South Korean authorities are reportedly planning to release updated guidelines for virtual asset trading. These guidelines will prohibit the listing or relisting of coins that have previously been hacked. Additionally, the guidelines will require issuers of “foreign” virtual assets to release a whitepaper or a technical manual specifically for the Korean market. Guidelines for ‘Foreign’ […]
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US Banks Rally For Updated Crypto Guidelines As Digital Asset Prices Surge
Amidst a significant surge in cryptocurrency prices, which propelled the total crypto market capitalization to a high of .93 trillion on Thursday, influential interest groups are urging the US Securities and Exchange Commission (SEC) to revise accounting guidance that imposes higher costs on US banks for holding digital assets on behalf of their customers.
Banking Trade Groups Urge SEC To Revise Crypto Accounting Rules
According to a Bloomberg report, a coalition of trade groups, including the Bank Policy Institute, the American Bankers Association, the Securities Industry and Financial Markets Association, and the Financial Services Forum, sent a letter to the SEC on Wednesday outlining their desired changes.
The existing guidance requires public companies, including banks, to treat cryptocurrencies they hold in custody as liabilities on their corporate balance sheets. Consequently, banks must allocate assets of a similar value to comply with capital requirements and protect against potential losses.
According to Bloomberg, the trade groups have requested the SEC to consider the following key changes:
- Exclude certain assets from being classified under the broad crypto umbrella. This includes traditional assets recorded or transferred using blockchain networks, such as tokenized deposits, as well as tokens underlying SEC-approved products like spot Bitcoin exchange-traded funds (ETFs).
- Grant regulated lenders an exemption from the current balance sheet requirement while maintaining the disclosure of crypto activities in financial statements.
The trade groups argued that if regulated banking organizations are unable to provide digital asset-safeguarding services at scale, it would negatively impact investors, customers, and the broader financial system.
However, the SEC has defended its accounting guidance, citing the “unique risks” and uncertainties posed by cryptocurrencies compared to other assets held by banks.
Limiting Custody Expansion?
The specific guidance in question, known as Staff Accounting Bulletin No. 121, has faced criticism from banks since its publication in 2022.
Lenders argue that the bulletin limits their ability to expand digital asset services for customers due to the associated high costs. Consequently, banks missed out on providing custody services for recently approved Bitcoin exchange-traded funds, with Coinbase emerging as the preferred custodian for the majority of ETF issuers.
The trade groups also highlighted additional challenges resulting from the guidance, including a “chilling effect” on plans to utilize blockchain technology for traditional assets. While the SEC described SAB 121 as non-binding staff guidance, it acknowledged that following it enhances disclosure to investors regarding firms safeguarding crypto assets for others.
As the SEC faces mounting pressure, there have been efforts by lawmakers to repeal the guidance. A resolution was introduced in the House Financial Services Committee, spearheaded by Representatives Mike Flood and Wiley Nickel, while Senator Cynthia Lummis sponsored identical legislation in the Senate. These measures aim to remove the SEC’s authority in making rules that impact bank custody.
The outcome remains uncertain, as the legislation’s success depends on garnering sufficient support, particularly among Democrats and within the White House.
However, the collective efforts of trade groups, lawmakers, and industry stakeholders could potentially lead to regulatory changes that alleviate the burden on banks holding digital assets, facilitating their participation in the evolving cryptocurrency landscape.
Furthermore, the recent endeavors undertaken by US institutions exemplify a growing interest and eagerness to adopt and invest in cryptocurrencies, particularly Bitcoin.
This heightened institutional involvement has significantly contributed to the swift success of Bitcoin spot ETFs, which gained regulatory approval merely a month ago.
Featured image from Shutterstock, chart from TradingView.com
Lawmakers Object to Federal Reserve’s Stablecoin Guidelines — Say They Undermine Legislative Progress
Several U.S. lawmakers have objected to the Federal Reserve’s stablecoin regulatory guidelines, which they believe “will undoubtedly deter financial institutions from participating in the digital asset ecosystem.” According to the lawmakers, “The Fed has chosen to effectively prevent banks from issuing payments stablecoins — or engaging in the payment stablecoin ecosystem.”
Fed’s Efforts ‘Subvert Progress Made by Congress’
Three U.S. representatives sent a letter to Federal Reserve Chairman Jerome Powell regarding stablecoin regulation last week. The letter, dated Aug. 23, was signed by Patrick McHenry (R-NC), chairman of the House Financial Services Committee; French Hill (R-AR), chairman of the Subcommittee on Digital Assets, Financial Technology and Inclusion; and Bill Huizenga (R-MI), chairman of the Subcommittee on Oversight and Investigations.
Congressman Hill stated Monday on the social media platform X:
I sent a letter alongside Rep. Patrick McHenry and Rep. Bill Huizenga to the Federal Reserve objecting to their efforts to undermine the Financial Services Committee’s progress on stablecoin legislation. The Fed has chosen to effectively prevent banks from issuing payment stablecoins.
In their letter, the lawmakers expressed concerns regarding “the Federal Reserve Board’s recent Supervision and Regulation Letters titled ‘Creation of Novel Activities Supervision Program’ (SR 23-7) and ‘Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens’ (SR23-8).” Both letters were issued on Aug. 8. The lawmakers stressed:
We are concerned that these actions are being taken to subvert progress made by Congress to establish a payment stablecoin regulatory regime. Moreover, if these letters are left in place, they will undoubtedly deter financial institutions from participating in the digital asset ecosystem.
Noting that the House Committee on Financial Services recently passed a bill titled “Clarity for Payment Stablecoins Act,” which has bipartisan support, the congressmen stated that “instead of working with Congress to establish a workable regime, less than two weeks after the Committee’s action, the Fed released SR 23-7 and SR 23-8.”
The lawmakers explained that the Fed’s Novel Activities Supervision Program “appears designed to impose additional regulatory burdens on banking institutions to engage with crypto assets and to provide the Fed with additional tools to deny crypto asset-related activities.”
Moreover, they pointed out that “SR 23-7 and SR 23-8 were not issued in accordance with the notice and comment process as required under the Administrative Procedure Act. This guidance represents an effort by the Fed to set policy without being held accountable to market participants and the public, which is unacceptable.”
The lawmakers concluded their letter to Chair Powell with a request for written answers to a number of questions pertaining to SR 23-7 and SR 23-8. They include how the Fed intends to “implement a fair and consistent process for determining which banking organizations will be subject to supervisory examinations.” The congressmen also asked the Federal Reserve chairman to provide documents pertaining to SR 23-7 and SR 23-8, including all related records and communications among employees and all related records and communications of Vice Chair for Supervision Michael Barr.
The lawmakers emphasized:
By issuing the letters, the Fed has chosen to effectively prevent banks from issuing payments stablecoins — or engaging in the payment stablecoin ecosystem.
What do you think about the lawmakers opposing the Federal Reserve’s stablecoin regulatory guidelines? Let us know in the comments section below.
Fed Launches New Crypto Oversight Program, Issues Dollar Stablecoin Guidelines
The Federal Reserve has established a new supervisory program to increase oversight of crypto activities by the banks it regulates. The U.S. central bank also released additional guidelines for banks to follow before engaging in the issuance, possession, or transactions involving U.S. dollar stablecoins.
Fed Steps up Crypto Oversight
The Federal Reserve announced the establishment of the Novel Activities Supervision Program on Tuesday to increase oversight of novel activities by the financial institutions under its supervision. The Fed explained:
The program will focus on novel activities related to crypto-assets, distributed ledger technology (DLT), and complex, technology-driven partnerships with nonbanks to deliver financial services to customers.
Moreover, the central bank stressed that the program “will be risk-focused and complement existing supervisory processes.”
On Tuesday, the Federal Reserve Board also released guidelines mandating banks to adhere to certain requirements prior to engaging in the issuance, possession, or transactions involving U.S. dollar stablecoins.
The Fed detailed: “The Board provided additional information on the process for a state bank supervised by the Federal Reserve to follow before engaging in certain dollar token or stablecoin activity, including demonstrating to its Federal Reserve supervisors that it has appropriate safeguards to conduct the activity safely and soundly.”
The Fed announcement came after Paypal said it will launch a U.S. dollar stablecoin. “Paypal USD (PYUSD) is fully backed by U.S. dollar deposits, short-term U.S. treasuries and similar cash equivalents, and can be redeemed 1:1 for U.S. dollars,” the payments giant described.
Meanwhile, Congress is considering a stablecoin bill. The House Financial Services Committee recently passed the Clarity for Payment Stablecoins Act. Congressman Patrick McHenry (R-NC), who introduced the bill, said: “Clear regulations and robust consumer protections are essential to enabling stablecoins to achieve their full potential. That’s why it’s more important than ever that Congress enact legislation to provide comprehensive digital asset regulation, especially for stablecoins.”
What do you think about the Federal Reserve increasing oversight of crypto activities and USD stablecoins? Let us know in the comments section below.
Latest Thai Securities Guidelines Require Digital Asset Platforms to Issue Crypto Trading Risk Warnings
According to Thailand’s securities regulator, digital asset service providers will be required to warn prospective investors of the risks that come with trading or investing in cryptocurrencies. The guidelines also state that starting on Aug. 30, 2023, digital asset business operators will be barred from “providing services or supporting deposit-taking [and] lending services.”
The Crypto Risk Warning
Thailand’s Securities and Exchange Commission has announced new guidelines that require digital asset service providers to warn of “potential risks associated with trading cryptocurrencies.” According to the securities regulator, all regulated digital asset platforms are to supposed to start displaying this warning on July 31.
In its July 3 statement, the securities regulator added that the message must not only be visible but must ensure prospective investors fully understand the risks involved.
“Cryptocurrencies are high-risk. Please study and understand the risks of cryptocurrencies thoroughly. because you may lose the entire amount invested,” the latest Thai SEC guidelines state.
In addition to disclosing the potential risks, the guidelines state that starting Aug. 30 digital asset business operators will be barred from “providing services or supporting deposit-taking [and] lending services.” This means the Thai crypto industry participants will not be allowed to offer interest on deposits or lend user funds.
Similarly, the advertisement or marketing of crypto assets encouraging the general public to “act in the manner of supporting the deposit-taking [and] lending service,” will be prohibited.
The release of the latest guidelines by the securities regulator comes less than a year after the SEC approved a requirement stipulating that digital assets service providers are obliged to warn prospective investors of the risks involved.
What are your thoughts on this story? Let us know what you think in the comments section below.
Nigerian Central Bank Unveils Open Banking Guidelines
The Nigerian central bank recently said it had issued operational guidelines for open banking in Nigeria which are expected to enhance efficiency and access to financial services. According to the central bank, some of the guidelines’ objectives include ensuring “consistency and security across the open banking system.”
Customer Permissioned Data Sharing
The Central Bank of Nigeria said on March 7 that it had issued what it called the operational guidelines for open banking in Nigeria. According to the central bank, the guidelines are expected to foster the “sharing of customer-permissioned data between banks and third-party firms to enable the building of customer-focused products and services.” The guidelines are expected to enhance efficiency and access to financial services.
In a circular sent to financial institutions and payment service providers, the CBN said it had been aware of the “existence of an ecosystem for Application Programming Interface (API) in the financial and payments system.” It added that it also knew of plans to “develop acceptable standards among stakeholders.”
According to the CBN, some of the guidelines’ objectives include ensuring “consistency and security across the open banking system.” The central bank said it also hopes the guidelines, which were developed in collaboration with industry stakeholders, will promote competition as well as enhance access to financial institutions.
Open Banking Registry
To kick things off, the CBN said it will provide and maintain an open banking registry (OBR) which acts as the industry’s storehouse.
“The OBR shall be a public repository for details of registered participants. Each participant shall be identified by its CAC [Corporate Affairs Commission] business registration number, which shall be the unique key across the OBR system. The OBR shall maintain an API interface, defined within these guidelines, which shall serve as the primary means by which API providers manage the registration of their API consumers,” the CBN revealed.
Meanwhile, in its circular, the CBN said all stakeholders are required to “ensure strict compliance” with the guidelines as well as other regulations. For its part, the central bank said it will continue to monitor developments and may “issue guidance as may be appropriate.”
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What are your thoughts on this story? Let us know what you think in the comments section below.
Revised FATF Crypto Guidelines Could Spell The End of DEXes and DeFi
Dave Jevans, the CEO of crypto analytics firm CipherTrace, warned that regulators are looking to equalize compliance rules between decentralized and centralized exchanges. The knock-on effect poses questions on the operational feasibility of the segment and the DeFi platforms and protocols.
Q: Based on the new FATF draft guidance, it sounds as if a “DEX like Uniswap would be subject to the same compliance rules as a centralized exchange like Coinbase…?”
A: “That’s correct.” –@davejevans
What effect could these requirements have on the development of DeFi? pic.twitter.com/IE96DLD50b
— Laura Shin (@laurashin) April 4, 2021
FATF Crypto Guidelines Gunning For DEXes
Last month, the Financial Action Task Force (FATF) issued revised guidelines for the crypto industry. Commenting on the amendments, the Director of Research at Coin Center, Peter Van Valkenburgh, said the changes were akin to mass warrantless surveillance.
Van Valkenburgh highlighted three areas of concern with the new guidance. They were surveillance obligations for non-custodial entities, scrutinizing peer-to-peer and privacy technologies, and customer counterparty identification.
Jevans expanded on Van Valkenburgh’s initial comments by saying FATF is looking to widen the definition of Virtual Asset Service Provider (VASP). This would obligate more entities, including non-custodial persons, to register with the local regulator to collect and report information on their activities and the activities of others.
“To me, I think point 79 comes across as the biggest one, which really is broadly the definition of a Virtual Asset Service Provider. To whom these regs would apply to…
whether it’s directly through transaction fees or indirectly through the price of a coin going up that they use to pay for fees and things of that nature would potentially fall under the umbrella of VASP, which would broadly cover pretty much almost every DeFi platform.”
In short, DEXes, whose primary selling point centers around users being able to trade without KYC compliance, would be subject to the same requirements as centralized exchanges.
It’s worth noting that FATF is accepting public comments on the guidelines until April 20th. But as Van Valkenburgh mentions, the organization is under no obligation to consider public feedback.
Should the guidelines get adopted and member countries enforce the recommendations, how would DEXes, such as Uniswap, respond? After all, the term decentralized should mean free from central control; but more relevantly, it should also mean no one can stop a DEX from operating.
Former SEC Chair Says Bitcoin Not Immune
Bitcoin has largely enjoyed a pass as far as the U.S Securities and Exchange Commission (SEC) is concerned. But in a recent interview, former SEC Chair Jay Clayton said that doesn’t make it immune to new regulations that could be on the way soon.
“Where digital assets land at the end of the day […] will be driven in part by regulation — both domestic and international — and I expect, and I’m speaking as a citizen now, that regulation will come in this area both directly and indirectly whether it’s through how these are held at banks, security accounts, taxation and the like. We will see this regulatory environment evolve.“
Rumors of a Bitcoin ban have been brewing in recent times. Billionaire Ray Dalio warned that central banks would do all they can to protect control of the money supply. He predicts if Bitcoin ever gets too big, authorities will take action.
The Bitcoin market cap has stayed consistently above tr since late March. Likewise, this month’s start saw TVL in DeFi cross bn for the first time.
New 2021 FATF Crypto Guidelines Labelled as Mass Warrantless Surveillance
The Financial Action Task Force (FATF) has released updated draft crypto guidelines. A review of the changes highlights recommendations to increase the mass surveillance of users.
The greatest fear of regulatory overreach is that it will stifle innovation and deter privacy-conscious investors from participating.
Crypto Under The Spotlight
FATF is a global financial watchdog that sets international standards to tackle money laundering and terrorist financing. It spans over 200 countries and jurisdictions and intends to bring unified policies regarding regulatory reform against these illegal activities.
The organization comprises appointed officials from its member countries, none of which are democratically elected. They determine recommendations on how its members should deal with financial crime from a policy standpoint.
“While these so-called recommendations are non-binding, if a member nation was to refuse to implement them, severe diplomatic and financial consequences could result.”
Last week, FATF released its updated guidelines on virtual assets. This is the third iteration, the first being released in 2015 and then revised guidance in 2019.
The Director of Research at Coin Center, Peter Van Valkenburgh, said the 2019 revision at least brought parity between crypto-assets and trad-fi. But Van Valkenburgh slammed the latest updated guidance, saying it calls for mass warrantless surveillance against crypto users.
He points out three areas of concern. First is a change in the definition of Virtual Asset Service Providers (VASPs). Meaning more entities are obliged to register and conduct AML surveillance. This would include non-custodial participants such as multi-sig minority keyholders, smart contract participants, even decentralized exchange software developers.
It also advocates against peer-to-peer and privacy technology transactions. Under the new guidance, VASPs are asked to restrict support for privacy-enhancing technologies and P2P transactions by design.
Van Valkenburgh’s final concern regards the proposal for exchanges to collect specific data on transacting parties. It recommends VASPs keep records on all transactions, not just those applicable under the “travel rule.”
Michael Saylor Shares His Thoughts on Regulation
Previously, Bitcoin-bull Michael Saylor has expressed his lack of concern on regulation. He argues that countries that encourage crypto will flourish, while those who restrict it will suffer.
“I think the forward-thinking progressive governments are going to embrace it, and they’re going to benefit from it. And I think backward-looking governments are going to fear it and they’re going to suffer from the lack of it.”
Saylor makes the case that any country that fails to embrace Bitcoin and cryptocurrency will be left behind. More importantly, this is an argument most governments and regulators understand.
“Turn off the internet and turn off electricity, and tell me what your strategy is to avoid sliding back to the Stone Age. It’s not going to work. We’re not going to abandon satellites, we’re not going to abandon air, space and aerospace technology, we’re not going to abandon crypto technology.”
Regulators in each respective country face the unenviable task of balancing FATF obligations with economic and technological advancement. Logic dictates the latter will prevail.
Bitcoin dipped on news of FATF’s renewed guidance. The leading crypto slid 5% over the last 24-hours.
Source: BTCUSD on TradingView.com
Crypto-Asset Guidelines to Be Drafted Based on Industry Input
The Basel Committee on Banking Supervision is calling for feedback on the prudential regulatory treatment of crypto-assets.
Feedback received from insiders in both the crypto and traditional finance sectors will be used to draft guidelines for banks interested in dealing with crypto-assets.
Although they are wary of risks associated with the coins, the Committee sees that “some may have the potential to become systemically important” and is looking to “develop a holistic approach to [their] regulatory treatment.”
Committee Asks for Feedback
The Committee of central banks believes that the continued growth of crypto-asset trading platforms and new financial products has the potential to “raise financial stability concerns and increase risks faced by banks.”
Noted risks are comparable to those offered by other regulatory bodies, such as fraud and cyber risks, money laundering, and terrorist financing.
Because of this, it is advising banks that if they decide to acquire crypto-assets or provide related services they should apply a “conservative prudential treatment to such exposures” to protect the institution and its clients.
The Committee has published a discussion paper on the issue and is asking for feedback from stakeholders: from academics, to banks and finance ministries, to tech companies and the general public.
This all-encompassing approach likely means that industry insiders — those that know the ins and outs of blockchain-based payment systems and crypto-assets — will be able to help craft guidelines that benefit the cryptosphere as well as the banks.
Feedback is requested on:
- The features and risk characteristics of crypto-assets that should inform the design of a prudential treatment for banks’ crypto-asset exposures; and
- General principles and considerations to guide the design of a prudential treatment of banks’ exposures to crypto-assets, including an illustrative example of potential capital and liquidity requirements for exposures to high-risk crypto-assets.
How Might This Impact the Cryptosphere?
Simply put, the Committee wants to put in place guidelines for financial institutions to use when dealing with crypto-assets. These guidelines will allow banks — even those currently prohibited — “to be deemed compliant with any potential global prudential standard” on crypto-assets and related financial technology.
The Committee certainly sees the attracting of crypto-assets, saying “[the industry’s] absolute size is meaningful and there continues to be rapid developments, with increased attention from a broad range of stakeholders.”
While opinion regarding regulation is both polarizing and multi-faceted, the regulation that is derived from collaboration between all interested parties is certain to function most fairly.
Feedback and comments to the Basel Committee on Banking Supervision’s discussion paper can be made here; responses are due by March, 20, 2020.
Featured Image from Shutterstock
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British Tax Authority Updates Cryptocurrency Guidelines, Says It Is Not Money
n Her Majestys Revenue and Customs has updated cryptocurrency taxation guidelines for businesses and individualsn
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