FSB Global Regulatory Framework for Crypto-asset Activities Financial Stability Board

The existing regulatory framework for individual assets and freedom of contract under private law must be maintained, regardless of the form or tools employed. Unfortunately, MiCA does not provide express carveouts for private law contracts setting crypto asset rules. § 36a-596 defines virtual currency as “any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology,” and includes such currency under the definition of money transmission. § 36a-597 states that “No person shall engage in the business of money transmission in this https://www.xcritical.com/ state…without a main office license issued by the commissioner.” CT Gen. Stat. § 36a-598 requires money transmission businesses seeking a license to declare whether their activities “will include the transmission of monetary value in the form of virtual currency.” CT Gen. Stat.

Money transmission laws and anti-money laundering requirements

Although a rumored ban never materialized, in 2017 the South Korean government prohibited the use of anonymous accounts in cryptocurrency trading and banned local financial institutes from hosting Initial exchange offering trades of Bitcoin futures. Similarly, the Financial Services Commission (FSC) imposes strict reporting obligations on banks with accounts held by crypto exchanges. In May 2019, the Australian Securities and Investments Commission (ASIC) issued updated regulatory requirements for both initial coin offerings (ICOs) and cryptocurrency trading.

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A miner who is not required to register for GST may nevertheless elect to register for GST in order to claim input tax credits from the ATO for certain GST costs related to its supplies of mining services. ASIC also has product intervention powers where there is a risk of significant consumer detriment, enabling ASIC to address market-wide problems or specific business models and deal with certain “first mover” issues. The power covers financial products under the Corporations Act and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and credit products under the NCCP Act. Any blockchain payments planned issuer of Crypto-assets and any crypto-asset service provider in scope of MiCA should immediately start with the implementation of MiCA and start to prepare an application file where applicable.

Sustainability and Responsible Banking

In December 2021, the FSA indicated that it would propose legislation in 2022 to regulate issuers of stablecoins in order to address risks to customers and limit opportunities to use stablecoin tokens for money laundering. The legislation will likely include new security protocols and new obligations for crypto service providers to report suspicious activity. In Singapore, cryptocurrency exchanges and trading are legal, and the city-state has taken a friendlier position on the issue than some of its regional neighbors.

The Payments Newsletter including Digital Assets & Blockchain, December 2023 / January 2024

Since October 2021, issuers and distributors of financial products must comply with design and distribution obligations (DDO), which may impact the way crypto assets are structured and sales are conducted. Issuers and distributors must implement effective product governance arrangements, which include (among other things) creating and distributing target market determinations (TMDs) in relation to retail clients acquiring the relevant financial products. The DDO aims to ensure that financial products are targeted at the correct category of potential customers, and disclosures regarding the adequacy and suitability of the product for the target market are required to be accurate and timely.

Regulatory activity around crypto and digital assets is intensifying as usage by investors, companies, and even some central banks, shows widespread interest and adoption at retail and institutional levels. The regulatory landscape in the U.S. is evolving alongside the market expansion with state and federal regulators and legislators all considering approaches to add clarity. Key issues include a focus on chartering, licensing, fraud and financial crimes risks, and consumer and investor protections. MiCA grants competent authorities with powers to supervise the issuance, offer to the public and admission to trading of Crypto-assets, and to supervise crypto-asset service providers. Those powers include the power to suspend or prohibit an offer to the public or an admission to trading of Crypto-assets or the provision of a crypto-asset service, and to investigate infringements of the rules on market abuse. Competent authorities also have the power to impose penalties on issuers, offerors or persons seeking admission to trading of Crypto-assets, including asset-referenced tokens or e-money tokens, and on crypto-asset service providers.

In 2019, the Australian Securities and Investments Commission (ASIC) introduced regulatory requirements for initial coin offerings (ICOs). It banned exchanges from offering privacy coins, which are cryptocurrencies that preserve anonymity by obscuring the flow of money across their networks. In 2021, Australia announced plans to create a licensing framework around cryptocurrency and potentially launch a central bank digital currency (CBDC). In October 2023, the Australian treasury announced plans to introduce a regulatory framework, with a draft to be released sometime in 2024. Based on existing legal frameworks of private law, tokens may be conceptualized for almost any right or asset (especially chattels).

• In the supply chain domain, blockchain enables the automation of payment processes as goods move through the chain, ensuring transparency and precise payment reconciliation.
• Crypto assets may also foster the participation and collaboration of diverse and distributed stakeholders, by creating peer-to-peer networks and communities that are governed by consensus and incentives.
• Some international organizations and countries have ratified laws and regulations concerning cryptocurrency.
• It is precisely because of the existence of these problems that supervision has become the inevitable choice of governments.
• National authorities are required to issue authorizations within a three-month timeframe — and by December 2024, the European Commission will assess the need for a specific legislative proposal addressing non-fungible tokens (NFTs) and emerging risks in this market.
• In October, the Financial Stability Oversight Council (FSOC) will publish a report discussing digital assets’ financial-stability risks, identifying related regulatory gaps, and making additional recommendations to foster financial stability.
• Cryptocurrency taxation also varies but many member-states charge capital gains tax on cryptocurrency-derived profits at rates of 0-50%.

Importantly, MiCA establishes a comprehensive regulatory framework for crypto-asset service providers which harmonises the rules pertaining to their authorisation and operation across the EU and to avoid duplication of requirements. So the TFR amends AMLD V to remove registration requirements in relation to those categories of crypto-asset service providers which will become subject to a single licensing regime under MiCA. The recommendations focus on addressing risks to financial stability, and they do not comprehensively cover all specific risk categories related to crypto-asset activities. They take account of lessons from events of the past year in crypto-asset markets, as well as feedback received during the public consultation of the FSB’s proposals. Central Bank Digital Currencies (CBDCs), envisaged as digitalised central bank liabilities, are not subject to these recommendations. MiCA will provide a long-awaited regulatory framework for crypto companies operating in the EU.

Businesses considering operating market infrastructure, or providing financial or consumer credit services using DLT, will remain subject to the compliance requirements that currently exist under the applicable licensing regime. There is a general obligation that entities relying on technology in connection with the provision of a regulated service must have the necessary organisational competence and adequate technological resources and risk management plans in place. While the existing regulatory framework is sufficient to accommodate current implementations of DLT, as the technology matures, additional regulatory considerations will arise.

There are already blockchain projects attempting to tokenize licenses (permissions to use rights), consents, etc. There are already empirical examples and research evidence supporting the essential contribution of blockchain technology in enhancing freedom of contract and democracy57. The SEC in the US generally has regulatory authority over the issuance or resale of securities. Under US law, a security includes an “investment contract”, which has been defined by SCOTUS in Howey case as an investment of money in a common enterprise with a reasonable expectation of profits derived from the entrepreneurial or managerial efforts of others35.

They are considered to be the technological prototype of a new generation of financial market infrastructure. Based on distributed ledgers, blockchain technology integrated with the Internet of Things, cloud computing, big data, artificial intelligence, etc., can form a completely new generation of information technology eco-system to maximize the value of data. Crypto assets are a dynamic and innovative sector of the financial industry, offering new opportunities and challenges for clients and the legal profession.

The normal GST rules apply to using or receiving digital currency to pay for goods and services as if the digital currency is money, but the remittance of GST to the ATO must be in Australian currency. If cryptocurrency is not acquired or held in the course of carrying on a business, or as part of an isolated transaction with a profit-making intention, a profit on sale or disposal should be treated as a capital gain. Capital gains may be discounted under the CGT discount provisions, so long as the taxpayer satisfies the conditions for the discount (for example, the cryptocurrency is held for at least 12 months before it is disposed of). If a holder of cryptocurrency is carrying on a business that involves sale or exchange of the cryptocurrency in the ordinary course of that business, the cryptocurrency will be treated as trading stock.

Pension funds and insurance companies are subject to qualitative and quantitative investment restrictions that will typically not permit direct investment into cryptocurrencies. Depending on the relevant investment policy, AIFs and their managers may, however, invest in cryptocurrencies. Purchases/supplies of goods or services that are subject to VAT, and which are paid for in cryptocurrency, are treated no differently from payments with fiat currency. Historically, for Austrian supervisory law purposes, the FMA has provided broad token classifications for security/investment tokens, utility tokens and payment/currency tokens. If, however, a technical billing service also included the transfer of fiat funds, this would no longer be considered a mere technical service and would need to be tested against licensing requirements under Austrian financial services regulation.

Millions of people globally, including 16% of adult Americans, have purchased digital assets—which reached a market capitalization of $3 trillion globally last November. Digital assets present potential opportunities to reinforce U.S. leadership in the global financial system and remain at the technological frontier. The May crash of a so-called stablecoin and the subsequent wave of insolvencies wiped out over $600 billion of investor and consumer funds.