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🇸🇻 The Central Bank of El Salvador has released draft Bitcoin regulations
Banco Central de Reserva, the central bank of El Salvador, published this week a draft of proposed regulations regarding the interaction between the banking sector and the Bitcoin ecosystem, ahead of the planned launch of Bitcoin as legal tender. The hotly anticipated change in Bitcoin’s legal tender status in El Salvador is set to take place on September 7 and will mark the first time that a country will designate the virtual asset issued by non-governmental organizations as an acceptable form of payment for all public and private debts.
El Salvador’s leadership is split in two. The first directly addresses the legal status of Bitcoin and implements legislation passed earlier this year, which seeks to redefine bitcoin as legal tender in the country. The second part discusses the technical and operational aspects of implementing the proposed regulatory transformation of Bitcoin, from being strictly a virtual asset to a full currency equivalent. Although the central bank’s initial guidance addresses the main open questions related to policy implementation, there is likely to be a series of further guidance, following continued input from the business community.
The focus this guide has placed on the traditional financial sector demonstrates the fact that partnerships between financial institutions and blockchain stakeholders will be vital. The government must ensure that customers are provided with both the user experience and control framework they are used to dealing with, while still taking advantage of Bitcoin’s technological advantages. Financial institutions will be required to apply to the central bank for permission to maintain bitcoin custody services or to offer wallet products. The regulatory regime is expected to scrutinize the compliance of these firms, as proper implementation of the program will be key to ensuring the overall success of public adoption of the virtual currency.
Although El Salvador’s regulatory regime has a generally progressive and crypto-friendly approach, there are some key differences in the requirements that apply to financial institutions dealing with Bitcoin versus fiat currency. Notable among these differences is the requirement that all bitcoin assets held by a financial institution must be fully backed; partial banking processes may not be used.
However, many of the positive developments for El Salvador’s economy have been tempered by international uncertainty surrounding the long-term viability of Bitcoin, given its propensity for volatility. In particular, Fitch Ratings has indicated that there are likely to be negative implications for the credit rating of firms in El Salvador, since the volatility risk of Bitcoin is significantly higher than that of traditional fiat currency. As Bitcoin becomes more popular and institutional adoption progresses, there is hope that this volatility will decrease and that the increased risk noted by rating agencies will be adequately mitigated.
🇺🇸 SEC’s Gensler teases SEC oversight of DeFi
In an interview with the Wall Street Journal, SEC chief Gary Gensler strongly suggested that major players in the decentralized finance space may be subject to regulatory oversight by the Commission. Gensler stated:
There is still a core group of people who not only write software, like open source software, but often have management and fees […] There is some incentive structure for those promoters and sponsors in the middle of this.
The implications of Gensler’s comments could be far-reaching, with potential AML, KYC and other regulatory obligations potentially becoming applicable to the large (and growing) sector of the DeFi space related to exchange activity. If the SEC deems that promoters exercising control over DeFi management tokens have a regulatory obligation to prevent transactional activity associated with illicit funds, tools such as Navigator and Lens from Elliptic must be used to identify instances of problematic activity and mitigate the associated risk.
🇮🇳 Bill to ban cryptocurrencies in India under government consideration
Nirmala Sitharaman, India’s finance minister, said on Monday that a proposed law that would ban all private cryptocurrencies in India is under government review and could receive approval in the near future. While certain measures have been made to enable state-sponsored crypto-projects and the development of non-financial blockchain products, the bill would essentially shut down India’s nascent crypto-technology sector. Supporters of cryptocurrency must hope that the industry’s arguments for financial innovation and services for the underbanked are enough to overcome local political opposition to privatized money-like instruments.
🇪🇸 The Spanish National Securities Market Commission has cracked down on unregulated VASPs
Spain’s securities regulator has issued strict warnings over the operation of several unregistered crypto exchanges in its jurisdiction. Among them is Huboi, one of the world’s largest stock exchanges by volume. Although the regulator has not outright banned these exchanges, the increased regulatory scrutiny represents a change of tone, as the virtual asset sector has matured into an important part of the global financial ecosystem. As the value and market penetration of virtual assets increases, security and propriety concerns regarding their use have become more prominent.
🇺🇸 Rostin Behnam assumes permanent leadership of the CFTC
Bloomberg reported that Rostin Behnam, the current acting chairman of the Commodity and Futures Trading Commission, will take over the role on a permanent basis, according to unnamed sources in the Biden administration. Behnam, who will become one of the main regulators of cryptoassets in the United States, previously had warm words for the industry. At the 2018 Annual Japan Conference of the International Swaps and Derivatives Association, he asked the audience to:
Just take a moment to think about all the possible use cases for DLT from agriculture to healthcare, finance to art, CryptoKitties to dogecoin. These innovations are more than technology: they inspire us to find solutions to every problem or obstacle we encounter — and sometimes they’re just for fun.
Industry participants will likely appreciate this positive outlook from the Chair and hope that regulatory innovation will help reduce illicit blockchain activity while promoting mainstream and institutional adoption of this new asset class.
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