EU to implement “travel rule” for crypto
transfers
The EU Parliament and Council have reached a provisional deal to curb money
laundering and terrorism financing in Europe by implementing the
“travel rule” on transfers of crypto-assets.
Co-rapporteur for the European Parliament Committee on Economic
and Monetary Affairs Ernest Urtasun said:
This new regulation strengthens the European framework to
fight money-laundering, reduces the risks of fraud and makes
crypto-asset transactions more secure. This regulation introduces
one of the most ambitious travel rules for transfers of crypto
assets in the world.
Once implemented, the agreement will require crypto-asset
service providers (CASPs) to collect information
about the originator and beneficiary of crypto-asset transfers
which will be made available to the recipient CASP. CASPs will also
be required to verify that the source of the crypto-asset is not
subject to restrictive measures or sanctions prior to making
crypto-assets available to beneficiaries.
In contrast to bank transfers, the deal imposes no minimum
threshold or exemption for low value transfers. This is intended to
combat attempts to circumvent restrictions by splitting large
transfers into multiple low value payments. Despite concerns raised
by industry, the deal does not guarantee that recipients of
transaction information will uphold privacy standards.
The new deal also covers transactions from un-hosted wallets
(wallets in the custody of a private user) when they interact with
hosted wallets managed by CASPs. In the event a customer sends or
receives more than ?1000 euros to or from their own un-hosted
wallet, the CASP will be required to verify whether the un-hosted
wallet is effectively owned or controlled by the customer. It is
not clear how these measures will impact transfers from un-hosted
third party wallets. The travel rule will not apply to
person-to-person transfers not involving a CASP.
Negotiators have also agreed on the establishment of a public
register for non-compliant and non-supervised CASPs, with which
those based in the EU would not be allowed to trade. The register
will be established under the EU’s comprehensive Markets in
Crypto-Assets (MiCA) regulation. The new
anti-money laundering measures are expected to be implemented on
the same timetable as MiCA, which is expected to come into force in 2024.
US and Korea to collaborate on Terra/Luna
investigations
Representatives of the US and the Republic of Korea
(South Korea) have agreed to collaborate and share investigation
data regarding ongoing crypto-related crime and compliance
matters, including most notably investigations relating to the Terra/Luna meltdown.
South Korea’s Minister for Justice, Han Dong-hoon, met with
Securities and Commodities Task Force co-chiefs, Andrea M. Griswold
and Scott Hartman, at the US Attorney’s Office for the Southern
District of New York earlier this week.
The primary goal of the meeting was to agree upon the most
effective course of mutual assistance on crypto-related matters
including the exchange of information and strengthening cooperation
of regulatory authorities. Yonhap News Agency reported that the ultimate
aim of the increased mutual assistance is:
to ensure timely action on the increasing number of
securities frauds associated with the digital asset
market.
The recent issues faced by Terra appear to have prompted closer
cooperation, with the US and South Korea reportedly agreeing to
share latest investigation data and reports into the embattled
stablecoin issuer which is currently under investigation in both
jurisdictions for, among others, fraud, market manipulation and tax
evasion.
Over the past year, South Korea has taken a number of measures
to enhance crypto-regulation and enforcement, including
implementing the “travel rule” for crypto-transfers
and establishing a new division of the Korean Financial
Intelligence Unit to supervise AML/CTF compliance by Virtual Asset
Service Providers. Recently, South Korea has also established a
dedicated crypto oversight committee to assess all new crypto
projects listed on crypto exchanges.
The latest move follows reports that the US House of Representatives is formulating new
stablecoin legislation that could, if passed, come into force prior
to 2022 ending. The mutual assistance arrangements are the latest
example of coordinated action by regulators around the globe in
relation to cryptocurrency markets.
Grayscale takes SEC to Court over spot bitcoin
ETF
Grayscale, a bitcoin investment trust, has failed in its attempt
to convert its Bitcoin Trust, known as GBTC, into an
exchange-traded fund (ETF). Grayscale filed its
application in October 2021 and, following a slew of delays, was
knocked back by the US Securities and Exchange Commission
(SEC).
In its rejection, the SEC outlined that failure by the
investment manager to respond to questions about market
manipulation concerns was the reason for the application being
rejected.
Grayscale then filed a petition in the US Court of Appeals,
District of Colombia Circuit challenging the decision. The
litigation is being led by Donald B. Verrilli Jr. who stated that
the SEC is:
failing to apply consistent treatment to similar investment
vehicles, and is therefore acting arbitrarily and capriciously in
violation of the Administrative Procedure Act and Securities
Exchange Act of 1934.
The SEC has reportedly told spot ETP sponsors they must
demonstrate that a significant amount of bitcoin trading occurs on
a regulated market or that the underlying market:
inherently possesses a unique resistance to manipulation
beyond the protections that are utilised by traditional commodity
or securities markets.
We anticipate that Grayscale will argue that such a standard
imposes a higher burden on sponsors of a spot Bitcoin ETF than ETFs
based on securities or other investment products.
The SEC’s position on Grayscale’s proposed spot bitcoin
ETF stands in contract to its previous decisions to approve a synthetic bitcoin ETF and a futures based bitcoin ETF. Elsewhere,
regulators in Canada (3iQ), Brazil (QR Capital) and Australia (21Shares and Cosmos) have approved spot
bitcoin ETFs. A number of further applications are awaiting
approval from the Australian Securities and Investments Commission
(ASIC).
While many had hoped the SEC would open the door to greater
institutional investment in cryptocurrency markets, it appears that
the battle over the spot bitcoin ETF will now continue in the
Courts.
SEC Chair confirms BTC is a commodity but infers ETH is
a security
In a recent interview with CNBC, Securities and
Exchange Commission (SEC) Chairman Gary Gensler
confirmed his view that Bitcoin is a commodity, while the majority
of remaining cryptocurrencies are securities.
Speaking to television anchor and finance expert Jim Cramer on
the future of crypto regulation, the Chairman was strident in his
view that it is the characteristics of crypto assets which make
them securities and subject to the SEC’s jurisdiction.
He said:
Many of these crypto financial assets have the
characteristics of securities.the investing public is hoping for a
return, just like when they invest in other financial assets we
call securities.
This is not the first time that Gensler has characterised most
crypto-assets as securities. What was new was not what he said, but
rather what he implied from what he left unsaid.
In describing the current state of US crypto regulation, Gensler
identified the Commodity Futures Trading Commission
(CFTC) and the SEC as the two entities who are
responsible for the protection of participants in the market.
He reiterated:
Many of these fin assets have key attributes of a
security.some of them under the SEC and some, like bitcoin – and
that’s the only one I will say, are a commodity under the
exchange commission.
If Gensler’s omission and or failure to acknowledge Eth, the
native token of the second largest blockchain, Ethereum, as a
commodity was intended to imply his position that that token is not
a commodity, then this would put him strictly at odds with the CTFC
who defined the token as a commodity in 2015.
We anticipate this will not be Chairman Gensler’s last
comments on this topic, as regulators around the globe continue to
grapple with whether and how to regulate a wide variety of
crypto-assets.
