TRM Talks Policy | March 2023

We may only be three months into 2023, but regulators across the globe have been busy. The events of the past quarter can be best summed up in the title of this year’s Oscars favorite: Everything Everywhere All at Once. 

This week, TRM’s policy team came together to break down the extensive regulatory and policy action we’ve seen in digital assets. 

Get the full scoop in just 30 minutes by catching our video. For a warp speed recap, check out the key takeaways below.

Clear and proportionate 

In our last TRM Talks Policy, we predicted that establishing global standards would be a big theme in 2023. One quarter into the year, we are still waiting for standards to solidify. In lieu of them, there has been an emerging conversation on regulation as both a threat to business and a competitive advantage for individual jurisdictions, with places such as France, Hong Kong and Dubai using regulatory clarity to attract business. 

That said, what the regulatory framework looks like also matters. Proportionate regulations that demonstrate an understanding of the risks and nature of the digital asset space are welcome, while over-tightening screws may drive players offshore. As global standards develop, how countries incorporate this dynamic within their interpretation of standards will be the maker of crypto hubs around the world. 

Everything, everywhere, all at once 

So how are national policymakers and regulators looking at digital asset regulation in 2023? 

Asia Pacific

In Asia Pacific, Hong Kong has been moving fast to establish itself as a crypto hub. The Securities and Futures Commission (SFC) issued detailed rules for its VASP regulatory regime set to go live in June. The rules make good on its promise to open up retail crypto investing, albeit with significant guardrails. The Hong Kong Monetary Authority (HKMA) also published details of the stablecoin regime it plans to introduce in 2023/24, and has pledged to minimize regulatory overlap with the SFC regime, which should help manage compliance costs.

In South Korea, though the main piece of crypto legislation, the Digital Assets Basic Act, faces further delays, some clarity has been forthcoming with the STO framework. We’ve also seen sanctions action, with South Korea issuing its first independent sanctions against North Korean crypto actors last month. To further combat crypto crime, South Korean regulators and law enforcement are also shoring up virtual asset monitoring capabilities. 

Down under, we saw the release of the long-awaited token mapping consultation paper that will set the direction for crypto regulation in Australia. The Albanese government seems intent on delivering on its promise to treat ducks as ducks, with the paper mapping crypto assets to Australia’s existing regulatory framework. This poses certain complexities, and the industry is hoping that the final crypto regulatory framework will make clear what is and is not in scope of regulation.

UK and Europe

In the UK, 2023 thus far has revolved around the publication of two consultations. Firstly, the UK’s future financial framework proposes a phased approach to achieving a competitive yet stable crypto economy in the UK. The second consultation puts forward a potential design for a UK retail CBDC. Together, these consultations create a clear road ahead for the UK, but are very much the first in many stages of establishing the regulatory framework that will guide the UK’s crypto industry. 

In the first quarter of 2023 we also saw several announcements by UK regulators and law enforcement regarding concerted efforts to enforce the country’s ban on crypto ATMs. There appears to be a general trend against financial access for crypto businesses in the UK, with retail banks placing limits on retail transactions to crypto businesses since the end of last year. 

Across the channel in the European Union, policymakers have also been hard at work. Despite a delay on the final passage of the Market in Crypto Assets directive (MiCA), several other files were pushed forward. The Directive on Administrative Cooperation (DAC8) was progressed, bringing crypto asset service providers under the EU’s tax reporting and information sharing agreements to help uncover tax fraud and evasion. The European Council also shared their compromise text on the Data Act, which will bring in harmonized standards for smart contracts. 

The European Parliament also continued to fine tune the Anti-Money Laundering Regulation (AMLR), the main piece of legislation that instructs crypto businesses in the EU on how to implement anti-financial crime controls. The EP is set to vote on the text at the end of the month. 

United States

Perhaps the award for both least and most action has to go to the US, where we continued to see significant enforcement action while it remained relatively quiet on the policy front. If any significant crypto policy moves are forthcoming from the US of A, it will likely be in the stablecoin arena. That said, we have seen indications from both the US and the UK that a CBDC is more likely than not at some point, so this will be an interesting space to follow on both sides of the pond.

Middle East

Just shy of its first birthday, the Dubai Virtual Asset Regulatory Authority (VARA), the world’s only dedicated virtual asset regulator, issued a comprehensive set of rulebooks for its licensees, with everything we’ve come to expect in crypto regulation –- from travel rule compliance to consumer protection measures and tech risk management. With regulatory clarity becoming a key competitive advantage, VARA will be one to watch over the next few months. 

International bodies

Turning next to the international standard setters, the Financial Action Task Force (FATF) held its annual plenary in February. Here, it announced that member states had agreed to a ‘roadmap’ to support and strengthen the implementation of Recommendation 15 around the world. The group also published a pivotal report on ransomware which sets out the threat landscape and what countries and the private sector can do to counter ransomware attacks. Outside of FATF, digital assets remained a focus for the G20 this quarter with the Indian presidency continuing to release statements on this matter. 

What’s next

After all that action in just three months, what could possibly await us in the world of crypto policy? A pause, perhaps?

Policymakers will take time to digest industry reactions to the proposals that they have put out this first quarter as well as late last year, but it won’t be long before they move ahead. For example, it is likely that we will see a final decision from the Monetary Authority of Singapore on its earlier user protection and stablecoin proposals, as well as more detail on the crypto licensing framework down under. 

Aside from ongoing policy work, we see two trends that will likely shape the discourse over the next few months:

• With the forthcoming publication of the US AML/CFT risk assessment of DeFi, it is likely that this topic will be front and center for many policymakers as we head into the summer. To catch up on the latest thinking from the DeFi industry itself, watch this episode of TRM Talks.
  
  
• Financial and market stability will also be top of mind. The recent activity in both traditional and crypto banking markets will bring a renewed focus on risk management across the sectors and for policymakers who are concerned about investor protection. 

We’re also anticipating more on the global stage, with the IMF-FSB synthesis paper expected ahead of the big G20 meet in September. With the amount of regulatory work going on nationally, it is imperative that meaningful global dialogue continues at pace to avoid a multiverse of regulations colliding with adverse results. 

One thing remains certain– there is always something new to digest in the world of crypto policy, so stay tuned for our next episode of TRM Talks Policy coming in summer.