Dubai Financial Services Authority (DFSA)
Crypto Token Regime
The DFSA’s new Crypto Token regime came into effect on 1st November 2022. The comprehensive regime has extended the scope of many current financial services activities, to allow firms in the DIFC to provide products and services involving Crypto Tokens. The highlights of the new rules are:
- An “Accepted Crypto Token” approval process and prohibition of the offering of Privacy and Algorithmic Tokens
- 10 different regulated activities will have their scope expanded to allow services in Crypto Tokens
- New retail clients’ protections involving leverage and marketing
- Several significant changes affecting funds investing in Crypto Tokens
- A new fee structure for approving tokens and adding activities involving Crypto
Alongside these changes, the regime addresses AML/CFT risks in trading, clearing, holding & transferring Crypto Tokens, in addition to risks relating to consumer protections, market integrity, custody, and financial resources for service providers.
Our comprehensive analysis of the new Crypto Regime is available here
DFSA Lowers Regulatory Requirements For Lower Risk Firms
The DFSA issued a consultation paper on 7th November 2022, to relieve regulatory burden arising from capital requirements on firms that pose lower prudential risk. The proposed amendments include:
- New classification for activities posing lower regulatory risk
- Removing Expenditure Based Capital Requirements for lower risk firms
- Relaxing liquidity requirements for lower risk firms
- Raising the capital requirements for ATS and Crowdfunding Platform Operators
- Raising the base capital requirements for some Category 4 firms
- Removing Internal Risk Assessment Process (IRAP) Reporting for Categories 3B, 3C and 4 firms
For an in-depth look at the new regulatory requirements you may visit our website.
Abu Dhabi Global Markets (ADGM) Financial Services Regulatory Authority (FSRA) and Registration Authority (RA)
FSRA Strengthens Oversight on Trading in OTC Leveraged Products for Retail Clients
The FSRA’s issued a consultation paper, which closed on 26th September 2022, to regulate the provision of over the counter (OTC) leveraged products to retail clients. The aim of the proposed amendments is to protect retail clients who do not have the required level of financial knowledge or experience associated with these products. The proposal includes:
- Ban on the trading of binary options in the FSRA
- Restricting OTC leveraged products to CFDs & Forex
- New margin call limit for retail client
- Prohibition on promotion of OTC leveraged products to retail clients
- Increasing the capital requirement for Category 3A firms
- New authorization and supervision fees for firms offering such services to retail client
The proposal is comprehensive and includes additional guideline on minimum qualification requirements for controlled function. The full breakdown is available here.
FSRA & RA Issue Proposals On Sustainable Finance
The FSRA”) and the RA have jointly issued a Consultation Paper to seek views on their proposals for a regulatory framework for sustainable finance.
Key highlights of the proposal include:
- Set eligibility criteria for investable assets that remove subjectivity regarding whether an asset is indeed green
- The creation of an “ADGM Green Fund Designation” for funds that choose voluntarily to meet ADGM’s minimum requirements for a Green Fund (“GF”)
- Creation of a second sustainable fund type ADGM Climate Transition Funds (“CTF”) that applies for funds that invest in ‘greening’ assets
An opt-in framework for issuers of green debentures and sustainability-linked debentures. To apply for an ADGM Green Bond Designation or ADGM Sustainability-Linked Bond Designation.
Monetary Authority of Singapore (MAS)
First Industry Pilot for Digital Asset and Decentralised Finance Goes Live
- The MAS announced on 2nd November that its first industry pilot, Project Guardian which explores potential decentralised finance (DeFi) applications in wholesale funding markets has completed its first live trades. Under the first industry pilot, DBS Bank, JP Morgan and SBI Digital Asset Holdings successfully conducted foreign exchange and government bond transactions against liquidity pools comprising of tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY) and Singapore Dollar (SGD).
- MAS is launching two new industry pilots
- Trade Finance: Standard Chartered Bank is leading an initiative to explore the issuance of tokens linked to trade finance assets. The project aims to digitise the trade distribution market, by transforming trade assets into transferable instruments that are more transparent and accessible to investors.
- Wealth Management: HSBC and UOB are working with Marketnode to enable native digital issuance of wealth management products, enhancing issuance efficiency and accessibility for investors.
Mr. Sopnendu Mohanty, Chief FinTech Officer, MAS, said, “The live pilots led by industry participants demonstrate that with the appropriate guardrails in place, digital assets and decentralised finance have the potential to transform capital markets. This is a big step towards enabling more efficient and integrated global financial networks. Project Guardian has deepened MAS’ understanding of the digital asset ecosystem and has contributed to the development of Singapore’s digital asset strategy”.
Hong Kong Monetary Authority (HKMA), Securities and Futures Commission (SFC), and The Financial Services and The Treasury Bureau (FSTB)
Hong Kong Authorities Support Regulatory Framework for Virtual Assets
- The Hong Kong government and the Securities and Futures Commission (SFC) announced further measures to support the development of virtual assets in Hong Kong at the Hong Kong Fintech Week 2022
- The FSTB noted the number of developments showcasing Hong Kong’s readiness to calibrate its legal and regulatory regime to ensure the sustainable development of Virtual Assets
- The amendment to Hong Kong’s anti-money laundering laws will introduce a licensing regime for crypto exchanges in Hong Kong. The bill is expected to come into force on 1st March, 2023
- The government declared its openness to future review of property rights for tokenized assets and the legality of smart contracts to provide a legal foundation for their development
- The HKMA’s consultation on the licensing regime for Stablecoins
- Explore pilot projects: issuing non-fungible tokens, tokenizing government green bond issuances for subscription by institutional investors, and launching e-HKD, Hong Kong’s central bank digital currency
U.S. Department of The Treasury
U.S. Treasury Announces Largest Enforcement Action Against A VASP
The U.S. Department of the Treasury announced the largest-ever enforcement action of its kind against a virtual asset service provider. Crypto exchange platform Bittrex, Inc. (“Bittrex”). As part of a settlement agreement, Bittrex is required to pay approximately $24 million and $29 million, respectively, to the Office of Foreign Assets Control (“OFAC”) and the Financial Crimes Enforcement Network (“FinCEN”).
OFAC and FinCEN found that:
“For years, Bittrex’s AML program and SAR reporting failures unnecessarily exposed the U.S. financial system to threat actors,” said, FinCEN Acting Director Himamauli Das. Bittrex’s failures created exposure to high-risk counterparties including sanctioned jurisdictions, darknet markets, and ransomware attackers. Virtual asset service providers are on notice that they must implement robust risk-based compliance programs and meet their BSA reporting requirements. FinCEN will not hesitate to act when it identifies wilful violations of the BSA.
Financial Stability Board (FSB)
FSB Suggests Framework For International Coordination On Regulating Crypto
The FSB observes that the turmoil experienced in the crypto asset markets earlier this year has highlighted several structural vulnerabilities, exposing:
- Inappropriate business models
- Significant liquidity and maturity mismatches
- Extensive use of leverage
- A high degree of interconnectedness within crypto markets
It considers that all of these vulnerabilities were amplified by:
- A lack of transparency
- Poor governance
- Inadequate consumer and investor protection
- Weaknesses in risk management
The FSB concludes that – for now – there has been limited spill over into established financial markets due to relatively low interconnectedness with the wider financial system but warns that this could “change rapidly” as crypto asset markets recover. In essence, given the speed with which crypto markets are evolving, there is a real possibility that crypto markets could reach a point where they influence global financial stability.
The FSB recommends that national regimes should:
- Empower regulators to oversee crypto asset activities and markets, including crypto issuers and service providers
- Regulate crypto issuers and service providers in a way which is proportionate to the (potential) financial stability risk they pose
- Facilitate information-sharing between regulators
- Require crypto service providers to have effective risk management frameworks and require issuers to address financial stability risks in their relevant markets
- Impose disclosure requirements on crypto issuers and service providers
- Monitor risks arising from interconnections both within the crypto asset ecosystem and between the crypto ecosystem and the wider financial system
- Address risks associated with the combination of functions in a single entity, including requirements to separate certain functions and activities
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