figures, including Don Tapscott of the Blockchain Research Institute and former CFTC Chairman Chris Giancarlo, who is now with the Digital Dollar Project.


Seoul police have reportedly raided Bithumb, the largest cryptocurrency exchange in South Korea.

According to a report by local publication Seoul Shinmun, an intelligence crime unit at the Seoul Metropolitan Police Agency has reportedly conducted search and seizure investigations at Bithumb’s office in the Gangnam District on Sept. 2. As reported, the latest checks are purportedly connected with an ongoing police investigation involving Lee Jung Hoon, chairman of board at Bithumb Korea and Bithumb Holdings. The executive has reportedly been under investigation for alleged economic fraud involving the token known as BXA. The token was purportedly promoted as Bithumb’s native token that eventually turned out to be involved in high scale fraud that caused investor damages of 30 billion won ($25 million).

Third Policy Raid on 16th, September

Bithumb has been raided by the Seoul Metropolitan Police for the third time in September, according to a report in a local media outlet. During the Sep. 16 raid, police reportedly seized a number of shares in Bithumb Holdings belonging to Bithumb Korea Director Kim Byung-Geon. The seizure action was granted by the Seoul Central District Court on Sep. 14. Kim had been unsuccessfully trying to acquire Bithumb, and had been sued in the process. He had previously filed an application for the seizure of a significant number of shares belonging to Chairman Lee Jung-Hoon, the majority shareholder. The latest police raid on the exchange is the third this month following an initial raid on Sep. 2 and a further raid on Sep. 7 over an alleged major financial fraud around Bithumb’s native BXA token. Through promotion of the token, which has never been launched or listed, Lee reportedly got involved in a fraud causing $25 million worth of investor damages. According to industry sources, Samjong KPMG, which is the supervisor of the sale of Bithumb, earlier this month completed a letter of intent (LOI) stating that it planned to sell its own stake in Bithumb Holdings. This is believed to have been preempted by the raids earlier this month and the ongoing legal dispute between Kim and Lee.



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