CMS Global Fintech update - May 2022

Description

Last month, on 27 January, marked the end of an era when the provision of virtual asset services was not a regulated activity in Belgium. A law has now been adopted which amends the Belgian anti-money laundering law in order to, inter alia, regulate the provision of such services.

Virtual asset service providers were already subject to some regulation since relatively recently. Indeed, in the context of the implementation of the Fifth AML Directive (Directive (EU) 2018/843), Article 5 of the Belgian anti-money laundering law includes in its list of affected entities: providers of exchange services between virtual currencies and legal currencies as well as providers of custody portfolio services (together, "virtual asset service providers"). Note that only virtual asset service providers established in Belgium are subject to the Belgian anti-money laundering law (this covers not only providers incorporated under Belgian law but also those incorporated in another EEA Member State, provided that the latter have a branch or any other form of permanent establishment in Belgium as defined in CJEU case law (e.g. distributors or representatives)).

Impact

In addition to being subject to the Belgian anti-money laundering law, virtual asset service providers established in Belgium must also register with the FSMA. This is one of the new features introduced by this latest amendment to the Belgian anti-money laundering law.

Essentially, the new law provides for the following new features: 

1. granting the following powers to the FSMA: 
   1. the registration of providers of exchange services between virtual currencies and legal currencies in a special register and the registration of providers of custody portfolio services in another register. Note that registration is only compulsory for providers incorporated under Belgian law as well as providers incorporated in another EEA Member State, provided that the latter have a branch or any other form of permanent establishment in Belgium as defined in CJEU case law. For the purposes of this law, Automated Teller Machines (“ATM”) established on Belgian territory that allow the exchange of virtual currencies and legal currencies are treated as permanent establishments, so that the registration obligation also applies to them;
   2. the supervision of the above-mentioned establishments in exercising their activities related to virtual assets;
2. prohibiting persons governed by the law of a third country from offering and providing, on Belgian territory, as a regular professional activity (even if supplementary or ancillary), exchange services between virtual currencies and legal currencies as well as custody portfolio services.

Both the provision of virtual asset services on Belgian territory without registration with the FSMA and the provision of virtual asset services on Belgian territory as a regular professional activity by persons governed by the law of a third country will be subject to criminal sanctions. These criminal sanctions should be without prejudice to the administrative sanctions provided for in Article 86bis of the law of 2 August 2002 on the supervision of the financial sector and financial services.

Furthermore, pursuant to the royal empowerment for the registration of virtual asset service providers provided for in the Belgian anti-money laundering law, a royal decree is expected to be adopted in order to establish (i) the rules and conditions for the registration with the FSMA of virtual asset service providers established in Belgium, (ii) the conditions for the exercise of these activities and (iii) the rules of supervision to which these providers would be subject. As it stands, the draft royal decree makes registration subject to the conditions of expertise, professional integrity, absence of a professional ban and a shareholder composition that ensures sound and prudent management of the company.

In addition to these new national regulatory measures, the European MiCA Regulation is also in the pipeline.

The law amending the Belgian anti-money laundering law has just come into force. As regards the other regulations mentioned above, their date of entry into force is not yet known.

Our regulatory team will be happy to assist you with your registration files and any other questions you may have on this subject.

Description

Following the previously published newsletter regarding the new law that will require virtual asset service providers to comply with the anti-money laundering legislation, the Royal Decree setting out the registration requirements for both the providers of exchange services between virtual currencies and fiduciary currencies, and the custodian wallet providers (both referred to as "virtual asset service providers") has also been published.

Impact

The new legislation targets virtual asset service providers established in Belgium that perform or offer these activities in a professional manner on Belgian territory. The electronic infrastructure set up in Belgium through which the aforementioned services are offered is also included in the scope (i.e. automated teller machines (ATMs) that allow for the exchange of virtual currencies against fiduciary currencies). The Belgian Financial Services and Markets Authority ("FSMA") will create two registers for the various categories of virtual asset service providers. Each application for registration must clearly indicate in which register (or both registers) one wishes to be registered.

Pursuant to the Royal Decree of 8 February 2022 on the status and supervision of providers of exchange services between virtual currencies and fiduciary currencies, and custodian wallet providers ("Royal Decree of 8 February 2022"), the conditions for registration and operation of business are further specified. Thus, virtual asset service providers must permanently fulfil the following conditions in order to obtain (and maintain) registration in the register:

1. Company form and minimum capital: virtual asset service providers (i) must be incorporated in the form of a public limited company (naamloze vennootschap/société anonyme), cooperative company (coöperatieve vennootschap/société coopérative), European company (Europese vennootschap/société européenne) or European cooperative company (Europese coöperatieve vennootschap/société coopérative européenne), and (ii) must have a (fully paid-up) minimum capital of EUR 50,000.
2. Management and registered office: must be located on Belgian territory.
3. Effective management: must consist of natural persons who have the appropriate expertise and the professional reliability required to perform their duties.
4. Shareholders and persons exercising control over the virtual asset service provider: must demonstrate they are "fit" to pursue a sound and prudent policy.
5. Anti-money laundering legislation: there is a requirement to (i) comply with the anti-money laundering legislation in force and (ii) provide for an independent audit function.
6. Organisation: ability to (i) continuously meet legal and regulatory obligations and (ii) manage all operational risks.
7. Contribution: the service provider must contribute to the FSMA's operating costs (i.e. EUR 8,000 per statute).

It should be noted that no European passport exists and, consequently, registration with the FSMA as a virtual asset service provider is only valid in Belgium.

The Royal Decree of 8 February 2022 will enter into force on 1 May 2022 and provides for a transitional regime so that the current virtual asset service providers (in the form of a legal person) can continue to offer their services until the FSMA has rendered a decision on the application for registration (i.e. within three months of the receipt of a complete file). During this transitional period, virtual asset service providers must comply with the anti-money laundering legislation in force. Two important deadlines must be met:

• 30 June 2022: deadline for notifying the FSMA that you are a provider of such services (and for obtaining provisional authorisation); and
• 31 August 2022: deadline for submitting a complete registration file.

Our Banking & Finance team will be pleased to assist you with your registration files and any other questions you may have on this topic.

Description

The Ministry of Finance issued in November 2021 a draft Decree regulating and promoting open banking in Colombia. It is expected to be enacted in the first quarter of 2022.

Under a traditional model, consumers' transactional and financial information is known, processed, and stored exclusively by the financial institution with whom the consumer has contracted. However, under the open banking model, consumers authorise that such information may be consulted and used by third parties outside the financial institution, for them to develop and offer new products and services that meet their needs. For this purpose, the financial institution opens its system in such a way that authorised third parties, either other financial institutions or non-financial, can access the information of financial consumers. This process is carried out through platforms known as Application Programming Interfaces.

Once enacted, the Decreee will allow the Colombian Financial Superintendence to have over oversight of the system, such as where commercial banks, to commercialise the use, storage and circulation of financial data complying with personal data protection regulation. The entities may also offer products and services of third parties when related to their authorised operations. Prior compliance with duties related to information that protects the financial consumer.

The Decree entails the possibility for third parties to provide Account Information Services and Payment Initiation Services through Application Programming Interfaces. Providers of these services must comply with obligations such as duty of information and data protection.

Impact

Open banking in Colombia will promote competition among suppliers of products and services. This is reflected in the fact that financial consumers will be offered products and services that are practically tailored to their needs. This, for example, can reduce product approval procedures, reduce delivery times and, broadly speaking, improve the financial consumer's experience.

However, being built on a technological base and allowing interconnection and interoperability between several financial institutions, open banking assumes a level of systemic risk.

The fact that a possible cyber-attack could permeate several or all the system's institutions could destabilise the system and drastically reduce the trust that financial consumers have in it.

From the financial consumer's perspective, there are two main risks. On the one hand, that their data may be used inappropriately - for which, as the Financial Regulation Unit pointed out, a sufficiently robust legal framework for the protection of information is required. On the other hand, it is not adequately protected against fraud and cyber-attacks.

Moreover, the Decree, when issued, will allow third parties, to provide Account Information Services and Payment Initiation Services through Application Programming Interfaces, which is a clear regulatory recognition of the current situation of the Colombian financial industry and its key players. 

Draft decree published here.

Description

The Colombian Tax Authority, announced in January 2022, that it has initiated actions aimed at supervising taxpayers who carry out cyrptoassets transactions. According to the Authority, the actions seek to establish a tax control of those who do not register the income obtained from cryptocurrency-related transactions or registered them inaccurately in the Income and Complementary Tax. In this regard, the authority has issued official notices related to the fiscal management and correct declaration of cryptoassets. 

The actions are part of the mechanisms for combating tax evasion, money laundering and the financing of terrorism.

According to the Tax Authority, the actions are also taken to comply with the Agreement with the Organisation for Economic Cooperation and Development (OECD) for mutual information assistance in tax matters subscribed between Colombia and Finland. The Authority stated that "In the aforementioned agreement, both authorities cooperate in order to ensure compliance with tax obligations in operations with cryptocurrencies carried out in the country, which facilitate progress and innovation in tax auditing actions that are in line with the new dynamics in which taxpayers operate and, in achieving a more honest Colombia".

It is important to note that in Colombia, even though cryptocurrencies are not regarded as legal tender, security, or forex currency, entering into agreements with the purpose of trading them is not illegal, to the extent that cryptocurrency are classified as intangible assets. However, it is still a subject on which there is no particular regulation.

Impact

Taxpayers, or people obliged to declare assets before the tax authority and that carry out operations with cryptocurrencies, will have to report the income from these operations.

Specific actions are being developed by the Authority. 

Press release by the Colombian Tax Authority (tax authority) here.

Description

The article analyses the new mandatory regime for cryptocurrencies service providers and digital wallet service providers operating or intending to operate in Italy set-up by the new MEF Decree of January 13, 2022. These subjects must enrol in a special section of the register held by a supervisory body called OAM. Foreign providers must establish a branch (if EU) or a subsidiary (if non-EU) and therefore they can no longer operate (only) cross-border. The Decree also provides for periodical reporting on clients data and operations.

Impact

The aim of the paper is to reflect on these new measures that are part of the actions adopted to prevent money laundering and terrorism financing to ensure a more effective monitoring of the activities taking place in Italy.

https://cms.law/en/ita/publication/cryptocurrencies-service-providers-new-regulatory-requirements-to-operate-in-italy-following-the-set-up-of-the-special-section-of-the-oam-register

Description

This article explores the topic of e-sports and fan tokens, which are introducing new challenges for law firms. As part of the discussion, we have analysed the legal value of fan tokens and the problems related to the new phenomenon of e-sports while also considering the lack of legislative references in this area.

Impact

Through this article the objective is to analyze a new method of communication between clubs and their fans as well as to seize the opportunities and challenges in the innovative field of e-sports and fan tokens.

Published on a very popular magazine

https://www.italiaoggi.it/news/sport-studi-legali-alla-sfida-delle-nuove-tecnologie-2555245

Description

This contribution analyses the legislative discipline of Bitcoin in the light of the Supreme Court's decision n.26807/2020. Although Bitcoin are not financial instruments, the Supreme Court has established that in Italy the sale of Bitcoin, if carried out under certain conditions, may be subject to the rules provided for the sale of financial instruments.

Impact

This article reflects on the legal nature of Bitcoins and the possibility of qualifying them as financial instruments.

Published on the Italian most important financial newspaper

https://ntplusdiritto.ilsole24ore.com/art/bitcoin-e-cripto-attivita-quale-regolamentazione-tutela-investitori-AEgkUXG

https://cms.law/it/ita/publication/bitcoin-e-cripto-attivita

Description

The newsletter analyses the rapid spread of cryptocurrencies and the urgent call for action at the European and national level, considering the steps that should be taken to regulate such an intangible and risky sector.

Impact

The increasingly widespread use of cryptocurrencies, together with their use also in the world of sports in the form of fan tokens and in the world of gaming, as well as the proliferation of the NFT phenomenon, has contributed to making crypto assets mainstream. It is necessary to understand how to frame the phenomenon to identify a uniform regulatory framework at European and national level.

https://www.lexology.com/library/detail.aspx?g=aac33640-9c2e-43ec-9f70-abf6b7bdc49b

https://cms.law/it/ita/publication/criptoassets.-lo-stato-dell-arte-e-le-aspettative-per-le-nuove-norme-a-livello-nazionale-e-comunitario

Description

This article provides an overview of the Regulatory Sandbox outlined within the MEF Decree No. 100 of April 30, 2021, with the objective of supporting activities in the Fintech sector in Italy. The objective of the review is to provide to the FinTechs operators the pills to present a FinTech project within the Sandbox.  Specifically, the Sandbox consists of a controlled workspace where supervised intermediaries and FinTech operators can test, for a limited period, technologically innovative products and services in the banking, financial and insurance sectors, in constant dialogue with the Supervisory Authorities. The first-time window for the presentation of projects closed on January 15. 

Impact

With this regulatory sandbox paper, the goal is to show Italy's proactivity in promoting fintech initiatives in the national territory

https://cms.law/en/ita/publication/regulatory-sandbox-the-first-timeslot-for-the-experimentation-of-fintech-projects-is-about-to-start

Description

This is an extract from our press releases that aims to highlight the proactive operation of our firm in the FinTech sector. In this circumstance, the Rome office of CMS Italy has assisted Binance in the sponsorship agreement with Lazio S.p.A. and the issue of Lazio fan tokens.

https://cms.law/it/ita/publication/cms-al-fianco-di-binance-piattaforma-leader-di-scambio-di-criptovalute-nell-accordo-di-sponsorship-con-lazio-s.p.a.-e-l-emissione-di-lazio-fan-to

https://ntplusdiritto.ilsole24ore.com/art/cms-fianco-binance-piattaforma-leader-scambio-criptovalute-accordo-sponsorship-lazio-spa-e-emissione-lazio-fan-tokens-AE8f60q 

https://www.lawtalks.it/cms-al-fianco-di-binance/

Description

This article reflects on the legal regime, use, and spread of this new category of Tokens, i.e., Fan Tokens.  In this context, through this tool clubs can monetize the activities of supporters without having to comply with the rules applicable to the issuance of financial products. Clubs, using fan tokens, can also ensure greater involvement of fans by giving them access to a variety of goods and services ranging from merchandising to the right to participate in club initiatives, to acquire images or videos, or to vote on certain decisions such as the choice of team anthem or game uniforms.

Impact

This article explores the role of fan tokens, as well as the opportunities they present within the economy and clubs.

https://cms.law/it/ita/publication/dalle-figurine-ai-fan-tokens-il-futuro-del-tifo-come-industriA

https://www.sporteconomy.it/dalle-figurine-ai-fan-tokens-il-futuro-del-tifo-come-industria/

Description

The article analyses the provisions of the proposed MiCA regulation. MiCA is part of a package of measures arranged at the European level, aimed at enabling the effective exploitation of the potential of digital finance in terms of innovation and competition, while mitigating risks.

Impact

The article runs through the main aspects of the proposal with the aim of providing as complete a view as possible of this new package of measures.

https://cms.law/it/ita/publication/la-proposta-di-regolamento-mica-sulle-cripto-attivita

Description

CMS Italy has been granted the "Fintech Firm of the Year” award that we had the pleasure of picking-up during the Legal community finance awards 2022 (the most important legal directory in Italy). This award was given to us with the following motivation "The department advises multinational corporations and investment banks on various regulatory issues regarding the provision of financial services and its professionals are constantly involved in numerous fintech initiatives”

https://legalcommunity.it/legalcommunity-finance-awards-2022-i-vincitori/

Description

The Luxembourg legislative framework has been evolving constantly over the past years in order to take into account a changing market.

One of the first steps consisted in enabling in 2013 (by way of a law of 6 April 2013 on dematerialised securities (“the 2013 Law”)) the issuance of securities in a demateralised form. To that effect, an issuer needs to rely either on a settlement organisation or a central account keeper for the holding of an issuance account, i.e. an account which registers the type, number and characteristics of the securities issued. These securities may then circulate by way of book-entry in a securities account (compte-titre). The issuance is nevertheless directly carried out in a dematerialised form.

In 2019, the Distributed Ledger Technology (DLT) first found its way into the Luxembourg securities legislation (i.e. the Luxembourg law on the circulation of securities dated 1 August 2001). The legislator has therefore recognised the possibility of using secured electronic registration mechanisms such as Blockchain for holding and registering book-entry securities in securities accounts, Luxembourg has become one of the first countries in Europe to offer to investors a safe and technologically advanced financial system.

In early 2021, the Luxembourg legislator is going a step further by:  

• modernising the 2013 Law by inserting a definition of “issuance account” which expressly refers to the secured electronic registration mechanisms technology and environment
• tweaking the Luxembourg law of 5 April 1993 on the financial sector, as amended in opening the role of central account holder with respect to unlisted debt securities to European Economic Area investment firms and credit institutions.

Impact

The law of 22 January 2021 (“the 2021 Law”) impacts the financial market:

• at the level of the issuer
• at the level of the service providers.

With the 2021 Law, securities may be issued directly in a tokenised form. Furthermore, the 2021 Law opens the market to certain service providers. 

Watch webinar recording

Read related LN article

Description

The Dutch Central Bank (DNB) has responded to a letter from the United Bitcoin Companies Netherlands (VBNL), in which it addresses questions concerning its supervision of cryptoservice providers, argued to be too stringent. 

Impact

Key observations surrounding the letter and the issue of Dutch cryptoservice supervision include:

• DNB indicates that whitelisting and verification are not requirements set by DNB, but examples of how compliance with the applicable sanctions legislation can be applied by cryptoservice providers
• DNB disagrees with the VBNL’s view that new requirements have been introduced; according to DNB, these requirements were already in place before the registration regime came into force
• cryptoservice providers are required to take “adequate control” of their records, but DNB emphasises that “adequate control” is an open standard, and consequences may differ from sector to sector
• according to DNB, “adequate control” means that during the client onboarding process, all relationships should be assessed and any information regarding these relationships (e.g. name, address and date of birth) should be obtained. In order to be able to reference transactions against sanctions lists, the identity and the location of the counterparty and beneficiary must be clear

DNB confirms that the obligation for cryptoservice providers to comply with sanctions legislation does not follow directly from the EU’s 5^th Anti-Money Laundering Directive (AMLD5): the Dutch legislator introduced this requirement.

Read related publication

Description

The Bank of Slovenia organised a panel discussion to exchange viewpoints and positions regarding the challenges and opportunities that the digital euro would offer to Slovenia citizens.

Impact

The discussion was primarily organised to inform the broader Slovenian public on recent EU developments regarding the digital euro and benefits that it may bring. While the panel discussion has no direct impact on the sector, it may be viewed as an introduction to related events that will follow in the upcoming months.

Description

Rules on a Register of providers of exchange services between virtual and fiat currencies and custodian wallet providers were adopted, based on the Slovenian Prevention of Money Laundering and Terrorist Financing Act.

The Rules lay down in more detail the regulations for setting up and maintaining the Register, which will be managed by the Slovenian AML Office.

Establishment of a Register has been necessary to ensure control in the field of the prevention of money laundering and terrorist financing over the providers of said services.

The Rules were published in the Official Gazette of the Republic of Slovenia on 22 March 2021 and entered into force the following day.

Impact

With the adoption of the Rules and the establishment of the Register, Slovenia made a small but important step towards regulation of cryptocurrencies.

Description

The publication of the Preliminary Draft Act on the Securities Market and Investment Services goes along with the draft of three Royal Decrees for its implementation relating to: (i) investment firms; (ii) financial instruments, admission to trading, registration of marketable securities and market infrastructures; and (iii) the supervisory authority of the National Securities Market Commission (CNMV).

Among the modifications made, there are two in particular that need to be highlighted:

1. Consideration of crypto-assets as financial instruments: to this end, the aim is to broaden the definition existing to date and develop their regulation through the royal decree on financial instruments, admission to trading, registration of marketable securities and market infrastructures.
2. Admission of distributed registration technologies, foreseeing that, when dealing with transactions involving shares or rights over shares executed using distributed ledger technology (DLT) or blockchain technology, they may not be cleared on a central counterparty clearing house.

As a result, this allows for the consolidation of trading and post-trading activities (i.e. clearing, settlement and registration) and promotes the creation of trading venues using DLT.

Impact

The Ministry of Economic Affairs and Digital Transformation initiated the public hearing process on May 4th 2021, ending on May 25th 2021. 

Nevertheless, it is a major concern of the sector that these amendments are not expected to enter into force before the regulation on crypto-asset markets and amending Directive (EU) 2019/1937 (i.e. MiCA) is approved.

Description

In September 2021, the Swiss Financial Market Supervisory Authority FINMA has issued two approvals to operate financial market infrastructures based on so-called Distributed Ledger Technology (DLT). Specifically, FINMA has authorized SIX Digital Exchange AG to act as a central securities depository and the associated company SDX Trading AG to act as a stock exchange. This is the first time that a licence has been issued in the Swiss financial centre for infrastructures that facilitate the trading of digital securities in the form of tokens and their integrated settlement.

Impact

This development shows that Switzerland continues to secure its position as one of the, if not 'the' leading jurisdiction for DLT related financial sector undertakings.

https://www.finma.ch/en/news/2021/09/finma-issues-first-ever-approval-for-a-stock-exchange-and-a-central-securities-depository-for-the-trading-of-tokens/

Description

In November 2021, SIX Swiss Exchange placed the first senior unsecured digital CHF bond with a total volume of CHF 150 million and maturity in 2026 via its holding company SIX Group Ltd. The bond comprises two exchangeable parts. The digital part (Part A) of the bond is to be listed and traded on SDX Trading Ltd and centrally held by SIX Digital Exchange Ltd. The traditional part (Part B) of the bond is to be listed and traded on SIX Swiss Exchange Ltd and centrally held by SIX SIS Ltd.

Impact

This (Part A of the offering) has been the world's first bond issuance with a pure digital part in a fully regulated environment. The offering attracted strong interest from a very broad institutional investor base in Switzerland, showing the confidence of key Swiss market participants in DLT and its use cases.

https://www.six-group.com/en/newsroom/media-releases/2021/20211118-six-sdx-digital-bond.html

CMS Video Series | Blockchain & FinTech | Presented by CMS Switzerland

Description

DVAR shall apply to “Virtual Asset” services provided throughout the Emirate of Dubai, including special development zones and free zones, with the exception of the Dubai International Financial Centre (“DIFC”). This means that DVAR will supplement and amend existing legislation applicable in Dubai issued by the “onshore” UAE financial regulators, the UAE Central Bank (“Central Bank”) and Securities and Commodities Authority (“SCA”), in relation to crypto assets and stored value facilities (“SVFs”). By “onshore” in this context we mean outside the special financial free zones of the DIFC and Abu Dhabi Global Market (“ADGM”). These regulators have already issued:

• SCA Decision No. 23 of 2020 concerning Crypto Assets Activities Regulation (“CAAR”): CAAR regulates the offering, issuing, listing and trading of “Crypto Assets” and related financial activities. CAAR defines a crypto asset as “a record within an electronic network or distribution database functioning as a medium for exchange, storage of value, unit of account, representation of ownership, economic rights, or right of access or utility of any kind, when capable of being transferred electronically from one holder to another through the operation of computer software or an algorithm governing its use”.
• Central Bank Circular No. 6/2020 - Stored Value Facilities Regulation (the “SVF Regulation”): The SVF Regulation regulates SVFs in onshore UAE. SVFs are defined by the Central Bank as non-cash facilities into which users pre-pay money (which includes values, reward points, crypto-assets, or virtual assets) so that users can use that method to pay for goods and services.

DVAR repeals any provision of these instruments to the extent they contradict with the provisions of DVAR.

The DIFC legal framework will not be impacted by DVAR, nor will DVAR impact the laws in other emirates. The Dubai Financial Services Authority (“DFSA”) is the relevant financial regulator in the DIFC, and the DFSA published its Regulatory Framework for Investment Tokens on 25 October 2021. More recently on 8 March 2022, DFSA published Consultation Paper No. 143 for the Regulation of Crypto Tokens. This consultation ends 6 May 2022.

In ADGM, the Financial Services and Markets Regulations 2015 (“FSMR”) published by the ADGM financial regulator, Financial Services Regulatory Authority (“FSRA”) regulates virtual assets. Various supplementary guidance statements under FSMR have been published since, such as the “Guidance on Regulation of Initial Coin/Token Offerings and Financial Services and Markets Regulations Crypto Assets”.

Impact

In what seems a “virtual asset regulatory race”, DVAR follows the signing by President Biden on 9 March 2022 of Executive Order on “Ensuring Responsible Development of Digital Assets” and moves by regulators in the UK and European Union to also adopt legislation in this area. The introduction of DVAR makes Dubai one of the few jurisdictions to have finalised and adopted a Virtual Asset law. The Authority has already granted a virtual asset licence to Binance, which has pledged to become an anchor tenant of the DWTC crypto technology hub and which is apparently seeking to recruit for over 100 roles in Dubai. Only days before, Binance secured a crypto-asset service provider licence in Bahrain as well.

As the competition for investment continues to warm up, we look forward to further decisions being issued by the Authority on the implementation of DVAR with interest.

New Framework for Virtual Assets in Dubai (cms-lawnow.com)

Description

The government has confirmed that it intends to include  non-transferable securities more generally within the scope of the new public offerings regime that it being developed as part of the Prospectus Regime Review. It also states that there is still further work to do to develop this proposal to ensure that it allows businesses to raise finance through the issuing of securities while ensuring appropriate consumer protection. Were issues to emerge the government would return to the option of making the issuance of non-transferable securities a regulated activity.

Impact

The changes set out by the government will have a significant impact on the issuance of non-transferable debt securities. This will impact the way in which companies raise capital and if implemented as envisaged, potentially require additional disclosure and approval prior to the issuance of such instruments. 

Description

The government have responded to the report confirming that no decision has been taken by the Bank of England as to whether to issue a UK central bank digital currency (“CBDC”) and that it is still in the “research and exploration” phase. 

The Bank of England response highlighted the need for an assessment to explore whether and how CBDCs provide resilient and responsive public infrastructure with which the private sector can innovate in order to efficiently and effectively meet user needs in a dynamic payments landscape.  The Bank of England confirms that it has no intention to withdraw cash and therefore a CBDC shall be considered alongside cash. 

The HM Treasury and the Bank of England will publish a consultation in 2022 setting out their assessment of the case for a UK CBDC. 

Impact

There is no impact at this time and there appears to be little urgency placed on the issuance of a CBDC. However, it appears the government and the Bank of England are receptive to the idea of a CBDC and therefore, substantial changes in the UK financial sector may occur in future. 

Description

On 10 February 2022, the Payment Systems Regulator (“PSR”) confirmed and published a rule that allows more banks and building societies to adopt Confirmation of Payee that checks names, account number and sort codes when payments are made from one account to another. This update comes in response to the increased threat of authorised push payment scams. The technical and system requirements for Phase 2 will be implemented by 31 May 2022. 

Impact

Merchants will need to update their payment process to accommodate the new requirements. E-commerce business may face a decline in their conversion rates.

Description

As of 14 March 2022, card payments in the UK must include strong customer authentication (SCA). Under the new rules, customers will need to prove their identity through a two-factor authentication demonstrating the following: 

• Knowledge e.g a password
• Possession e.g a card or a smartphone
• Inherence e.g biometric data

Impact

Merchants will need to update their payment process to accommodate the new requirements. E-commerce business may face a decline in their conversion rates. 

Description

18 January 2022: HM Treasury set out that the new Cryptoasset Promotions rules will bring cryptoassets within scope of the financial promotion regime. 

19 January 2022: The FCA published a consultation paper that outlines goals to reinforce the application of the financial promotion rules in relation to high-risk investments (including cryptoassets). 

Impact

The developments will be substantive and bring cryptoassets within the scope of the UK financial promotions regime. This in turn, will create new rules governing marketing and advertising of certain cryptoassets and related activities in the UK, for example:

• restrictions on direct offer financial promotions to certain retail customer categories only;
• carrying out an appropriateness test on all recipients of any marketing; 
• including risk warnings in any marketing; and
• including “positive frictions” in the sales journey.

Marketing cryptocurrencies in the UK latest developments (cms-lawnow.com)

Description

The HM Treasury published its response to its consultation on the Wholesale Markets Review. The response includes an explanation of how the government and the Financial Conduct Authority (“FCA”) plan to deliver the proposals through legislative change as parliamentary time allows and through changes to the FCA rules and guidance. Such updates shall be made in batches over time. 

Impact

The consultation suggests various changes to the scope of the MiFID II regime in the UK in aim of simplifying the regime and providing greater clarity to market participants. This will be of great interest to participants who operate in the wholesale space.  

The Wholesale Markets Review – no “big bang” (cms-lawnow.com)