The road to digital assets

The path to digital assets is not an easy road from a regulatory perspective. Many initiatives are blooming worldwide leading to different local perspectives and interpretations. To help understand this fragmented environment, BNP Paribas has created a quarterly updated map of the regulatory updates and news in the major markets across the globe.

2021

GERMANY

On 4 March 2021, the German parliament (Bundestag) had its first reading on the draft bill on electronic securities (eWpG) of the German government cabinet. On 22 March 2021 the Finance Committee of the German parliament discussed the draft in a public meeting with industry experts. A second and third reading in the German parliament will take place in the coming months.

UK

In January, Her Majesty’s Treasury (HMT) opened a consultation on crypto-assets. The consultation looks to ensure the UK regulatory framework is equipped to harness the benefits of new technologies, supporting innovation and competition, while mitigating risk to consumers and financial stability.

In order to to keep up with the evolving nature of crypto, HMT suggest legislation be used to define the scope of the regulatory perimeter. However   the independent regulators, using agile powers to issue rules or codes of practice, will design and implement the detailed firm-level requirements within a framework of objectives and broader considerations set by HMT and Parliament.

2020

EU

In January 2020, the EU implemented its Fifth Anti Money Laundering Directive (AMLD5), which requires crypto firms and exchanges to follow enhanced KYC programs and reporting obligations. Crypto regulation will move forward as part of the new European Commission’s mandate.  The European Securities and Markets Authority has also announced it aims to focus on shaping a sound framework for crypto-assets.

On 24 September 2020, the Commission proposed a new legislation on crypto-assets aimed at boosting innovation while preserving financial stability and protecting investors from risks. The ‘Regulation on Markets in Crypto Assets’ (MiCA) will provide legal clarity and certainty for crypto-asset issuers and providers. A pilot regime is also being proposed for DLT market infrastructures that wish to trade and settle transactions with security tokens. The Commission’s overall objective is to have a comprehensive EU framework for crypto-assets put in place by 2024.

From October 2020 to January 2021, the European Central Bank opened a consultation on a digital euro, ie the project of a crypto-asset issued by the ECB, which could be used as a digital payment instrument. The ECB received a massive number of responses (8,221). The ECB will decide in the spring 2021 whether or not to launch a digital euro project.

FRANCE

AMF has published on 22 September 2020 a Q&A that presents the key points of the digital asset service provider regime created under the PACTE Law. It answers the most frequently asked questions from French and international businesses that wish to apply for DASP registration or license.

Banque de France has announced on in July the names of the eight applicants which were selected in response to its call for applications to experiment the use of central bank digital currency for interbank settlements-

GERMANY

The crypto-assets and crypto-custody legislation forms part of a legislative package implementing the 5th European Anti-Money Laundering (AML) Directive into German law and entered into force in January 2020. BaFin has issued various guidance notices regarding

In August, the German Ministry of Finance and Ministry of Justice have published a draft law on electronic securities (eWpG). The law will enable the issuance of digital bearer bonds on a DLT infrastructure without the requirement of a certificate. It introduces the definition of a decentralised securities register on a DLT and the new function of a registrar.

On 14 December, the German government cabinet has voted the draft law on electronic securities (eWpG) which has entered on 1 January 2021 into the voting process of the parliament. The law is expected to enter into force in Q1 2021. Here  are the main decisions

  • Enabling the issuance of digital bearer bonds on a DLT infrastructure without the requirement of a paper-based certificate
  • Introducing the definition of a decentralised securities register on a DLT
  • Classifying the registrar function as a new financial service under the BaFin supervision
  • Introducing electronic fund shares and bearer bonds, which can be issued without a certificate but in a central register. The central registrar function would be performed by either a CSD or a custodian.
ITALY

In January, Consob has published its final report on Initial offers and exchanges of crypto-assets

LUXEMBOURG

In July 2020, the Luxembourg government presented a Bill of Law 7637 to amend the Law of 5 April 1993 on the financial sector and the Law of 6 April 2013 on dematerialised securities (the “2013 Law”). The key objective of the bill is to modernise the existing legal framework for dematerialised securities.

The bill is a continuation of the law of 1 March 2019 which has expressly recognised the possibility to hold and register book-entry securities in securities accounts by way of distributed ledger technology (DLT). The bill recognises the possibility to use secure electronic recording systems (including DLT) for dematerialised securities (whether at issuance or upon conversion from another form of security).

NETHERLANDS

The Dutch Central bank began regulating organisations that offer crypto-related services inJanuary 2020. Firms offering services for the exchange between cryptos and fiat currency, and crypto wallet providers are required to register with the regulator to be authorised to operate. A licensing system should also be introduced for cryptocurrency services.

SWITZERLAND

Switzerland passed the so-called ‘blockchain law’ in September last year. It is being implemented in two phases: company law reforms on 1 February 2021 to be followed by financial market infrastructure upgrades from the beginning of August 2021. This will open the doors to a fully regulated cryptocurrency and digital securities industry in Switzerland. Switzerland now allows tokenized securities trade on a blockchain with the same legal standing as traditional assets. Swiss lawmakers decided not to create a completely new regime but adapted legislation to graft specific features of DLT onto the existing legal framework. The DLT amendments recognize tokenized securities as a new class of asset, whose legal ownership rights are automatically transferred via the blockchain to each new investor.

On 10 September 2020, the Swiss parliament passed a law to update existing corporate and financial regulations to make way for blockchain and distributed ledger technology (DLT). The law comes into effect on 1 February 2021. The Blockchain Act aims to welcome decentralized technologies while maintaining Switzerland’s integrity and reputation as a business and financial hub. A distinction is made between payment tokens or cryptocurrencies and security tokens, which have the same legal position as traditional securities. With respect to securities law, the main change is to support the existence of tamperproof electronic registries, although details will be left up to contract. Bankruptcy laws will also be amended to make room for crypto assets as will insolvency laws, particularly for custodians that go out of business. Financial market regulations will be adjusted to create a new license category for DLT trading systems, providing more flexible authorization.

FINMA, the Swiss market authority applies relevant provisions of financial market law regardless of the underlying technology. Additionally, FINMA has issued guidance on several crypto topics such as initial coin offerings, stablecoins and payments. Home to the “Crypto Valley”, it is worth noting that the state is home to several high profile projects such as Ethereum, Dfinity and Libra. Switzerland’s stock exchange is also building the SIX Digital Exchange, a fully integrated trading, settlement and custody infrastructure for crypto-assets which aims to provide a safe environment for the issuance and trading of crypto-assets.

UK

The Bank of England (BoE) has published a discussion paper to assess the risks and benefits of a Central bank digital currency.

On 21 September 2020, the Law Commission initiated works on two projects to ensure that English law can accommodate smart contracts and digital assets. The purpose of those works is to find any gaps in the law and identify reforms to ensure that the law can meet the growth in the use of those technologies.

2019

EU

In December 2019, the EU launched a public consultation on the regulatory treatment of crypto-assets. It aims to assess the need for a bespoke crypto regime and/or amendments to existing financial regulation.

FRANCE

The PACTE law establishes a specific voluntary regime for companies seeking to conduct an initial coin offering (ICO) or to offer crypto-assets services (Digital Assets Service Providers or DASPs). Mandatory registration is required for DASPs wishing to offer custody or purchase/sell crypto-assets in exchange for legal tender. The scope is limited to crypto-assets not qualifying as securities which remain bound by EU securities law.

GERMANY

Germany’s BaFin has approved a number of security token offering (STOs).

In August, BaFin has issued a 2nd advisory letter on prospectus and authorisation requirements in connection with the issuance of crypto tokens.

In November, a landmark legislation was adopted regarding crypto services. The new rules include a definition of crypto-assets and regulate providers of “crypto custody” services. Companies wishing to store, transfer and trade crypto-assets must obtain a license from the German regulator BaFin. A grandfathering mechanism was also introduced for firms already safekeeping crypto-assets in Germany.

ITALY

Italy does not have any crypto regulation or legal framework for crypto activities. Service providers of crypto activities must register with the Institution of Agents and Mediators. In March 2019, the Italian financial markets supervisory authority published a call for evidence on initial coin offerings (ICOs) and crypto-assets.

LUXEMBOURG

Bill 7363 brings transactions performed using DLT at par with traditional ones. The legal framework also offer fiscal advantages and tax exemptions for crypto assets. It is worth noting that the country is host to one of the largest crypto exchanges (Bitstamp).

UNITED KINGDOM

In July 2019, the Financial Conduct Authority (FCA) published its final “Guidance on Cryptoassets”, with the aim of clarifying to market operators what the applicable regulatory requirements for their crypto assets activities are.

Article updated in January 2021. The information contained in this article is believed to be reliable and is not intended to be exhaustive. This article is regularly updated. Reach out your relationship manager or client service manager for any information you may need.

2018

GERMANY

Germany’s BaFin has issued a 1st advisory letter on the classification of tokens as financial instruments.

2016-2017

FRANCE

The “Blockchain ordinances” (ordinances n° 2017-1674 du 8 décembre 2017) and the Sapin II law (law n° 2016-1691 du 9 décembre 2016) recognise the validity of the registration and transfer of some types of financial instruments (unlisted) on a blockchain.

Article updated in January 2021. The information contained in this article is believed to be reliable and is not intended to be exhaustive. This article is regularly updated. Reach out your relationship manager or client service manager for any information you may need.

2021

US

The Office of the Comptroller of the Currency (OCC) published a letter in January 2021 clarifying US national banks’ and federal savings associations’ authority to participate in independent node verification networks (INVN) and use stablecoins to conduct payment activities and other bank-permissible functions.  The OCC in recent months has been issuing more guidance aimed at easing banks’ concerns about the new digital asset technology.

2020

US

The Crypto-Currency Act of 2020, an omnibus bill aimed at comprehensive reform of U.S. cryptocurrency regulation was introduced 9 March. The bill looks to choreograph a wide range of digital assets to answer to the appropriate regulator. The proposal divides digital assets into three categories: crypto-commodity, crypto-currency and crypto-security. Respectively, the three categories would be governed by the Commodity Futures Trading Commission (CFTC), the Secretary of the Treasury via the Financial Crimes Enforcement Network (FinCEN), and the Securities and Exchange Commission (SEC).

The Office of the Comptroller of the Currency (OCC) published a letter clarifying the authority of OCC-regulated institutions to hold “reserves” on behalf of customers who issue certain stablecoins held in hosted wallets. This release follows a July OCC letter clarifying that OCC-regulated institutions are authorized to provide cryptocurrency custody services for customers pursuant to appropriate risk management processes and controls.

In September 2020, the US House of Representatives passed the Blockchain Innovation Act.  The BIA focuses on the use of blockchain technology in commerce, and instructs the U.S. Department of Commerce to consult with the Federal Trade Commission to conduct a study and submit a report on the state of blockchain technology, including its use to reduce fraud and increase security. A goal of the legislation is to establish a Blockchain Center of Excellence within the Commerce Department.

The Securities & Exchange Commission issued a statement in December 2020 and requested comment regarding the custody of digital asset securities by broker-dealers.  The Statement describes the minimum controls that broker-dealers must implement to comply with the Customer Protection Rule when acting as custodians of digital asset securities. The guiding principle is to mitigate the risk of loss of digital asset securities and the impact such an event would have on broker-dealers, their customers and counterparties, and other market participants.

The Commodities & Futures Trading Commission released a digital assets primer in December 2020.  The Primer defines the terms “virtual currency”, and “digital token”, and provides an overview of the marketplace and regulatory considerations under the CFTC.  The primer also summarizes CFTC jurisdiction over digital assets as well as market oversight controls.

2018

US

The Securities and Exchange Commission (SEC) considers cryptocurrencies to be securities since March 2018. Securities law is applied comprehensively for digital wallets and exchanges. The Commodity Futures Trading Commission (CFTC) considers bitcoin as a commodity and allows cryptocurrency derivatives to trade publicly.

Article updated in January 2021. The information contained in this article is believed to be reliable and is not intended to be exhaustive. This article is regularly updated. Reach out your relationship manager or client service manager for any information you may need.

2021

HONG KONG SAR, CHINA

On 23 February 2021, the Hong Kong Monetary Authority (HKMA), together with the Bank of Thailand (BOT), the Central Bank of the United Arab Emirates (CBUAE) and the Digital Currency Institute of the People’s Bank of China (PBC DCI), announced the joining of the CBUAE and the PBC DCI to the second phase of Project Inthanon-LionRock1, a central bank digital currency project for cross-border payments initiated by the HKMA and the BOT.  This joint effort is strongly supported by the Bank for International Settlements Innovation Hub Centre in Hong Kong and the project has been renamed as “m-CBDC Bridge”.

CHINA

China is fast expanding trials for the usage of the Digital Renminbi amongst both key financial institutions and at an increasing number of online and offline consumer sites. All six of China’s big state-owned banks, including Agricultural Bank of China (ABC), Bank of China (BOC), Bank of Communications (BOCOM), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC) and Postal Savings Bank of China (PSBC), have deployed their own Digital Renminbi wallets according to domestic media reports. Customers can apply to be included on a “trial white list” at selected banking outlets to participate in test versions of the wallets, with applications accepted via online banking apps as well as QR code scans.

In Beijing an increasing number of businesses are participating in trials for the use of the Digital Renminbi, including chain restaurants, shopping malls and logistics firms, while in Shanghai vending machines in the metro system as well as shopping malls in the Xujiahui district have commenced acceptance of the central bank digital currency for payments. Chinese e-commerce platforms that are participating in Digital Renminbi trials currently include JD.com and Meituan.

CHINA

On 1 January 2021, the Fengtai District Bureau of Commerce has announced that the People’s Bank of China’s pilot programme to test and promote its central bank digital currency, the digital yuan, has been extended to Beijing, following large-scale trials in Shenzhen and Suzhou.

2020

HONG KONG SAR, CHINA

In November 2020, the Hong Kong Financial Services and the Treasury Bureau (FSTB) issued a consultation paper outlining a new regulatory framework that will bring operators of virtual asset exchanges within the formal regulatory perimeter of the Securities and Futures Commission (SFC) for the first time. The outcome of the proposed regulatory framework is that any Hong Kong-based VA Exchange (or overseas VA Exchanges that target Hong Kong customers) will need to be licensed by the SFC, and will, initially, only be able to deal with customers that qualify as professional investors.

On 16 December 2020, the SFC announced that it has granted the first licence to a virtual asset trading platform in Hong Kong. The platform will only serve professional investors under the close supervision of the SFC  and will be subject to tailor-made requirements similar to those which apply to securities brokers and automated trading venues.

JAPAN

Japan amends its crypto asset regulation with a focus on derivative transactions generally enforceable from May 1, 2020. Crypto-assets qualifying as securities will also be subject to new requirements while crypto custody will be subject to licensing. Crypto trading activities will also have to fulfil new rules regarding unfair trading and practices.

INDIA

In January 2020, the Reserve Bank of India underlined it did not ban cryptocurrencies such as bitcoin, but only ring-fenced regulated entities like banks from risks associated with crypto-assets trading. The future of the Indian crypto ecosystem remains as such unclear.

2019

CHINA

In October 2019, a new law was adopted with the aim of facilitating China’s transition to blockchain technology. It has paved the way for China to become the first state to issue a central bank digital currency (CBDC).

INDIA

In July 2019, a legislative panel proposed a ban on all non-sovereign cryptocurrencies. Officials have also voiced their concerns about Facebook’s Libra project.

2018

INDIA

In April 2018, the Indian central bank (Reserve Bank of India) issued a circular calling on regulated entities to stop providing services to entities dealing in or settling cryptocurrencies.

2016-2017

JAPAN

Japan adopts the Virtual Currencies Act on April 1st 2017, and requires licenses for all crypto trading platforms to exercise any activity related to cryptocurrency.

Article updated in January 2021. The information contained in this article is believed to be reliable and is not intended to be exhaustive. This article is regularly updated. Reach out your relationship manager or client service manager for any information you may need.

2021

INTERNATIONAL

In March 2021, the OECD-let Financial Action Task Force (FATF) opened a consultation on the revision of its Guidance on the risk-based approach to virtual asset (VAs) and virtual asset service providers (VASPs), initially published in June 2019. The consultation seeks to update guidance on six issues : (1) definitions of VA and VASP to make clear that all relevant financial assets are covered by the FATF Standards, (2) application of the FATF guidance to so-called stablecoins, (3) additional guidance on the risks and potential risk mitigants for peer-to-peer transactions, (4) updated guidance on the licensing and registration of VASPs, (5) additional guidance for the public and private sectors on the implementation of the ‘travel rule’ and (6) include Principles of Information-Sharing and Co-operation amongst VASP Supervisors.