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International developments in cryptocurrencies and DLT - July 2018
There have been a number of developments around the globe in relation to cryptocurrencies. Regulators in Malta, India and the Philippines have made significant headway into implementing frameworks to more comprehensively regulate implementation of distributed ledger technology (DLT) and cryptocurrency more generally.
- United States: the New York State Department of Financial Services has issued its first licence to a wholesale virtual currency payments processor. The receiver of the licence, BitPay Inc., will now be authorised to offer products that allow businesses to accept and receive cross-border cryptocurrency payments. Customers will also be able to manage their digital assets through the BitPay Wallet and pay with a BitPay prepaid Visa card.
- Malta: three bills have been enacted in Malta to establish one of the first regulatory frameworks for cryptocurrency and blockchain. The framework requires registration and certification of certain DLT implementations, provides technological arrangements for such implementations, provides prescriptive requirements relating to capital raising through initial coin offerings, regulates the operation of cryptocurrency exchanges and wallet providers, and establishes a regulatory body to oversee compliance, the Malta Digital Innovation Authority.
- Israel: the deputy governor of the Bank of Israel, Dr. Nadine Baudot-Trajtenberg, has recently stated the Israeli central bank’s position on virtual currencies. The deputy governor downplayed the general negative rhetoric surrounding cryptocurrencies, indicating that the technology of distributed and encrypted currencies has the potential to contribute to the Israeli monetary and financial system in the long term.
- India: the Indian government has indicated that it has finished drafting its regulatory framework for cryptocurrencies, and will likely be issuing the guidelines by September. The announcement comes in the wake of the Supreme Court of India commencing a spree of hearings relating to petitions against the general ban on banks and financial institutions providing services to crypto companies.
- South Korea: South Korea’s financial regulator, the Financial Services Commission (FSC), has announced plans to undergo a major organisational restructure. As part of this, the FSC will establish a new department, the Financial Innovation Bureau, that will deal exclusively with policymaking initiatives in the blockchain industry.
- Bulgaria: the Bulgarian Financial Supervision Commission has adopted the Strategy to Monitor Financial Technologies (Fintech) in the Non-Banking Financial Sector. The proposed strategy from 2018-2020 anticipates a number of innovation hubs, sandboxes, and mechanisms to manage the risks that may arise from innovations in the non-banking sector, specifically in relation to DLT, ICOs and crypto-assets more generally.
- Philippines: the Philippines’ Cagayan Economic Zone Authority (CEZA) is drafting a range of new regulations that are targeted at protecting cryptocurrency investors dealing with cryptocurrency exchanges and companies undertaking ICOs. The regulations will impose a registration on companies intending to conduct an ICO and will provide for prescriptive limits around ICO processes. Additionally, CEZA has announced that it will provide only 25 licences that will authorise the operation of cryptocurrency exchanges, which will be required to invest at least US$1 million within two years.
The Basel Committee on Banking Supervision is conducting an initial stocktake on the materiality of banks’ direct and indirect exposure to crypto-assets. This appraisal was included in a recent report on crypto-assets by the Financial Stability Board, stating that it will be collecting data and assessing national rules on crypto-assets, and will consider whether to formally clarify the prudential treatment of crypto-assets across the set of risk categories.