CryptoLaw Newsletter #31

DeFi & law interviews; Tether faces class action; South Africa and Thailand to release draft crypto rules early 2022; IMF crypto recommendations; crypto exchanges join ISDA.

Hello CryptoLawyers!

I’m very excited to share two interviews on DeFi & law: one with US SEC Commissioner Hester Peirce and today we added one with Dr. Joachim Schwerin, Principal Economist at the European Commission! For the interview with Commissioner Peirce: here’s the video, the highlights and the full transcript. For the interview with Dr. Schwerin: here’s the video (highlights and full transcript to follow in our next weekly newsletter)!

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DeFi

  • In our mini-series on DeFi & law, we published our first interviews with US SEC Commissioner Peirce and our interview with European Commission Principal Economist Dr. Joachim Schwerin.

    • Commissioner Peirce shared her insights on what regulators expect from DeFi’ers, the open questions they face and what DeFi’ers can do to make regulators’ life easier. She called on the DeFi community to communicate what DeFi’s potential is in the long term, to explain DeFi in a simple way to a non-technical audience and to accept that, if we take a different regulatory approach to DeFi, this means that with greater freedom comes greater responsibility. “Now, has the SEC done as good a job on this front as I would like it to? Absolutely not. We, you know, I think we’ve been overly conservative and overly negative about this space. But at the same time, I think we’ve taken some important steps like cracking down on fraud, which is something that we want regulators all over the world to be doing as well.” Read the highlights here or the transcript here.

    • Dr. Schwerin analysed DeFi against a much broader historical and socio-political context. “DeFi is, as the name says, focusing on finance, but it is actually an empowerment that extends much further than finance,” he said. “DeFi is not the starting point, but is a key element, in order to get us back where we belong, and that is to decentralise the community aspect in that.” More next week!

  • US – Sen. Elizabeth Warren thinks DeFi is “the most dangerous part of the crypto world”. (Cointelegraph)

  • FATF – Another analysis of the likely impact of the revised guidance on virtual assets of the Financial Action Task Force on DeFi, NFTs and crypto in general. (Cointelegraph)


Stablecoins

  • Myanmar – We don’t often receive crypto-asset updates from Myanmar but this week is different: a shadow government led by fans of ousted leader Aung San Suu Kyi have recognizes stablecoin Tether (USDT) as an “official currency”. The National Unity Government said on Facebook that it would allow USDT for “domestic use to make it easy and speed up the current trade, services and payment systems.” The anti-junta group is fundraising to topple the current military regime. (Bloomberg)

  • US – The issuer of stablecoin Tether (USDT) has been accused of “unlawful and deceptive practice” in a class-action lawsuit filed in the Southern District of New York. In its usual defensive style, the company called the allegations “nonsense” and “entirely meritless”. (Decrypt)


Digital assets

  • US – Crypto-assets fit into the “broad remit” of the Securities and Exchange Commission, said SEC Chair Gary Gensler. “The public’s anticipating some profit based upon the efforts of some entrepreneur or computer-science group that’s raised money from the public. That fits in our broad remit at the SEC,” Gensler said. He wants crypto exchanges to register with the SEC, adding that “Crypto exchanges are doing a lot more than just trading”. “They are fundamentally exchanges, but they also have this other activity going on inside of it. It’s really important to get that investor protection,” he said. (Wall Street Journal)

  • US ­– Sen. Pat Toomey thinks stablecoin issuers should be able to choose from 3 regulatory models, including the option to register as a money transmitter or obtain a bank charter. (Bloomberg)

  • UK  – Crypto-assets are growing rapidly. Although they currently pose limited direct risks to UK financial stability, the Bank of England warned they will present a number of financial stability risks if they continue to grow at their current rapid pace, and as they become more interconnected with the wider financial system. (BoE and Reuters)

  • South Africa  – The Financial Sector Conduct Authority (FCSA) is planning to release crypto regulations in early 2022. “What we want to be able to do is to intervene when we think that what is provided to potential customers are products that they don’t understand that are potentially highly risky,” said FCSA commissioner Unathi Kamlana. The FCSA is speeding up the preparation of the new rules after a couple of high-profile crypto-scams earlier this year. The new rulebook will also cover the intersection between crypto and traditional finance products and balance sheets, as well as financial stability risks. Kamlana urged would-be crypto investors to “wait to see” how the Reserve Bank progresses on its work on a central bank digital currency. (Bloomberg)

  • India  – Emerging technologies, such as crypto, should be used to empower democracies not undermine them, said Prime Minister Narendra Modi. Modi called for global standards for new technologies, including crypto. (Coindesk)

  • Singapore  – Binance’s local entity will withdraw its application in the city state and cease access to  its platform for domestic users. The crypto exchange cited “strategic, commercial and developmental” reasons. It will keep its blockchain hub in Singapore. (Reuters)

  • Thailand  – Bank of Thailand wants to draw “red lines” on digital assets to mitigate risk to the financial system and improve consumer protection. The central bank will outline its draft rules on digital assets in a consultation paper in January 2022. (Bloomberg)

  • Nigeria – A minister is calling for “fair” regulation rather than a crypto crackdown,  including a regulatory framework that would promote wider blockchain opportunities. (Bloomberg)

  • EU – There is “no sign that crypto-assets have performed, or are performing, socially or economically useful functions”, according to Fabio Panetta, member of the executive board of the European Central Bank. (BloombergQuint)

  • Cyprus – The Ministry of Finance released a national risk assessment on crypto and recommends increased “capacity building” on crypto. (Cointelegraph)

  • ISDA – Crypto exchanges Coinbase and FTX joined the International Swaps and Derivatives Association. (ISDA)

  • IMF – The International Monetary Fund revealed its proposals for a global crypto regulatory framework. It may be a “daunting task” to achieve a “comprehensive, consistent and coordinated” approach that balances innovation and financial stability, the IMF acknowledged. Crypto-related “financial stability risks could soon become systemic in some countries,” the IMF wrote. It outlines 3 core principles: (1) crypto service providers delivering critical functions should be licensed or authorized (this would include crypto storage, transfer, settlement and custody); (2) rules should be “tailored to the main use cases of crypto assets and stablecoins” (although it’s not clear how the IMF defines/determines main use case, what is clear is that they want investment products to be regulated as such, for example); and (3) authorities should be clear about the rules on crypto-exposure for regulated financial institutions.


CBDC

  • China – Hong Kong – China and the SAR Hong Kong started the second phase in testing the cross-border use of the digital yuan (Coindesk)

  • Ukraine  – The central bank will oversee a pilot of the country’s CBDC, the e-hryvnia, on the Stellar blockchain. (Decrypt)

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