January 18, 2023
Last week, TRM’s global policy team – Ari Redbord, Isabella Chase and Angela Ang – got together for our first series of TRM Talks Policy, where we dissect the latest regulatory news of the quarter.
This pilot episode was a rapid-fire, wide-ranging discussion of macro and micro digital assets policy across the globe, where it became clear that 2023 will be a critical year for digital assets policy.
We took a look at some of the key takeaways from this discussion.
Key macro trends are defining the global policy discussion
In 2022, we saw regulators across the globe craft guidance, consultations and legal frameworks. This year, we can expect to see calls for global collaboration and coordination. While we are not likely to ever see a global regulatory framework, we are starting to observe consistent standards across jurisdictions.
For example, under its Indian presidency, the G20 has called for coordination among member states for digital asset regulation. This will be bolstered by ongoing work by the FSB, IOSCO and the IMF. In the wake of the collapse of FTX and Terra, policy makers across the globe are focusing on consumer and investor protection.
Regional deep dive
Despite calls for international cooperation and global standards, the critical work is still occurring at the national level.
TRM’s Senior Policy Advisor Angela Ang, a former regulator at the Monetary Authority of Singapore, explained that consumer protection will continue to be a big theme for regulators in APAC as we see regulators across the region produce frameworks for digital assets.
In Singapore, MAS is expected to issue its draft guidelines on enhanced user protection measures and a response to industry feedback on last quarter’s public consultation in the coming months.
Angela explained that there is also a lot of activity coming from Australia, Hong Kong and Korea, which are all set to roll out new digital asset regimes this year, with a keen focus on investor protection. Korea and Australia are also focusing on enforcement actions. Specifically, we can expect Hong Kong’s virtual asset service provider (VASP) regulatory regime to come out in June 2023.
While we have seen a focus on upcoming regulations, we have also seen countries across the region – from Australia to Singapore, Hong Kong to Japan – focus efforts into becoming hubs for digital assets. Part of these efforts has been a focus on legal and regulatory clarity.
Zooming into Japan specifically, we witnessed the benefits of Japan Financial Services Agency’s (JFSA) requirements around customer asset segregation and independent in-country custody of customers’ fiat holdings, which may well have softened the blow from the FTX collapse fallout. Over the course of the coming year, we can expect to see Japan looking at tax reforms, token listings and the travel rule.
UK & Europe
According to TRM’s Senior Policy Advisor Isabella Chase, the UK will be hard at work in 2023 shoring up the foundations of its future digital asset regulatory regime. This will start with passing the Financial Services and Markets Bill as well as a Statutory Instrument on Financial Promotions this year.
Policy watchers however, will be waiting to sink their teeth into two consultations – one on CBDCs and the other on a future regulatory framework. The government will also be looking at how digital assets fit into their wider work on countering illicit finance and ensuring consumer protection.
Looking towards Europe, which had a big year in 2022 with an agreement on the Markets in Crypto Assets (MiCA) legislation, Isabella explained that the policy conversation will shift from the ‘what’ to the ‘how’.
MiCA will move to the Level 2 work, where the Requirements and Technical Standards (RTS) will be determined by groups like ESMA and the ECB, in order to explore exactly how member states and firms will technically implement MiCA and get their frameworks ready for when it goes live in 2026.
Another big topic in 2023, will be the continued work on the Anti-Money Laundering Package. Here, firms should be watching the debates on the Anti-Money Laundering Regulation which will set out how MiCA-authorized crypto entities will have to carry out anti-financial crime measures going forward.
Around the globe
As Ari explained, in the United States we are likely to see continued executive action on the heels of the White House Framework on Digital Assets. That means continued enforcement, sanctions, and even criminal and civil actions, seeing as we are not likely to see major legislation in 2023. While we can expect to see potential work around stablecoins, as there is growing consensus in that space, a comprehensive MiCA-style framework is unlikely for the U.S. in 2023.
According to TRM’s Policy Team, the Middle East will be another region to watch, specifically the United Arab Emirates (UAE) with Abu Dhabi having recently put in place a bespoke VASP framework and Dubai in a world first, setting up a dedicated regulatory body for VASPs.
And, the work of international bodies will continue. According to Isabella, we will see more work out of the Financial Action Task Force (FATF) – the global standard setting body for AML. FATF will continue to prioritize implementation of its standards across member states and focus on issues such as ransomware, one of the President’s priorities.
Future themes to keep an eye on
Looking towards the horizon, here are three themes that policy practitioners need to be keeping an eye on:
- Market integrity - detection and prevention of unfair trading practices - is an emerging theme that is part of IOSCO Crypto-asset Roadmap for 2022/23. While it is still early days for global dialogue, this will be an important topic to follow in the coming years.
- Digital identity will become more prevalent in policy discussions as the solution to numerous problems in the digital asset space. Whether it is to use zero knowledge proofs for decentralized compliance or asserting compliant ownership of a self hosted wallet, the need for trusted digital identities will be rising up the policy agenda this year.
- The challenges and opportunities presented by decentralized finance will be top of mind for regulators in 2023. We will see the U.S. Treasury Department produce a DeFi risk assessment, and the EU Parliament has committed to taking DeFi policy up in its post-MiCA work. While we have seen a white paper from ADGM, some guidance from FATF, and mentions in various other discussion papers, DeFi is really the next frontier when it comes to regulation. In other words, what does policy making look like in a truly decentralized space? For more on this, tune into TRM Talks: DeFi roundtable on January 31!
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