Global Digital Assets Digest: May 2024

Welcome to this month's Global Digital Assets Digest. In the UK, we have an important speech from a Bank of England official in relation to payments and innovations, as well as the UKJT's Legal Statement on digital assets and English insolvency law. At the EU level, there are important developments in relation to the passage of the EU AML package, as well as clarification from EU regulators on the EU DLT Pilot Regime. In the US, there are notable developments in relation to the Financial Innovation and Technology for the 21st Century Act as, well as proposed legislation for a regulatory framework in respect of stablecoins.

Updates and Guidance: International Bodies

1. EU Official Journal: eIDAs 2.0

2. EBA: Final report on RTS in respect of acquisition of qualifying holdings in issuers of ARTs

3. EBA: Draft RTS on the approval process for white papers for ARTs issued by credit institutions under MiCA

4. EBA: Final report on draft ITS and RTS for offer to the public of ARTs

5. ECB: Speech by Piero Cipollone: Tokenisation of financial instruments and central bank money settlement

6. BIS: CPMI Report: Service level agreements for cross-border payment arrangements: Recommendations and key features

7. ESMA: Letter from the European Commission on the EU DLT Pilot Regime Implementation

8. European Parliament: Plenary vote on AML package

9. EBA: Factsheet: Uses of DLT in the EU banking and payments sector: EBA innovation monitoring and convergence work

10. IOSCO: Updated 2024 Work Plan

11. EBA: Speech by Jose Manuel Campa at the Annual Assembly of the Spanish Banking Association

Updates and Guidance: UK

12. FCA: Updated webpage: AML/CTF regime: feedback on good and poor quality applications

13. HM Treasury: Policy Paper: UK and Singapore strengthen collaboration in sustainable finance and FinTech

14. FCA: Consultation paper: Financial Crime Guide Update

15. BoE: Speech by Sarah Breeden, Deputy Governor, Financial Stability: Modernising the trains and rails of UK payments

16. BoE: Policy Statement and Consultation: Mandating ISO 20022 enhanced data in CHAPS

17. UKJT: Legal Statement on digital assets and English insolvency law

18. PRA: Business Plan 2024/25

Updates and Guidance: Europe

19. Deutsche Bundesbank: Speech of Burkhard Balz on the digital euro

20. Speech of Joachim Nagel on the digital euro

21. German Banking Industry Committee: Response to BCBS consultation regarding cryptoasset standard amendments

Updates and Guidance: APAC

22. Hong Kong launches Asia's first spot Bitcoin and Ethereum ETFs

23. HKMA: Risk management considerations related to the use of distributed ledger technology

Updates and Guidance: Australia

24. ASIC: Success in first court outcome against a non-cash payment facility involving cryptocurrency

Updates and Guidance: North America

25. House Committee on Rules: Financial Innovation and Technology for the 21st Century Act

26. SEC: Staff Accounting Bulletin No. 121 - U.S. House of Representatives passes H. J. Res. 109

27. Blockchain Integrity Act

28. Federal Reserve: Supervision and Regulation Report

29. US Senate: Legislation for stablecoins introduced

Updates and Guidance: Middle East

Press/Articles

30. Börsen-Zeitung Interview with Burkhard Balz on the digital euro

Updates and Guidance: International Bodies

1. EU Official Journal: eIDAs 2.0

On 8 May 2024, the Regulation amending Regulation (EU) No 910/2014 concerning establishing a framework for a European Digital Identity (eIDAS 2.0) was published in the Official Journal.

eIDAS 2.0, which was introduced by the European Commission in June 2021, aims to (among other things) improve reliability of electronic identification and trust services within the EU. It introduces an EU Digital Identity Wallet framework in EU Member States with the aim of providing easier access to goods and services. Under the framework, EU citizens and businesses will be offered digital wallets linked to their national identification, allowing for electronic identification and authentication. The framework envisages that the digital wallet will be used for strong customer authentication processes. The wallet will contain a dashboard of all transactions accessible to holders both offline and online.

eIDAs 2.0 is to be fully implemented in Member States by 2026.

2. EBA: Final report on RTS in respect of acquisition of qualifying holdings in issuers of ARTs

On 7 May 2024, the EBA published the final report in respect of RTS on information necessary to carry out the assessment of a proposed acquisition of qualifying holdings in issuers of ARTs under Article 42(4) of MiCA. MiCA requires prior notification to a competent authority and a prudential assessment to be carried out before acquisition of qualifying holdings in issuers of ARTs/increase in qualifying holdings.The prudential assessment must be carried out against certain criteria, including: reputation of the proposed acquirer (integrity and professional competence); and financial soundness of the proposed acquirer.

ESMA has a separate mandate for the development of RTS in respect of the prudential assessment of acquisitions/increases of qualifying holdings in CASPs.

The EBA first consulted on the RTS in 2023 and has made minor clarificatory changes to some aspects.

The draft RTS will be submitted to the European Commission for endorsement, after which they will be subject to scrutiny by the EU co legislators.

For more on MiCA, please see our briefings here and here.

3. EBA: Draft RTS on the approval process for white papers for ARTs issued by credit institutions under MiCA

On 7 May 2024, the EBA published its final report in respect of draft RTS concerning the approval process for white papers.

Under MiCA, credit institutions intending to issue ARTs do not need a specific authorisation but are to provide notification to the home competent authority. The credit institution is also required to produce a cryptoasset white paper on the characteristics and risks of ARTs.

The draft RTS seek to harmonise the timeframes and steps involved in the procedure. The draft RTS also set out the expectations concerning instances where the timeline set out in MiCA for the publication of an opinion by the ECB/other relevant central banks on risks related to the ART expires without an opinion having been provided to the competent authority.

The draft RTS will be submitted to the European Commission for endorsement, after which they will be subject to scrutiny by the EU co legislators.

For more on MiCA, please see our briefings here and here.

4. EBA: Final report on draft ITS and RTS for offer to the public of ARTs

On 7 May 2024, the EBA published a final report in respect of:

• RTS on the information to be contained in an application to offer ARTs to the public or to seek admission to trading of ARTs; and
• ITS on standard forms, templates and procedures for the information to be included in the application.

Information covered in the RTS includes: internal governance arrangements; suitability of the members of the management body; the identification details of the applicant issuer; and programme of operations.

The draft RTS and ITS will be submitted to the European Commission for endorsement, after which they will be subject to scrutiny by the EU co legislators.

For more on MiCA, please see our briefings here and here.

5. ECB: Speech by Piero Cipollone: Tokenisation of financial instruments and central bank money settlement

On 9 May 2024, the ECB published a speech by Piero Cipollone, Member of the Executive Board of the ECB, on tokenisation of financial instruments and central bank money settlement. Areas covered in the speech include the following: importance of central banks; the complementary role played by wholesale transactions and retail payments; potential benefits of the DLT for the market; and implications for central bank money settlement.

6. BIS: CPMI Report: Service level agreements for cross-border payment arrangements: Recommendations and key features

On 29 April 2024, the CPMI issued a report in relation to service level agreements for cross- border payments. These agreements sets out minimum service levels for correspondent banking relationships, the links between payment systems and payment instrument rulebooks.

The CPMI considers service level agreements as a priority in terms of achieving targets by end-2027 and believes that the report can contribute to some harmonisation of cross-border payment service level agreements.

The report contains recommendations, key features and questions that are intended to assist in the review of both current service level agreements and when agreeing new agreements Recommendations cover: enforceability of service levels; performance and adherence; geographic scope; risk management and safety measures; interoperability; transparency and efficiency; and timeliness and finality of settlement.

7. ESMA: Letter from the European Commission on the EU DLT Pilot Regime Implementation

On 7 May 2024, the European Commission published a letter (dated 3 May 2024) sent by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union, to Verena Ross, ESMA Chair, on implementation of the EU DLT Pilot Regime Regime (see our briefing here for background on the regime). This follows a letter published by ESMA in April 2024 (see Global Digital Assets Digest April 2024 edition).

In the letter, Ms McGuinness notes confusion amongst market participants about the duration of the DLT Pilot Regime, confirming that there is no expiration date for the DLT Pilot Regime. Ms McGuinness confirms that any changes to the DLT Pilot Regime (including its termination) would only occur if the European Commission submits a new legislative proposal that is then agreed by EU co-legislators. The framework is likely to continue to apply in its current form if no proposal is made to amend it.

For more information on the DLT Pilot Regime, please see our guide here.

8. European Parliament: Plenary vote on AML package

On 24 April 2024, the European Parliament voted in plenary in relation to the EU AML Package. The Package consists of: the sixth AML directive; the Anti-Money Laundering Authority (AMLA) Regulation; and a Regulation on prevention of the use of the financial system for the purposes of money laundering or terrorist financing. It was introduced by the European Commission in July 2021 and has been proceeding through the EU legislative process.

The revised Wire Transfer Regulation, which also formed part of the package, requires CASPs to provide full information about the sender and beneficiary with all transfers of cryptoassets, (as payment service providers currently do for wire transfers) and was published in the Official Journal in June 2023. It applies in December 2024.

Under the new regime, CASPs will be considered as financial institutions, and will be subject to the same requirements as those imposed on banks and other types of financial institutions. Member States will be able to require CASPs established in their territory with a head office in another Member State to appoint a central contact point (as is currently already the case for electronic money issuers and payment service providers). CASPs will have to apply enhanced due diligence measures in their cross-border correspondent relationships and when performing transactions with self-hosted addresses.

The package will need to be formally adopted by the Council before publication in the EU’s Official Journal.

9. EBA: Factsheet: Uses of DLT in the EU banking and payments sector: EBA innovation monitoring and convergence work

On 24 April 2024, the EBA published a factsheet on the uses of DLT in the EU banking and payments sector. The objectives of the EBA's study include: identifying use cases where DLT is employed by financial institutions; and assessing the opportunities and vulnerabilities, so as to inform supervisory approaches on the permissibility of DLT use.

The EBA considers that the main categories of use cases of DLT by financial institutions appears to be most advanced (use of DLT to store and keep records of transactions, mortgages, contracts and other documents, and to reconcile bilateral accounts; use of DLT for atomic settlement and for netting positions between participant nodes; the use of DLT to distribute tokens to reward customers that perform certain actions or choose specific services; and use of DLT to digitally store and use identity attestations.

The EBA confirms that it will be undertaking a more detailed assessment of how to promote supervisory convergence in relation to the use of DLT. It plans to publish a thematic report on its findings in 2025 and will be engaging with the market.

10. IOSCO: Updated 2024 Work Plan

On 12 April 2024, IOSCO published its updated Work Plan for 2024. The Plan supports IOSCO overall two-year Work Program. The plan refers to new workstreams that reflect increased focus on AI; tokenisation; and credit default swaps. IOSCO notes that following the delivery of its crytpoasset policy roadmap, it will be looking at monitoring the implementation of its crypto and digital assets and DeFi recommendations

11. EBA: Speech by Jose Manuel Campa at the Annual Assembly of the Spanish Banking Association

On 11 April 2024, the EBA published a speech delivered by Jose Manuel Campa at the Annual Assembly of the Spanish Banking Association. This looks at the reliance placed by firms on innovative technology services to deliver financial services. Part of the speech looks at tokenisation, crypto and DeFi.

Notable points

• Recent research undertaken by the EBA reveals that many banks are exploring, developing, experimenting with or using DLT, with some specifically looking at deposit tokenisation. The EBA is accordingly looking to progress on assessing the opportunities and risks, as well as the need for supervisory convergence.
• The EBA's ongoing stocktake of deposit tokenisation looks to promote common understanding of opportunities and risks, as well as a common supervisory stance.
• The EBA will be reporting to the European Commission later in 2024 on some activities that fall outside of MiCA's scope.
• Crypto lending and staking activities currently fall outside the scope of MiCA and have increased in recent years. Shortcomings identified in this area include: poor disclosures of terms and conditions; complex business models; conflicts of interest; and lack of clarity regarding enforceability of claims.

Updates and Guidance: UK

12. FCA: Updated webpage: AML/CTF regime: feedback on good and poor quality applications

On 9 May 2024, the FCA updated its webpage "Cryptoasset AML/CTF regime: feedback on good and poor quality applications". The FCA has updated the section on registration statistics to include a summary of the applications for registration received by the FCA and the outcomes of the applications that have been determined, as at 1 May 2024. The FCA states that it rejected submissions that didn’t include key aspects necessary for it to undertake an assessment.

The update does not include information on any appeals following FCA decisions to refuse applications.

13. HM Treasury: Policy Paper: UK and Singapore strengthen collaboration in sustainable finance and FinTech

On 8 May 2024, HMT issued a document containing a public record of discussions held at the ninth UK-Singapore Financial Dialogue in Singapore.

Main points

• The UK gave an update on its final proposals for the regime in respect of regulatory activities concerning certain cryptoasset and certain fiat-referenced stablecoins (see our briefing here for a background).
• The UK provided information on progress following the publication of the “digital pound” consultation response paper in January 2024.
• UK discussed its approach to wholesale payments, including on infrastructure supporting the settlement of tokenised transactions.
• The UK and Singapore remain committed to the G20’s Roadmap to Enhancing Cross-Border Payments, including the FSB’s priorities for 2024, as contained in the most recent progress report. The BIS Innovation Hub Singapore Centre also shared the progress of Project Nexus.

14. FCA: Consultation paper: Financial Crime Guide Update

On 25 April 2024, the FCA published a consultation paper in relation to its Financial Crime Guide. Areas of consultation include making an explicit reference in the guide that MLR-registered CASPs should consult the Guide.

CASPs have been required since September 2023, to collect, verify and share information about cryptoasset transfers. The FCA is proposing to include a reference to the Travel Rule in the section already existing for customer payments and considers that the good practice already contained in the Guide is likely to be of relevance to CASPs. The FCA is also proposing:

• additions to the sections on risk assessment, handling higher risk situations and fraud, and to reflect some of the findings of good and poor practice when using blockchain analytics as part of transaction monitoring;
• providing links to useful guidance material for cryptoasset firms including guidance on compliance with the Travel Rule; and
• adding an example of good practice in screening outbound transactions to identify cryptoassets wallet addresses linked to fraud.

15. BoE: Speech by Sarah Breeden, Deputy Governor, Financial Stability: Modernising the trains and rails of UK payments

On 15 April 2024, the BoE published a speech by Sarah Breeden, Deputy Governor, Financial Stability delivered at the Innovate Finance Global Summit 2024. The speech explores how the BoE aims to deliver trust and support innovation, as a provider and regulator of retail and wholesale money, in the face of technological changes.

Innovation in money and payments

• The BoE will publish a discussion paper on innovation in wholesale payments and the importance of payments innovation by banks. The discussion paper will complement work undergoing in respect of stablecoin and CBDCs.
• The UK has not seen the same type of interbank retail payment systems (such as the Unified Payments Interface in India, Pix in Brazil and Swish in Sweden) allowing for retail payments alongside the use of cards.
• DLT and the potential for atomic settlement and programmability could offer greater efficiency and functionality for real world retail and wholesale payments. The BoE's role in maintaining financial stability and monetary stability means it will be monitoring developments in this area.

Stablecoin regulation

• Stablecoins used at a systemic scale for payments should be backed 100% by central bank deposits (these would be unremunerated). Revenues for stablecoin issuers could come accordingly from fees for the use of the payment rails themselves or via provision of ancillary services.

Exploration of retail CBDC

• The BoE is aware of possible risks (e.g. walled gardens) posed to "uniformity of money" by new players issuing money and considered these issues in its discussion paper on a retail digital pound.
• A decision has not yet been made in relation to the digital pond. Work over the next two years will look at potential benefits and costs, including operational and technical feasibility. Key areas of review will also include the nature and scale of innovation in other forms of retail money and any supporting role wholesale payments infrastructure could play.

Payments and payments innovations by banks

• Progress is being made on modernising the UK's RTGS system. The BoE is looking at how wholesale infrastructure could support the settlement of tokenised transactions.
• Tokenised securities would not be able to settle in central bank money as they would rely on privately issued settlement assets, such as tokenised bank deposits.
• The BoE's new omnibus account for the RTGS allows for private sector payments systems using DLT to offer settlement in a tokenised representation of central bank money. The BoE is also looking at extending the renewed RTGS system to offer synchronised settlement in number of assets.
• The BoE is keen to understand how different models for central bank infrastructure compare, as well any existence of differences in payment use cases that can be supported.
• Initiatives such as "Project Agor" (a project involving the BoE, BIS and a number of other central banks) increase understanding of the implications of cross-border money holdings and payment flows.

16. BoE: Policy Statement and Consultation: Mandating ISO 20022 enhanced data in CHAPS

On 12 April 2024, the BoE published a Policy Statement and consultation on Mandating ISO 20022 enhanced data in CHAPS. This provides further information in relation mandatory requirements for enhanced data coming into effect in 2025 and 2026. It also seeks views on proposals for expanding the mandatory requirements for enhanced data in CHAPS payments from 2027.

Following the move of Transition State 3 (core ledger and settlement engine) of the BoE’s RTGS Renewal Programme, the BoE plans to defer the mandated adoption of ISO 20022 enhanced data from November 2024 to 1 May 2025. This is in light of feedback, which suggested sufficient time was needed between these two milestones.

The BoE is planning to expand the scope of its mandatory requirements on enhanced data in CHAPS payments from November 2027 as follows:

• including all initiation channels within the scope of enhanced data requirements from November 2027; and
• mandating the inclusion of Purpose Codes for all CHAPS payments from November 2027.

The BoE also updated its webpage on RTGS renewal programme to note that the introduction of the new RTGS core ledger and settlement engine (Transition State 3) will take place in Autumn 2024

The deadline for comments is 28 June 2024.

17. UKJT: Legal Statement on digital assets and English insolvency law

The UK Jurisdiction Taskforce (UKJT) published its "Legal Statement on Digital Assets and English Insolvency Law." The Statement confirms the view that digital assets are a form of personal property to which insolvency laws apply. It also affirms that the current approach taken by the English courts to determine whether they are the appropriate venue for the commencement of insolvency proceedings works for a company dealing in digital assets. The statement should provide assurance to creditors that digital assets held by debtors will not be bankruptcy-remote and that the courts and office-holders have the appropriate legal powers. The statement also provides clarity to the beneficiaries of digital asset holdings held on trust by debtors.

For more information, please see our briefing here.

18. PRA: Business Plan 2024/25

On 11 April 2024, the PRA published its Business Plan 2024/25. This contains details in relation of the PRA's programme of policy, supervisory and operational work over 2024/2025. The Business Plan is the first to have been published by the PRA since the Financial Services and Markets Act 2023 came into force, together with the implementation of the new competitiveness and growth objective for the PRA.

The PRA confirms that the Business Plan will be underpinned by the same strategic priorities set out in its 2023/24 Business Plan.

Action that it is to be undertaken by the PRA under the Business Plan include the implementation of the Basel international standard on the treatment of banks’ cryptoassets exposures (see Ashurst briefing here for further details).

Updates and Guidance: Europe

19. Deutsche Bundesbank: Speech of Burkhard Balz on the digital euro

On 30 April 2024, Burkhard Balz, Member of the Executive Board of the German Central Bank (Deutsche Bundesbank) gave a speech on the digital euro at the event "Future of money" in Bamberg, Germany.

Balz first summarises the project status of the digital euro. The preparatory phase started on 1 November 2023 and is initially set for two years, during which further crucial groundwork for the potential introduction of a digital euro is to be laid. Balz then explains the two main reasons for considering the digital euro: the increasing digitisation of payments and the desire for a European solution to maintain sovereignty and independence in critical areas. Balz goes on to emphasise the importance of preserving privacy in digital transactions and highlights ongoing legislative processes to ensure privacy and user-friendliness of the digital euro. Also noted was the evolving role of cash in society, citing scenarios for future cash usage in Germany and emphasising the need to ensure cash availability and acceptance, especially during crises. Finally, Balz advocates for a future where cash and the digital euro complement each other to meet diverse citizen preferences and ensure economic resilience in Europe.

20. Speech of Joachim Nagel on the digital euro

On 16 April 2024, Joachim Nagel, President of the German Central Bank (Deutsche Bundesbank) delivered a speech at the Fireside Chat with MIT-Students Cambridge, Massachusetts, USA

Nagel began the speech by outlining three reasons for a CBDC: central banks must follow suit on the increased digitisation of the word; the increasing use of digital technologies and of digital payment systems has led to rising interest in privacy and data protection (the digital euro would offer the highest possible level of privacy); and the digital euro would facilitate the development of pan-European payment systems, by providing people with a digital means of payment that is standardised. Nagel also explained the two main ways the digital euro is intended to be used. The standard use-case would be apps that are supplied by banks and other payment service providers, integrating the digital euro into their wallets. Under the second approach, the Eurosystem would develop and provide a smartphone payment app. The latter would serve as use case, especially for smaller banks or service providers who do not intend to build their own app.

21. German Banking Industry Committee: Response to BCBS consultation regarding cryptoasset standard amendments

On 10 April 2024, the German Banking Industry Committee (Deutsche Kreditwirtschaft, DK) published its comments on the consultative documents dated December 2023, issued by the Basel Committee on Banking Supervision (BCBS) regarding cryptoasset standard amendments.

In the comment, DK expresses its concerns regarding the proposed risk add-ons for crypto-assets. According to DK, this approach could be excessively prohibitive to banks' ability to invest in digital assets. DK also argues that the assumptions for the criteria which lead to these risk add-ons are not clear, adding that this could stifle innovation, limit the growth potential of the crypto sector and even lead to a significant competitive disadvantage for banks on global financial markets. In DK's view, the prudential treatment of cryptoassets should be technology-neutral and risk-based. Therefore, DK proposes specific revisions to the qualification conditions, i.e. to risk governance and risk control policies, redeemability and smart contract audits.

Updates and Guidance: APAC

22. Hong Kong launches Asia's first spot Bitcoin and Ethereum ETFs

On 30 April 2024, Hong Kong Exchanges and Clearing Limited (HKEX) announced the listing of Asia's first Spot Virtual Asset (VA) ETF, adding to the diversity of products in Hong Kong's markets. HKEX Head of Equities Product Development, Brian Roberts, commented that: "The introduction of Spot VA ETFs in Hong Kong is the latest exciting addition to HKEX’s diverse and vibrant ETP [(Exchange Traded Products)] ecosystem, providing investors with access to a new asset class. Following the success of VA Futures ETFs, the listing of Asia’s first spot VA ETFs will further enhance the product diversity and liquidity of the Hong Kong ETP market."

23. HKMA: Risk management considerations related to the use of distributed ledger technology

On 16 April 2024, HKMA published key risk management consideration related to the use of DLT. These considerations set out: (i) the key issues that the HKMA will typically consider when evaluating an authorised institution's DLT-related proposals; and (ii) the competencies and conditions that the HKMA would generally expect an authorised institution to demonstrate and/or fulfil under each area.

Updates and Guidance: Australia

24. ASIC: Successful in first court outcome against a non-cash payment facility involving cryptocurrency

On 3 May 2024, the Federal Court of Australia found that the owner and operator of Block Trade Exchange, BPS Financial Pty Ltd (BPS) engaged in unlicensed conduct and misleading or deceptive conduct and made false or misleading representations when offering investors the "Qoin Wallet". The wallet is a non-cash payment facility utilising a self-issued cryptocurrency, 'Qoin'.

This decision comes after ASIC brought the claim and asserted that BPS sold and mislead more than 79,000 investors.

In light with ASIC's allegations, The Federal Court found that BPS:

1.  Did not hold an Australian Financial Services ("AFS") License and was not an authorised licence holder to issue or provide financial advice about the Qoin wallet, a requirement under the Corporations Act to conduct a financial services business including provide financial product advice, deal in and make a market for a financial product.
2. Engaged in misleading or deceptive conduct and made false or misleading representations by, among other things, falsely asserting that the wallet was registered and that Qoins could be exchanged for other crypto assets or Australian dollar through independent exchanges.

This decision marks the first Australian court outcome regarding a non-cash payment facility involving crypto assets, as ASIC continues to prioritise tougher scrutiny on all crypto issuers in the volatile digital assets space, and closely monitoring disclosures in the market. Furthermore, while ASIC had engaged in previous enforcement actions against crypto asset businesses to clarify the scope of a regulated product and when the provider needs a licence, this was the first time ASIC defined a combination of digital assets as part of a financial product which was upheld by the court.

While regulatory regime and crypto-specific legislation are developing, Joe Longo, ASIC Chair, noted:

"These proceedings should send a message to the crypto industry that their products will continue to be scrutinised by ASIC to ensure consumers are protected and that they comply with regulatory obligations. Entities should not be making claims about features, or the regulatory status of their offerings, that are false or misleading."

Key takeaway

• Cryptocurrency products are financial products and providers need to hold an AFS licence.

Updates and Guidance: North America

25. House Committee on Rules: Financial Innovation and Technology for the 21st Century Act

On 10 May 2024, the House Committee on Rules announced that it planned to consider the Financial Innovation and Technology for the 21st Century (FIT21) Act. The legislation was introduced in July 2023 by Chairman Glenn Thompson, Rep. French Hill, Rep. Dusty Johnson, Whip Tom Emmer, and Rep. Warren Davidson. The legislation confers the CFTC with jurisdiction over digital commodities and clarifies the role of the SEC over digital assets offered as part of an investment contract.

26. SEC: Staff Accounting Bulletin No. 121 - U.S. House of Representatives passes H. J. Res. 109

On 8 May 2024, the U.S. House of Representatives passed Representative Mike Flood's (Ne-01) bipartisan H.J. Res.109 "Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Securities and Exchange Commission relating to ‘Staff Accounting Bulletin No. 121". H.J. Res.109 overturns the SEC's SAB 121 under the Congressional Review Act.

SAB 121 was issued in 2022 and provides guidance on how entities in scope should account for their obligations to safeguard cryptoassets held for platform users; relevant disclosures; and application of rules to financial statements.

27. Blockchain Integrity Act

On 7 May 2024, it was announced that US Congressman Sean Casten (Il-06) had introduced the Blockchain Integrity Act, a piece of legislation co-sponsored by Reps. Bill Foster (Il-11), Brad Sherman (CA-32), and Emanual Cleaver (MO-05). The legislation would impose a 2 year moratorium to prevent financial institutions from transacting with funds that have gone through the digital asset mixers. During this period, the Treasury Department, SEC, CFTC, and DOJ would carry out a study on digital asset mixers, privacy coins, and anonymity-enhancing technologies.

28. Federal Reserve: Supervision and Regulation Report

In May 2024, the Federal Reserve published its supervision and regulation report. The report summarises developments in three areas: Banking System Conditions (overview of the financial condition of the banking sector);. Regulatory Developments (the Federal Reserve’s recent regulatory policy work); and Supervisory Developments (the Federal Reserve’s current supervisory programs and priorities). The report also contains information in relation to the Novel Activities Supervision Program. The report confirms that Program staff are keeping a close eye on trends in novel activities at banks, the broader cryptoasset and fintech market, and other novel material developments.

29. US Senate: Legislation for stablecoins introduced

On 17 April 2024, it was announced that Senator Cynthia Lummis (R-WY) and Kirsten Gillibrand had introduced bipartisan legislation in relation to a regulatory regime for payment of stablecoins (the Lummis-Gillibrand Payment Stablecoin Act). The Bill requires stablecoin issuers to maintain one-to-one reserves and prohibits unbacked, algorithmic stablecoins; prevents illicit or unauthorised use of stablecoins by issuers and users; creates federal and state regulatory regimes for stablecoin issuers; imposes third party risk management on third party contracted service providers (with an exemption for self-custody wallet providers); and provides that state trust companies issuing stablecoins can be legal custodian of record for payment stablecoins and reserves, but must use a federal/state chartered-depositary institution as sub-custodian to hold assets.

The Bill follows Chairman McHenry's proposed Clarity for Stablecoins Act, which was introduced in July 2023, and also seeks to regulate stablecoins.

Updates and Guidance: Middle East

No new entries.

Press/Articles

30. Börsen-Zeitung Interview with Burkhard Balz on the digital euro

On 7 May 2024, Burkhard Balz, Member of the Executive Board of the German Central Bank (Deutsche Bundesbank) gave an interview to the Börsen-Zeitung on the digital euro.

In the interview, Balz discusses the benefits of a digital euro for Eurozone consumers, emphasizing its universality, convenience, and privacy protection. He highlights the need for European digital payment solutions to ensure strategic independence from non-European systems. While acknowledging the European Payments Initiative (EPI), he argues for a central bank digital currency alongside private initiatives. Balz addresses concerns from banks regarding the digital euro's impact on financial stability and business models, proposing safeguards like transaction limits and seamless integration with existing banking systems. He highlights the importance of data privacy, particularly in Germany, and explains measures taken to ensure privacy while combating money laundering. Balz predicts legislative delays due to the upcoming European elections but outlines ongoing efforts to develop the digital euro, targeting a potential launch no earlier than 2028, with a focus on technology, regulatory framework, and marketing strategies.

Contributors: Julian Pipolo, Senior Associate; Angelique Nelis, Associate; Gréta Müller, Associate; Cornelius Hille, Associate; Tobias Bauerfeind, Senior Associate; Ashleigh Smithson, Trainee