Coincover’s regulatory roundup February 23
The start of 2023 has seen regulators hitting the gas on their plans for crypto regulation. Hot on the heels of the news that the UK is in a consultation period for a regulatory framework for crypto, six other countries have declared their crypto regulatory intentions.
The winner of the busiest regulator of the month for February 2023 goes to the USA, whose intention to bring crypto under stricter controls was clear for all to see.
Australia released its consultation paper on crypto regulation on 3rd February. The paper focuses on three elements:
- Strengthening enforcement by building a crypto team at the Australian Securities and Investments Commission (ASIC).
- Bolstering consumer protection using existing financial regulation structures.
- Establishing a framework for reform, bringing out-of-scope crypto services under new regulation.
Australia is much earlier in its crypto regulatory journey than Europe and the UK. Still, it appears to be taking the same approach in using the existing financial services framework where possible and building bespoke regulations for crypto’s more unique aspects.
On February 6th South Korea announced it would regulate security tokens under the country’s Capital Markets Act. This is similar to the approach taken in other jurisdictions, including the UK and the USA. South Korea is looking to develop its dynamic crypto industry and secure its position as a regional crypto hub. Ongoing discussions aim to create a comprehensive legal framework under the Digital Asset Basic Act.
The Dubai Virtual Assets Regulatory Authority (VARA) announced its framework for crypto on the 7th of February. VARA has taken a hard stance against privacy coins with a blanket ban, “The issuance of Anonymity-Enhanced Cryptocurrencies and all VA Activity related to them are prohibited in the Emirate”. Privacy coins pose a particular problem for regulators because of AML compliance issues. Dubai is the first regulatory framework to prohibit them.
February was a busy month for US regulators who appear to be on a crypto warpath. After investigating Kraken for selling unregistered securities, the Securities and Exchange Commission (SEC) issued them a $30m fine and forced them to stop offering their US staking service.
The SEC has been accused of “backdoor rulemaking” after bringing a case against an ex-Coinbase employee. The Chamber of Digital Commerce has said the SEC is using the case to define specific tokens as securities, which would have severe ramifications for the digital asset industry.
They then turned their attention to Paxos, which issues Binance’s stablecoin, BUSD, saying that the token should be registered as a security. The New York Department of Financial Services ordered Paxos to stop minting BUSD, and from the 21st of February, they will not issue any further BUSD.
The SEC is also looking at amending a securities law, the 2009 Custody Rule, which would make it more difficult for crypto organisations to be custodians in the future. Essentially, crypto organisations would have to become ‘qualified custodians’, which are currently TradFi banks, registered broker-dealers, trust companies, etc.
On the 16th of February, the SEC filed securities fraud charges against Terraform and Do Kwon.
On the 20th of February, the Hong Kong Securities and Futures Commission (SFC) launched its consultation on regulating virtual asset trading platforms. All centralised virtual asset trading platforms must be licensed by the SFC by June 2023.
On Feb 22nd, Canada’s regulator, the Canadian Securities Administrators, tightened rules on cryptoasset platforms offering securities. As a result, platforms will need written consent from the regulator to provide fiat-backed crypto assets to clients as they are seen to meet the definition of a security.
In the news
Win for regulation in Japan
On Tuesday 21st, Japanese FTX users could withdraw their funds from the exchange, and within 24 hours, FTX Japan confirmed that approximately $50m had been withdrawn. This is massive for regulatory consumer protection because it directly results from the custody rules imposed on FTX by the Japanese regulator.
Britcoin hits the headlines
On the 7th of February, the Bank of England announced its consultation and technology working papers for the Bank of England’s central bank digital currency, the ‘digital pound’. Although not specifically crypto, the digital coin will likely use some technology currently underpinning crypto coins and tokens. The digital currency is not expected to go live until 2025.
As regulation gathers pace, it’s important that crypto service providers prepare for its arrival. With consumer protection high on the agenda, Coincover’s theft protection service could bolster your security measures. It provides protection against theft and hacks through proactive transaction screening. One of the team would love to talk to you about how it would work for your organisation.