MiCA - Thomas Murray Digital

Leading Crypto Exchange Bites the Dust; UK Votes for Crypto Financial Instruments; MiCA Delayed Again; UBS Launches Bond on SDX and SIX

Thomas Murray Digital Newsletter

In this issue:

Leading exchange FTX and its sister hedge fund Alameda Research file for bankruptcy after revelations of a balance sheet black hole and unauthorised lending of customer deposits; further retail-focused crypto exchanges may also be vulnerable.
Germany finalises legislation to authorise the issuance of DLT-based securities, adding asset classes including equities and funds to the existing digital bearer bonds.
EU delays approval vote on the Markets in Crypto Assets Regulation (MiCA) to February 2023, further pushing back its implementation date.
UBS becomes first bank to issue a bond on a regulated digital exchange, with components trading on both SDX and the traditional SIX exchange.

Major Digital Asset Developments

Custody and Post Trade Developments

CBDC Corner

BIS and Four Central Banks Hail Pilot Trials of CBDCs in Cross-border FX Transactions (Finextra)

Singapore’s MAS Starts Wholesale CBDC Project Ubin+ for Cross-border Payments (CoinDesk)

BOK Completes Mock Test on Digital Currency (Bank of Korea)

New York Fed Tests Wholesale CBDC for Cross-border Payments (Finextra)

Thomas Murray Digital

Andrew Wright | Hugo Jack

Tel. +44 (0)20 8057 7100
Email: digital@thomasmurray.com
Web: thomasmurraydigital.com

Whilst reasonable care has been taken in the compilation of this information, neither Thomas Murray Network Management Limited, its affiliates or information contributors shall have any liability for any errors, omissions, delays or inadequacies in the information or for any loss or damage however occasioned (whether arising directly or indirectly), to any person or company relying on this information, or any decision made, action taken or inaction by any party in reliance upon this information (except to the extent permitted by law). Copyright © Thomas Murray Network Management Limited, company no. 03313014. All rights reserved. No reproduction without prior authorisation.

EU Ratifies MiCA; The World’s Largest Custodian Goes Live; SWIFT Acts Swiftly to Cement its Role in Blockchain Global Finance

Thomas Murray Digital Newsletter

Photo by Alexandre Lallemand on Unsplash

In this issue:

The EU’s landmark Markets in Crypto Assets legislation has finally been published and ratified, and the Transfer of Funds Regulation receives preliminary approval
SWIFT makes a play to keep itself at the heart of linking financial institutions in the developing DLT-based financial system by piloting a framework to link tokenisation and settlement systems and a system to ensure interoperability between digital and traditional finance
BNY Mellon, the world’s largest custodian, begins rolling out its digital asset custody service to select clients as more leading name banks including Société Générale announce and launch their own digital asset servicing offerings
OECD launches global Crypto-Asset Reporting Framework; EU extends Russia crypto sanctions; Basel Committee crypto reserve pushback continues; Coinbase partners with Google and continues service expansion; digital Euro plans updated

Major Digital Asset Developments

CBDC Corner

Progress on the Investigation Phase of a Digital Euro (European Central Bank)
A digital Euro will not be released until at least 2026. It will come with restrictions designed to slow the disintermediation of banks through conversions of bank deposits into CBDC holdings, and with an interest structure that disincentivises holding high digital Euro balances.

India Preps Digital Rupee Pilot (Finextra)

RBA and Digital Finance Cooperative Research Centre White Paper: Australian CBDC Pilot for Digital Finance Innovation (Reserve Bank of Australia)

Project Icebreaker: Central Banks of Israel, Norway and Sweden Team Up with the BIS to Explore Retail CBDC for International Payments (Bank for International Settlements)

Anchors and Catalysts: Central Banks’ Dual Role in Innovation – Speech by François Villeroy de Galhau, Governor of the Banque de France (Bank de France)
In this speech at the Conference on Opportunities and Challenges of the Tokenisation of Finance in Paris, the Banque de France announced wholesale CBDC projects to improve CBDC liquidity through automated market makers in DeFi markets and to issue and trade tokenised bonds.
The Banque de France has also joined a consortium of 14 banks and market infrastructures launched by SWIFT to conduct a new CBDC experiment for interbank settlement purposes.

Innovation in Post Trade Services – Opportunities, Risks and the Role for the Public Sector − Speech by Sir Jon Cunliffe (Bank of England)
The post-trade sector could see huge consolidation and disintermediation as smart contracts operated by single centralised or decentralised entities replace custodians, exchanges, CCPs and CSDs, removing settlement risk but reducing the ability to correct erroneous transactions and increasing liquidity risk. The FMI Sandbox being launched by the Bank of England, Financial Conduct Authority and HM Treasury will focus initially on testing DLT securities settlement systems and their integration with trading platforms.

Digital Custody Partnerships Abound Despite the Crypto Bear Market

Thomas Murray Digital Newsletter

The cryptocurrency market appears to have found a stable (if much reduced) footing, at least for the time being. The dwindling value of bitcoin and other cryptocurrencies has led some to short-sightedly conclude that investment would dry up and that infrastructural and market developments would grind to a halt. However, the course of digital assets has far wider scope than just cryptocurrencies, which merely serve as the first real examples of blockchain applications. It is therefore of little surprise that a number of high-profile partnerships between legacy custodian banks and digital asset technology firms have recently been announced.

CACEIS, the asset servicing arm of Crédit Agricole and Santander, has partnered with Taurus, a leading Swiss-based digital asset infrastructure and technology firm. Meanwhile, Citi announced a similar partnership with METACO, an equally established Swiss-based digital asset infrastructure and technology firm, to develop a platform to enable clients to store and settle digital assets seamlessly and securely. SG FORGE, the digital asset subsidiary of Société Générale, followed suit and announced its own partnership with METACO, to expand its institutional digital asset capabilities and aid the bank in its efforts to integrate security tokens into traditional finance. These partnerships will help incumbent providers to take advantage of the new and rapidly growing digital economy by giving them tools to securely and accurately support the trading, custody, issuance, and management of digital assets, which are taking tentative first steps to extend to securities tokens.

Archax, the U.K.’s first licensed digital asset exchange, has also partnered with METACO to be able to provide a segregated bank-grade custody solution, alongside IBM. While not the first to implement this model, it is representative of a growing trend, and a sign of increasing maturation, to formally segregate digital asset execution from custody, something that is standard practice across the traditional securities industry. In a related development, ING, which has been heavily involved in blockchain development and testing for many years, has decided to spin out its digital asset custody platform Pyctor to GMEX Group, a leading digital asset market infrastructure with a focus on post-trade solutions. The deal is expected to enable GMEX to scale Pyctor alongside its other digital asset services.

Digital Asset Developments

	MiCA’s next milestone: The long awaited Markets in Crypto Assets (MiCA) regulation is one step closer to being finalised, having been provisionally agreed by the European Parliament (EP) and Council (EC). MiCA, which aims to create a regulatory framework for digital assets across Europe, has been through a number of iterations since it was first proposed in 2020 as part of the EU’s Digital Finance Package. The agreement now confirms a number of broad requirements for entities that interact with digital assets, including a robust licensing framework for crypto-asset service providers (CASPs) such as custodians, hosted wallet providers, and trading venues, which will all need authorisation to operate in the EU. Issuers of digital assets will be required to produce and publish a white paper outlining all relevant information on the specific crypto asset. MiCA regulation will capture all digital assets not currently covered under existing financial service legislation, including asset-reference tokens, e-money tokens, and other crypto assets. Stablecoins, which continue to receive significant attention by regulators globally, are firmly covered under MiCA, with strict conditions set for any stablecoin operators. These include being required to register an office in the EU, maintain significant reserves, guarantee 1:1 redemption in fiat, eliminate interest-bearing mechanisms for stablecoins, and supervision by the European Banking Association. NFTs will remain out of scope, unless they fall under existing categories of digital assets. The provisional agreement is subject to final approval by the EP and EC, whereupon the formal adoption procedures would then run their course. The regime would be expected to apply 18 months thereafter. Despite the progress made on MiCA, the European Central Bank has continued to sound the alarm bells by warning eurozone countries that national-level practices must be aligned in order to better manage digital asset risks, given that it will still be many months before MiCA comes into effect. This announcement comes two weeks after Lithuania introduced its own crypto licensing regime as a stop-gap measure.
	UK regulation, stablecoin concerns, and DeFi: Given the EU’s progress with MiCA and the former UK Chancellor’s desire for the country to be a ‘cryptoassets technology hub‘, the UK Government and the Bank of England have been vocal in the past weeks in calling for greater clarity and regulatory oversight of the digital asset industry. The Bank of England, led by its Financial Policy Committee has stepped up efforts to address the financial stability threat, particularly in light of Terra LUNA/UST’s collapse in May of this year, the fallout from which is still reverberating. In its quarterly stability report, the BoE called for an ‘enhanced’ crypto regulatory framework that would be designed to mitigate potential risks emanating from digital assets, evidenced by recent vulnerabilities including bank-like runs, company bankruptcies, liquidity mismanagement, and likely criminal behaviour. Stablecoins, in the eyes of the BoE and most Central Banks continue to be the presiding threat to overall financial stability. Subsequently, the Bank this week recommended additional regulation be established to manage the systemic threat they may soon present. The Deputy Governor of the BoE announced last Wednesday (6 July) his expectation that a regulatory system for stablecoin legislation will be introduced prior to August. This announcement came a week before the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) announced their final guidance on stablecoin arrangements, which they confirm as now being subject to the Principles for Financial Market Infrastructures for systemically important tokens. Decentralised Finance (DeFi) and the tax treatment of events relating to the peer-to-peer economy continues to perplex governments and regulators alike. Last week, the UK Government launched a public consultation calling for members of the industry to opine on the DeFi economy, with a particular focus on the best ways to approach the taxation of cryptoasset loans, lending, and staking. The reported objective is to reduce the administrative burden and cost for taxpayers that engage in the activity. The consultation is set to close on 31 August 2022.
	European support for digital asset funds: UK fund managers have been actively lobbying for the approval of blockchain-traded funds, arguing that the technology would lead to a number of worthwhile benefits including a reduction in general administration, greater transparency, near instant settlement, and reduction reduced customer costs. The message, delivered through the Investment Association – the trade body that represents the UK’s asset management industry – was that the industry is ready for blockchain-based funds and that all efforts should be made to approve them. Amongst the suggestions is a proposal to create a new task force that would investigate how to accelerate DLT adoption and explore ways to give customers greater customisation over their portfolios, which could include holdings in private companies as well as cryptocurrencies. Some jurisdictions have been much more proactive in developing frameworks to support digital asset-based funds, most notably Luxembourg, which permits Alternative Investment Funds (AIFs) to invest in digital assets, although Undertakings for the Collective Investment in Transferable Securities (UCITS) funds are still not permitted to do so. Ireland’s Central Bank has just introduced positive changes and updated its approval process for AIFs looking to allocate funds to digital assets, something it has reportedly been unwilling to consider until now. Last month, Germany introduced an update to its securities law by introducing the concept of Crypto Fund Units (Verordnung über Kryptofondsanteile), so the law now recognises a fund’s ability to issue units in a common fund via a crypto securities register which may be decentralised and based on Distributed Ledger Technology.
	Basel Committee’s Take 2 on Crypto Reserve Rules: In 2021, the Bank for International Settlements’ Basel Committee on Banking Supervision issued a proposal – largely viewed by the industry as unviable and even punitive – to require banks to reserve capital to cover the whole value of cryptocurrency holdings. Following stiff resistance, as we reported last November, the BIS withdrew that model and went back to the drawing board. The result, a new consultation document published on 30 June on the ‘prudential treatment of cryptoasset exposures’, takes a more refined and pragmatic stance. The latest suggestion is that banks may hold up to 1% of their reserves in cryptocurrencies. Digital assets may be classified as Group 1, broadly representing certain tokenised traditional assets (Group 1a) and some stablecoins with ‘effective stabilisation mechanisms’ (Group 1b). These would be treated in a similar way to the assets backing those tokens under the principle of ‘same risk, same activity, same treatment’. All other cryptoassets would fall into Group 2, which is also further divided into two classes. Group 2a has been defined in response to banks’ concerns that the original rules did not recognise that some assets are suitable for hedging, which can now be reflected when calculating banks’ net exposures. That leaves unbacked cryptoassets, and other tokens that do not meet the rules of Group 1 assets, in Group 2b, which remains subject to the 100% capital charge. It is these Group 2 assets of both sub-classes that will now be subject to a total exposure limit of 1% of Tier 1 capital, ‘including both direct holdings (cash and derivatives) and indirect holding (i.e. those via investment funds, ETF/ETN, special purpose vehicles)’. It remains to be seen how this may be reconciled to the SEC’s recent demand that client cryptoassets under custody should appear on banks’ own balance sheets, with industry groups, members of Congress and even the SEC’s own commissioners challenging that determination.
	Lessons in due diligence from Three Arrows Capital: Three Arrows Capital (3AC), a crypto hedge fund that until recently had been viewed as a mature and reliable player, collapsed recently due to betting that the price of cryptocurrencies would rebound and to high exposures to the LUNA token that ‘backed’ the TerraUSD algorithmic stablecoin, both of which failed in May. Founded in 2012 by ex-Deutsche Bank and Credit Suisse traders Su Zhu and Kyle Davies, at one point the fund was managing USD 18 billion in assets, and was worth USD 10 billion as recently as March. Its rapid fall has led to further contagion risk to a surprisingly wide range of lenders including Voyager Digital, Babel Finance, Blockchain.com, Genesis, BlockFi, BitMEX and FTX, with Voyager also filing for Chapter 11 bankruptcy protection. These lenders relied primarily on 3AC’s founders’ reputation in setting their exposure levels to the fund. Research firm FSInsight has accused 3AC of running an old-fashioned Ponzi scheme, using new borrowings to service older loans in a repeat of the behaviour that sunk Long Term Capital Management back in 1998. This raises the spectacle that the industry – or at least, relative newcomers to it operating in the crypto sector – has failed to learn the lessons of the past. FSInsight’s report assesses that it is likely that the vast majority of 3AC’s assets were bought with borrowings, and that relatively little equity was made available as collateral for the loans. This leverage ratio turned sour due to bets on both LUNA and also the Grayscale Bitcoin Trust. To add to 3AC’s troubles, the Monetary Authority of Singapore (MAS) has accused the fund of providing false information and exceeding limits on assets under management (AUM) set by the regulator. 3AC, incorporated in the British Virgin Islands (BVI) but headquartered in Singapore, had told MAS that management of the fund had been transferred to an unrelated BVI entity in September 2021, without disclosing that Su was a shareholder of both 3AC and that entity. The AUM limit was allegedly breached between July and September 2020 and again between November 2020 and August 2021. A BVI court ordered the liquidation of the 3AC fund on 27 June. On 1 July 3AC filed for Chapter 15 bankruptcy protection in New York, but despite that a New York court has frozen the fund’s assets in an attempt to protect them from unauthorised disposals, a possibility hinted at by the transfer of 3AC NFT holdings to a new address. Zhu and Davies have now gone missing and are allegedly failing to cooperate with court-appointed liquidator Teneo, which has been unable to obtain information regarding the fund’s wallets and their associated private keys. The lessons are clear: just as in traditional finance, reliance on reputation alone is insufficient. There are continuing needs to perform adequate due diligence, monitor overall credit exposures, and to ensure good governance practices such as the use of trustworthy, independent fund administrators and custodians who can keep records and assist stakeholders and administrators in the event that issues arise.
	Challenging DLT’s Reputation for Decentralisation and Security: Research commissioned by the US’s Defense Advanced Research Projects Agency (DARPA) and conducted by Trail of Bits highlights several thought-provoking facts and possible attack vectors that could compromise blockchains. The paper’s insights add nuance to DLT concepts, such as decentralisation and immutability of transactions, that have almost become axiomatic. They have implications for the design and governance of blockchains before too much responsibility for running future financial infrastructure is placed on them. Although blockchain networks are ostensibly decentralised, centralisation (and therefore single or at least fewer points of failure/weakness) can creep in through: authoritative centrality, ‘the minimum number of entities necessary to disrupt the system’ (aka the Nakamoto coefficient); consensus centrality, the extent to which the source of consensus – such as mining power in proof-of-work blockchains – is concentrated; motivational centrality, the way in which network participants are disincentivised from acting maliciously and whether those levers are managed centrally; topological centrality, or the risk that a network could be disrupted because it relies on a specific subset of nodes; network centrality, in which nodes may be subject to similar connectivity risks due to their geographical location or ISP or cable connectivity; and software centrality, being the risk that bugs or back doors in the blockchain’s core software, or incompatibilities or differences between different clients, could break immutability or cause a fork in the chain. Taking the Bitcoin network as an example, they found that: Every popular blockchain has privileged users or entities that can amend the system and potentially cause changes to past transactions As few as two entities need to be compromised or act maliciously to disrupt the Bitcoin blockchain, four for Ethereum, and fewer than twelve for most proof-of-stake blockchains Only a small and dense subset of the thousands of advertised Bitcoin nodes participates in mining, contributes to the health of the network, and coordinates mining activity (which, in addition to creating new bitcoins, is also responsible for validating transactions and voting on governance issues); furthermore, node operators are not penalised for any dishonesty Unlike the transactions themselves, Bitcoin network traffic is unencrypted, and therefore vulnerable to man-in-the-middle observation and tampering with messages from ISPs, governments, WiFi providers or Tor network exit nodes (the latter host to traffic for about half of all Bitcoin nodes); similarly, the most common mining pool communication protocol, Stratum, is unencrypted and effectively unauthenticated 60% of Bitcoin network traffic passes through just three ISPs 21% of Bitcoin nodes still run an outdated version of the Bitcoin Core client software that was known to have code vulnerabilities as far back as June 2021, over a year ago

News Links

	Bank for International Settlements to Allow Banks to Keep 1% of Reserves in Bitcoin (Finbold)
	US Fed Evaluating SEC’s Position on Digital Assets Custody, Powell Says (CoinDesk)
	Gensler Labels bitcoin a ‘Commodity’ as Crypto Prices Stabilize (Morningstar)
	CPMI and IOSCO Publish Final Guidance on Stablecoin Arrangements Confirming Application of Principles for Financial Market Infrastructures (CPMI and IOSCO)
	Belgium Starts Consultation on Classification of Crypto as Securities and Investment Instruments (Cryptoslate)
	Singapore Eyes More Regulation to Protect Retail Investors From Crypto Winter Fallout (Cryptoslate)
	Russian Parliament Approves Tax Break for Issuers of Digital Assets (Reuters)
	Bank of Russia Ready to Legalize Crypto Mining If Miners Sell Minted Coins Abroad (bitcoin.com)
	Grayscale Files Suit Against SEC Following Rejection of GBTC Conversion Bid (The Block)
	Poundtoken Launches as the First Fully Backed GBP Stablecoin Regulated in the British Isles (City A.M)
	Tether To Launch GBP₮, Tether Tokens Pegged to the British Pound Sterling (Tether.io)
	Colombia Integrates Ripple’s XRPL for Land Registry (Cryptoslate)
	Crypto Exchange Coinbase Seeks Licenses in Europe as it Looks to Ramp Up Growth Outside the U.S. (CNBC)
	Paxos Promises Monthly Disclosure of Reserve Assets Backing its Stablecoins (Finextra)
	The Central African Republic Launches Crypto Initiative Post Bitcoin Adoption (Cointelegraph)
	Swiss Post Office to Offer Crypto Trading and Custody Services by 2024 (Finbold)
	Northern Trust Creates Digital Assets and Financial Markets Group (Finextra)
	Blockchain Firm SETL Acquired by Turkish Fintech (Finextra)
	Deloitte, NYDIG Partner to Help Institutions Adopt Bitcoin (Nasdaq)
	Fintech Infrastructure Firm Prime Trust Raises $107m (Finextra)
	Stablecoin Tether (USDT) To Undergo Full Audit From Top Firm in Bid for Transparency (Daily Hodl)
	Tether Reducing Commercial Paper Holdings Down to $3.5 billion by End-July (Cryptoslate)
	Delio Unveils South Korea’s First ‘Crypto Bank’ (Finextra)
	Crypto Exchange Binance Launches New Platform Aimed at Institutional Investors (Decrypt)
	SIX Digital Exchange Launches SDX Web3 Services (Finextra)
	ANZ Completes First A$DC Stablecoin Transaction (Finextra)
	EU-regulated Firm Banking Circle Adopts USDC Stablecoin (Cointelegraph)
	Goldman Sachs Executes First Bitcoin Futures Trade in Asia (Finbold)
	Binance Brings Bitcoin Trading Fees to Zero (The Paypers)
	NIST Announces First Four Quantum-Resistant Cryptographic Algorithms (National Institute of Standards and Technology)

CBDC Corner

Report: Options for Access to and Interoperability of CBDCs for Cross-border Payments (Bank for International Settlements)

Ripple Introduces CBDC Competition to Encourage XRPL Innovation (U.Today)

Amsterdam to Launch its Own Digital Currency to Promote Local Economy (NL Times)

More African Central Banks Are Exploring Digital Currencies (IMFBlog)

ECCB Launches DCash in Anguilla (Eastern Caribbean Central Bank)

Bank of Russia Accelerates Schedule for Digital Ruble Project (Bitcoin.com)

Iran to Roll Out Pilot Version of Crypto-Rial Digital Currency Soon (IPFNews)

Taiwan Completes Trials of its Prototype CBDC for Retail Use (Forkast)

Taiwan Central Bank Governor Considers Interest-Free CBDC Design to Prevent Fiat Deposit Flight (Cointelegraph)

South Korea Ready to Test its CBDC with Commercial Banks (AJU)

Bank of England’s Vision for the Digital Pound Differs from China’s Model (Cryptoslate)

Banque de France Steps Up Wholesale CBDC Work (Finextra)

Thomas Murray Digital

Andrew Wright | Hugo Jack | Ben Ashley

Tel. +44 (0)20 8057 7100
Email: digital@thomasmurray.com
Web: thomasmurraydigital.com

Whilst reasonable care has been taken in the compilation of this information, neither Thomas Murray Network Management Limited, its affiliates or information contributors shall have any liability for any errors, omissions, delays or inadequacies in the information or for any loss or damage however occasioned (whether arising directly or indirectly), to any person or company relying on this information, or any decision made, action taken or inaction by any party in reliance upon this information (except to the extent permitted by law). Copyright © Thomas Murray Network Management Limited, company no. 03313014. All rights reserved. No reproduction without prior authorisation.

	New German Regulations Enable the Issuance of Securities on Distributed Ledger Technology (Bundesgesetzblatt) (German) The German government has published in its official journal, Bundesgesetzblatt, regulations and requirements that set out how electronic securities registers (eWpRV) can be used to support the issuance of securities, including equities and funds on a Distributed Ledger. This completes Germany’s approach to securities issuance using DLT, since only digital bearer bonds were supported in law until now.
	HSBC to Launch Orion Blockchain Bond Tokenization Platform (Ledger Insights) HSBC has announced plans to launch a permissioned DLT-based bond tokenisation platform, Orion. The solution is expected to be able to support the issuance and trading of digital bonds as well as the tokenisation of currencies such as GBP, such that assets can benefit from atomic settlement – the simultaneous exchange and instant settlement of assets – or true delivery versus payment (DvP).
	Binance Custody Turns to TRM Labs for Institutional Compliance (Finextra) In an effort to improve its institutional credentials and mitigate its many past regulatory challenges, Binance – the largest digital asset exchange by market capitalisation – is calling upon TRM, a leading blockchain analytics and intelligence firm, to bolster its risk management and compliance frameworks to support its custody activities, which it launched in December 2021. In signs of a maturing industry, the firm has reportedly secured specie insurance, certification under International Organisation for Standardisation (ISO) standards 27001 and 27701, as well as a SOC 2 Type 1 external audit attestation, and is currently pursuing a SOC 2 Type 2. These are standard credentials for traditional institutionally-focused custodians, and increasingly common for digital custodians.
	UBS Launches Bond Traded on Blockchain-based Exchange (Finextra) UBS has become the first banking entity to launch a bond on a regulated digital exchange. The CHF 375 million digital bond is trading on Switzerland’s SIX Digital Exchange (SDX) and also on the traditional SIX Swiss Exchange, in the same way that SIX’s own bond is traded following the launch of the Digital Exchange in November 2021. Utilising SDX’s atomic settlement technology, the bond is able to settle instantaneously within SDX’s distributed ledger-based CSD without the need for clearing via a Central Counterparty (CCP). Meanwhile, the analogue part will settle through traditional means via SIX Swiss Exchange. This Swiss dual digital/traditional model demonstrates a gentle path for other markets to introduce the tokenisation of traditional assets and the listing of digitally native securities.

	EU Delays Vote on MiCA Crypto Legislation Until February (CoinDesk) Further to our previous newsletter, the EU has decided to delay its vote on the implementation of the Markets in Crypto Assets Regulation (MiCA) until February next year, reportedly due to the complex and technical nature of the text. The delaying of the vote, which was anticipated to take place this December, means that MiCA will most certainly not be published in the Official Journal of the European Union (OJEU) originally slated for Q1 2023, which formally signifies the full applicability of the law. As such, this will likely impact the timing of the implementation of the regulatory and licensing regime which was due to come into effect in 2024, approximately 12 to 18 months after its publication in OJEU.
	UK Lawmakers Votes to Recognize Crypto as Regulated Financial Instrument (CryptoSlate) A proposal introduced to the House of Commons to recognise crypto assets as regulated financial instruments has received approval by the lower house after a second reading on October 25. The proposal seeks to include crypto assets and the services that support them under the Financial Services and Markets Bill which, if successful, will result in types of crypto assets including stablecoins falling under the same laws as other financial assets. If approved in law, the UK Treasury department would be empowered to enforce regulation over the crypto industry.
	IRS 2022 Tax Guidelines to Treat NFTs as Stablecoins, Cryptocurrencies (Decrypt) The US’s Internal Revenue Service (IRS) has introduced a draft update to its tax language which now considers a broader definition for digital assets as being “any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology”. As such, NFTs are now considered in scope, alongside virtual currencies such as stablecoins, and cryptocurrencies, all of which are set to be taxed under the same rules. Interestingly, the IRS has decided not to categorise NFTs as collectibles, such as art, which suffer from a the higher 28% rate of taxation, versus traditional equities bonds, and cryptocurrencies which are taxed at 0%, 15%, or 20% depending on the income level.
	South African Crypto Platforms Must be Licensed in 2023 – Regulator (Reuters) South Africa’s Financial Sector Conduct Authority (FCSA) has announced the need for companies that support cryptocurrency activities to apply for a licence in a time window between 1 June and 30 November, 2023, in order to operate legally within the country. NFTs are not covered under the announcement at present, given that they are considered to have characteristics more like traditional works of art. It appears that the licensing regime is being implemented in some part to mitigate the risk of potentially being added to the Financial Action Task Force’s so-called ‘grey list’, which has apparently identified material weaknesses in the country’s AML and CTF regime.
	Singapore Lays Down the Law for Crypto Trading and Stablecoins (Finextra)
	Japan Greenlights Tougher Anti-Money-Laundering Rules for Crypto (CoinDesk)
	UK Law Commission to Review International Laws on Crypto to Consider Legal Reforms (Coin Telegraph)
	Coinbase Piles on Support for Grayscale’s EFT by Filing Amicus Brief in Effort to Reverse SEC’s Rejection (CoinDesk)
	Canada Announces Crypto, Stablecoin Consultation in New Budget Statement (CoinDesk)
	EU Countries Must Be Ready to Block Crypto Mining, Commission Says (CoinDesk) The European Commission is once again coming after bitcoin and other proof-of-work cryptocurrencies on sustainability grounds, following an announcement in response to concerns over energy security this winter. Mining is fundamental to securing and ensuring the validity of the network, and therefore banning it across the EU would further undermine the decentralised nature of the blockchain which is integral to its security. The majority of bitcoin mining takes place in the US, China, Kazakhstan, Russia and Canada, with the EU’s Germany and Ireland considered key markets representing 4.48% and 4.68% of the hash rate respectively.
	HK to Legalize Retail Crypto Trading (Bloomberg Markets and Finance via YouTube)
	Stablecoin Issuer Paxos Receives Operating License from Singapore Regulator (CoinDesk)
	Fidelity 2022 Institutional Investor Digital Assets Survey: 58% of Institutional Investors Allocate to Digital Assets
	DBS Goes Live on SGX Unit’s Crypto Platform; Launches Programmable Money Pilot (Finextra)
	Israeli Government to Trial Blockchain Bonds with Stock Exchange TASE (Ledger Insights)
	France, Switzerland, Singapore to Test DeFi in Forex Markets (CoinDesk) Coordinated by the Innovation Hub of the Bank for International Settlements, Central Banks from France, Switzerland, and Singapore are collaborating on Project Mariana, which is designed to test the automation of foreign exchange markets across a decentralised financial infrastructure.
	JP Morgan to Launch Blockchain Euro Deposits Soon. Sees NFT Opportunity (Ledger Insights)
	Ethereum Records 1st Deflationary Month in History as Circulating Supply Declines (CryptoSlate) Following Ethereum’s transition to a proof-of-stake blockchain on 15 September 2022 the network has recorded its first deflationary month, in which more ETH was burned (introduced under the EIP-1559 proposal) than produced. As such, the circulating supply has been reducing by approximately 3,318 ETH daily.
	Ripple Begins Testing XRP Ledger Sidechain That’s Compatible with Ethereum Smart Contracts (CoinDesk)

	OECD Releases New Global Tax Reporting Framework for Crypto Assets (CoinDesk) The Organisation for Economic Co-operation and Development (OECD) has released a tax reporting framework for crypto assets. The Crypto-Asset Reporting Framework (CARF) was presented to the G20 last week, and attempts to address how crypto assets should be considered in context of the G20’s Common Reporting Standard (CRS), designed to foster greater global transparency and eliminate tax evasion.
	Uzbekistan Introduces Monthly Fees for Cryptocurrency Companies (Bitcoin.com) A new law has been adopted in Uzbekistan which requires digital asset service providers and cryptocurrency miners to pay monthly fees to the state depending on the service performed. Exchanges will reportedly be expected to pay as much as USD 11,000 per month, with failure to pay resulting in the suspension of their licences. Miners will be required to pay approximately USD 270 a month, while custodians will benefit from the lowest fee of approximately USD 135 per month.
	UK Shuts Down Temporary Crypto Company Licensing Program (CoinDesk) Following Copper Technologies’ retraction of its attempted registration with the Financial Conduct Authority (FCA), and Revolut’s successful application last month, the Temporary Registration Regime (TRR) has now come to an end. Subsequently, any and all firms looking to engage with certain types of crypto assets, or provide services for them, is required to seek full FCA registration.
	EU Issues Bitcoin, Crypto Ban on Russia with New Sanctions (Bitcoin Magazine) The EU has doubled down on its crypto sanctions against Russia by prohibiting the transfer of crypto assets from Russian-based cryptocurrency wallets. This comes a month after the Russian Ministry of Finance conceded that cryptocurrencies are needed to support its cross-border settlement needs.
	TRON Becomes Legal Tender in Dominica (CryptoSlate) The Commonwealth of Dominica has legalised the use of the TRON blockchain’s native tokens as a medium of payment in the country, in order to boost tourism as well as better position it within the context of an emerging global digital economy.
	France Approves its Third-Biggest Bank to Operate Digital Asset Services (The Block) Société Générale’s subsidiary, SG Forge, has received regulatory approval from the French financial markets regulator, Autorité des Marchés Financiers (AMF), to operate as a digital asset service provider (DASP), offering custody and exchange services.
	Crypto Exchange Binance Receives Licence to Operate in Kazakhstan (CoinDesk)
	Industry Pushes Back Again on Basel Committee’s Crypto Reserve Measures (Finextra) For the second time, the Bank for International Settlements’ Basel Committee on Banking Supervision has received further push back from industry associations including the Global Financial Markets Association, the Futures Industry Association and the International Swaps and Derivatives Association regarding its second consultation document published on 30 June on the ‘prudential treatment of cryptoasset exposures’. In 2021, the Basel Committee issued a proposal – largely viewed by the industry as unviable and even punitive – to require banks to reserve capital to cover the whole value of cryptocurrency holdings. Following stiff resistance, as we reported last November, the BIS withdrew that model and went back to the drawing board. The second proposal appeard to take a more refined and pragmatic approach, however, it has continued to be met with stiff resistance by numerous industry groups who argue yet again that the rules would reduce, and in some cases ‘preclude banks from utilising the benefits of distributed ledger technology (“DLT”) to perform certain traditional banking, financial intermediation and other financial functions more efficiently.’ Significant to the proposal is the idea of exposure limits to Group 1a/b (akin to traditional assets or those with effective stabilisation mechanisms, i.e. stablecoins) and Group 2a/b type crypto assets (unbacked crypto assets such as cryptocurrencies, as well as other assets that are not covered under Group 1). However, the proposal does not, according to the associations, take into account hedging that is often performed by financial institutions to limit their short and long term exposure. As such, they would still be subject to a 100% capital charge for Group 2 assets, which for all intents and purposes are the predominant digital asset type in circulation today, and those most in client demand.
	Coinbase Gets Singapore Digital Payment Token License (CoinDesk) Coinbase Expands Services in Australia, Calling Country a ‘Priority Market for Us’ (CoinDesk) Coinbase Commences Partnership with Signature Bank to Provide Real Time Settlement via Signet (Business Wire) Coinbase Hires Fintech Executive to Lead European Expansion (Bloomberg UK)
	Germany’s 2nd Largest Bank DZ to Launch Crypto Custody (Ledger Insights)
	Google Selects Coinbase to take Cloud Payments with Cryptocurrencies and Will Use Its Custody Tool (CNBC) Google is set to enable certain clients to pay for cloud services using digital currencies, reportedly as soon as early next year. It has appointed Coinbase (NASDAQ: COIN) to support it with the payment process and is also considering Coinbase’s Prime services for trading and custody. With reciprocity in mind, Coinbase is said to be moving some of its applications from Amazon’s Web Services to Google’s cloud.
	Paxos Wins Custody Deal for Fidelity, Schwab-backed Digital Asset Exchange EDXM (Ledger Insights)
	Custodian Anchorage Adds to Asia Push with Batch of Institutional Crypto Partners (CoinDesk)
	JPMorgan and Visa Link Blockchain Payment Networks (Finextra) J.P. Morgan (JPM) and Visa are due to establish a link between their proprietary blockchain networks, Liink and B2B Connect respectively, with Visa expected to benefit from JPM’s account validation tool, Confirm.
	SIX Integrates CryptoCompare’s Cryptocurrency Data Feed (Finance Feeds)

Thomas Murray Digital Newsletter

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Thomas Murray Digital Newsletter

Major Digital Asset Developments

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CBDC Corner

Thomas Murray Digital Newsletter

Digital Asset Developments

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CBDC Corner