Perhaps unusually, the regulatory landscape in Europe has been surprisingly active during the last quarter of 2020 with regular indications that the crypto and blockchain sphere should start preparing itself for more red tape. In this edition of our round-up, Allan Murray and Mariya Lazarova consider some of the more pertinent developments.
“Adapting English law for the digital revolution”
Last year, the UK Jurisdiction Taskforce published its statement on the legal status of cryptoassets and smart contracts under English law. This year the trend of promoting the UK as the global centre for resolution of crypto-related disputes continues, as the Law Commission seeks to analyse the law relating to digital assets and smart contracts. This welcome development will lead to greater legal clarity around contractual formation, performance and enforcement in the digital realm.
Ban of sales of crypto-derivatives to retail consumers
Companies in the UK will no longer be able to offer retail customers crypto-derivative products such as options or futures, following the FCA’s ban, which comes into force on 6 January 2021. The reasoning behind the FCA’s decision focusses on the potential harm to consumers and estimates savings to them of £53 million as a result of the ban.
Proposed tightening of KYC rules in France
France’s cryptocurrency sector is to become the target of new, mandatory KYC measures, as part of national security efforts to prevent terrorism, following recent investigations and arrests.
In contrast to the present rules which only require KYC above a certain transaction threshold, the new rules will require complete KYC for all crypto transactions irrespective of size, with exchanges and crypto-related firms verifying the identity of their customers regardless. The new, more stringent regime will apply to all firms that are actively targeting French customers as well as all French-based firms. Aside from KYC, the new measures also propose compulsory registration for crypto-to-crypto exchanges.
Draft legal framework for the regulation of cryptoassets and DLT in Europe
Earlier this autumn MiCa’s draft legislative proposal was leaked, which provides for a comprehensive scheme for the regulation of cryptoassets, tokens, securities and stablecoins. It appears that regulated financial instruments and crypto will eventually be treated in the same way for the purposes of legal certainty. The regulation is intended to apply on an EU-level but it will probably be another two years before it becomes directly applicable. In the meantime, it may be worth issuers of cryptoassets considering the license and prospectus approval requirements under the proposed scheme, as part of their preparation.
This year the sand dollar, launched by the Bahamas, became the first CBDC in the world, while the discussions about digital yen and yuan gained traction over the Summer. Not wanting to fall behind, the European Central Bank launched a public consultation on a digital euro project. The consultation is commendable and more clarity is expected in the middle of next year. A digital euro will ultimately lead to an increase in financial inclusion across the euro area.
Banks vs Crypto Part 2
Meanwhile in the United States, the US OCC office has spoken out against the widespread denial of banking services suffered by legitimate crypto businesses. A rule has been proposed whereby banks would be prevented from denying access to their services and putting at a disadvantage crypto-related customers. It is too early to say whether this will herald a real change in the often fraught relationship between crypto and mainstream banking, but it is certainly not a surprising development, for reasons we considered in a previous edition of our newsletter.
*This article is not intended to give any legal advice or to give rise to a client-solicitor relationship. It has been prepared for information purposes only. If you require legal assistance, contentious and/or transactional, in the field of blockchain, cryptocurrencies and digital assets, please contact Allan Murray (allan.murray@ilaw.co.uk), Tom Clark (tom.clark@ilaw.co.uk) or Mariya Lazarova (mariya.lazarova@ilaw.co.uk)
