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On May 30, policymakers in the United Arab Emirates and Hong Kong signaled their intention to join forces to shape regulatory approaches to cryptoassets.
In a joint press release, the Hong Kong Monetary Authority (HKMA) and the Central Bank of the UAE (CBUAE) stated that cooperation on the regulation of virtual assets and related developments is a top priority. According to the statement, by working closely to share information on how they regulate the crypto space, Hong Kong and the UAE intend to identify and strengthen “joint opportunities for growth in digitization and technological advancement”.
The statement came just two days before Hong Kong introduced a new regulatory framework for virtual asset trading platforms (VATP). As of June 1, VAPTs – such as crypto exchanges and custodians – must now apply for a license with Hong Kong’s Securities and Futures Commission (SFC) and meet anti-money laundering and anti-terrorist financing (AML) obligations /CFT). ), consumer protection, detection of market manipulations and other requirements.
The introduction of Hong Kong’s new regulatory framework has many in the crypto industry hailing it as a potential hub for crypto activity in the Asia-Pacific region. In particular, the industry has pointed to Hong Kong’s willingness to allow licensed VAPTs to offer certain retail services as an indication that the city is truly open to crypto innovation – even if obtaining a license and meeting the SFC’s high compliance standards will present practical challenges for VATPs. who want to be placed there.
Hong Kong is unlikely to open up to crypto businesses as fully as the UAE – where Dubai’s Virtual Asset Regulatory Authority (VARA) is leading the way with its own significant regulatory framework – and crypto businesses outside of Hong Kong may be tentative at first. steps to enter the market there.
Still, Hong Kong’s new stance marks a change for a place that once outright banned retail cryptocurrency trading. To help the industry meet the demands, two new associations announced their establishment in the city on May 29. The Hong Kong Licensed Virtual Assets Association (HKLVAA) and Web3 Harbor will represent SFC-licensed firms in establishing regulatory compliance best practices and in facilitating dialogue between the regulator and the industry.
Given the relative lack of a clear, comprehensive regulatory framework worldwide, it is not surprising that a number of major crypto exchanges have recently announced their intention to seek licenses in Hong Kong. With the HKMA also working on a regulatory consultation on stablecoins – due to be completed next year – the city has positioned itself as a potential hub for crypto innovation.
To learn more about Hong Kong’s approach to cryptocurrency, watch our recent webinar: Hong Kong’s Crypto Ambitions.
Crypto.com gets license in Singapore
Meanwhile from the Asia-Pacific region, digital asset exchange giant Crypto.com has become the latest firm to receive a license from the Monetary Authority of Singapore (MAS) – putting it in relatively exclusive company.
Crypto.com announced on June 1 that it has received a full Master Payment Institution (MPI) license from MAS, which will enable it to deliver Digital Payment Token (DPT) services to users in Singapore. The regulator previously gave Crypto.com in-principle approval in June 2022, but receiving its full license will ensure that Crypto.com can count on Singapore as a good base for its operations in the region and begin offering a full range of services in the city-state.
Amid recent developments in Hong Kong, some observers have suggested that Singapore could also revive its reputation as a regional crypto hub. Although MAS has granted MPI status to only a dozen crypto companies since it launched its regulatory framework back in January 2020, as Singapore is a major financial center with one of the more mature crypto licensing regimes, it could attract renewed interest from crypto companies seeking regulatory clarity.
MiCA has signed an agreement as the EBA consults on crypto AML issues
On May 31st, the President of the European Parliament signed the European Union’s Markets in Crypto Assets (MiCA) legislation, putting MiCA firmly on track to come into effect this summer.
The European Parliament voted overwhelmingly for the approval of MiCA at the end of April. The massive regulation – which defines the rules for stablecoins and requires crypto-asset service providers (CASPs) in the EU to comply with consumer protection and market conduct requirements – is due to be published in the EU Official Journal in July. From there, EU member states will have until mid-2024 to implement provisions around stablecoins, and until January 2025 to implement requirements for CASPs.
Also signed into law on 31 May are amendments to the EU’s Transfer of Funds Regulation (TFR), which will require CASPs to comply with the Travel Rules’ data sharing requirement – ​​a key component of AML/CFT regulation.
In addition, on 31 May the European Banking Authority (EBA) issued a consultation that will extend guidance on financial crime risk management to CASPs across the EU. In a consultation that will run until 31 August, the EBA sets out sectoral guidelines for risk-based CASPs. In it, the EBA outlines four key risk areas that CASPs will need to consider as part of their AML/CFT risk management activities:
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transactions with own wallets or with unregulated CASPs;
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activities that increase anonymity, such as using privacy-enhancing features or transactions involving crypto-cash services, such as Bitcoin ATMs;
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the nature of the user’s activities, such as dark web connectivity, and;
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to clients connected to or located in high-risk jurisdictions.
Europe continues to make progress in CBDC research
Meanwhile from the EU, central bank digital currency (CBDC) research continues to advance at a steady pace.
On May 26, the European Central Bank (ECB) announced the results of two exercises it conducted on the market conditions and technical considerations that would be needed to advance work on the digital euro. The studies concluded that there are numerous private sector firms that could carry out the development of the digital euro and that there are already technical possibilities to integrate the digital euro into the online payment environment.
While the ECB has yet to make a decision on whether to issue a digital euro, the results could help those within the EU who would like the bloc to move forward as a CBDC.
Proposed legislation in the US should settle the crypto-value debate
Lawmakers in the US Congress have begun circulating a bill that aims to provide clarity to the crypto market there on the issue of when a crypto asset is classified as a security.
On June 2, two Republican members of the US House of Representatives – Republicans Patrick McHenry and Glenn Thompson – introduced a bill for debate that, according to them, would “provide clarity, fill regulatory gaps and encourage innovation, while providing adequate consumer protection.” .
Among the key goals of the draft is to clarify when a crypto-asset qualifies as a security or commodity.
Currently, the question of when a cryptoasset qualifies as a commodity under the jurisdiction of the Commodity Futures Trading Commission (CFTC) or a security under the jurisdiction of the Securities and Exchange Commission (SEC) remains a matter of ongoing debate.
Under the McHenry-Thompson bill, crypto companies can claim that the cryptoasset they offer for trading is a commodity if they can show that it is decentralized, which would bring them under the CFTC’s exclusive jurisdiction as a digital commodity exchange.
The bill would allow the SEC — which has famously led an enforcement push against crypto firms it says were offering unregistered securities — to challenge a claim that a cryptoasset is a commodity, but would require the SEC to publish an analysis of the asset before doing so. do. . That could significantly limit the SEC’s ability to take enforcement actions against crypto companies it deems to be dealing in unregistered securities.
Because McHenry and Thompson are chairmen of the House Financial Services Committee and the House Agriculture Committee, their proposal carries significant weight in the US Congress. However, to become law, the bill or a similar version would still need the support of Democrats in the House and Senate, who have been more supportive of the SEC’s approach to addressing perceived abuses in cryptoasset markets.
Nonetheless, even if the McHenry-Thompson proposal faces an uphill battle to become law, it offers an important model for how cryptocurrency legislation could ultimately take shape in the US.
Compliance with EMEA regulations
