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The combination of significant capital invested in digital asset markets and the lack of formal clarity in the law governing cryptoassets has led market participants to largely adopt practical but untested means of structuring cryptoasset transactions in the context of existing legal frameworks. With recent price volatility and signs of distress at some cryptoasset institutions, it remains to be seen whether legislation that has been proposed to clarify the law surrounding cryptoassets will be enacted in time to address the legal and practical concerns of such market participants. Therefore, significant care must be exercised when dealing with cryptoassets in a distressed scenario.

"Fiat-referenced cryptoassets have seen tremendous growth in recent years. Since these types of cryptoassets have the potential to perform many of the functions of money, they could become more widely used to pay for everyday goods and services. Fiat-referenced cryptoassets could make payments faster and more efficient due to features of the novel technology they are built on. However, they could also pose financial stability risks, some of which were illustrated in the market turmoil of May and November 2022, highlighting the need for adequate regulation and supervision. Work is underway, domestically and internationally, to develop a robust regulatory framework to mitigate the risks these types of cryptoassets can pose to holders, the financial system and the economy. A timely and comprehensive regulatory approach in Canada will ensure that fiat-referenced cryptoassets can deliver potential benefits without posing unnecessary risks."

The Basel Committee on Banking Supervision (BCBS) recently proposed Basel III capital requirements for banks holding cryptoassets on their balance sheets. The proposal treats stablecoins prudently, rightly suggesting they can more or less fit into the existing Basel framework. But the proposed treatment of Group 2 cryptoassets - cryptoassets that have no issuer, such as bitcoin - completely misses the biggest risk: settlement risk for the banks handling the bitcoin. Traditional banks are simply not set up operationally or technologically to hold on-balance sheet assets, such as bitcoin, that settle in minutes with irreversibility. Bitcoin has no operational fault tolerance.

"The business opportunities presented by cryptoasset custody models are significant. The wave of institutions entering and participating in the market need a trusted partner to hold their cryptoassets for safekeeping, minimizing the risk of theft or loss while ensuring they are available and accessible for speedy transactions on blockchain networks. However, the technical and operational requirements of cryptoasset custody, security and exchange create unique challenges for enterprises and financial services institutions, including both traditional institutions and crypto-native startups."

On 18 November 2019, the UK Jurisdiction Taskforce1 published an authoritative statement on the legal status of cryptoassets and smart contracts under English law. This is a leading development for the legal, business and technological communities, as it makes the UK the first jurisdiction to clarify that cryptoassets can be treated as property and that smart contracts are capable of being enforced in the UK.

"FTX's collapse reiterates the need for comprehensive U.S. regulation of crypto markets. This regulation must have a solid legal foundation, a key pillar of which is a workable framework to distinguish cryptoassets[1] that are securities from those that are not. A new paper provides this framework, by showing why fungible cryptoassets are not themselves securities under existing U.S. federal securities laws. But also why ICOs and similar token sales should be regulated as securities offerings."

"In October 2022, the Financial Stability Board (FSB) announced a comprehensive set of proposals for regulating and supervising cryptoasset activities, which are collectively referred to as the "proposed framework for the international regulation of cryptoasset activities". The FSB invited the public to submit feedback on the recommendations and on a set of questions1. The proposed framework is a part of the FSB's ongoing efforts to address the potential financial stability risks posed by cryptoassets2, including so-called "stablecoins.""

"We aim to achieve a number of objectives: to introduce, identify and organize all relevant and meaningful metrics of cryptoasset market share calculation; to develop associations between metrics, and to explain their meaning, application, and limitations so that it becomes obvious in which context metrics can be useful or not, and what the potential caveats are; and to present rich, curated, and vetted data to illustrate metrics and their use in measuring cryptoasset shares in their respective markets. The result is comprehensive guidance into the size of the crypto-economy."

Whilst crypto-assets are currently only held by a minority of financial consumers, the level of awareness of cryptocurrencies across the three markets studied is high, and appetite exceeds current levels of ownership. While the majority of financial consumers investing in cryptoassets say that they could afford to lose the money invested, given the general lack of understanding of cryptoassets or the risks involved, the reasons for investing, the use of credit by some and the lack of professional advice among many when purchasing, there is a strong likelihood of a misalignment between the risk profile of some financial consumers and the level of risk they are exposed to.

The Cambridge Centre for Alternative Finance has published an in-depth comparative analysis of cryptoasset regulations across 23 jurisdictions.

The UK Jurisdiction Taskforce's Legal Statement on the Status of Cryptoassets and Smart Contracts is proving to be influential both domestically and internationally for its analysis of the legal status of cryptocurrency.  The Legal Statement recognised that the design of cryptoassets may create some practical obstacles to legal intervention but "that does not mean that crypto assets are outside the law".  This is now developing into a trend.

"Draconian though these proposed capital requirements are, they wouldn't completely prevent banks from participating in the crypto space. They could still offer custody, asset management and settlement services for Group 2 cryptoassets. And the regulatory framework for Group 1 cryptoassets potentially opens the door to regulated stablecoins and tokenised assets becoming a regular part of the global financial system.The Basel committee specifically excludes central bank digital currencies from the scope of its proposals, but this regulatory framework could enable commercial banks to hold, trade and issue fully-reserved stablecoins."

On November 18, 2019, the UK Jurisdiction Taskforce, which is part of The English Law Society's LawTech Delivery Panel, published its Legal Statement on the status of cryptoassets and smart contracts (the Legal Statement).

Japanese law does not have a unified regime applicable to tokens issued or minted on a blockchain. The legal status of tokens under Japanese law is determined in accordance with their functions and uses. For example, cryptocurrency and utility tokens such as BTC and ETH are regulated as cryptoassets under the Payment Services Act (PSA). A business operator that engages in the business of buying, selling or exchanging cryptocurrencies or intermediating these activities, or managing cryptocurrencies for the benefit of others, is required to register as a cryptoasset exchange service provider (CAESP).

The GBBC Digital Finance (GDF) is an industry association established in 2018 to accelerate digital finance through the adoption of best practices and standards and engagement with regulators and policymakers. The Global Cryptoasset Standards has been developed to provide a common set of guidelines to promote the integrity and effective functioning of the Cryptoasset Market. It is intended to promote a robust, fair, liquid, open, and appropriately transparent market in which a diverse set of Market Participants, supported by resilient infrastructure, are able to confidently and effectively transact at competitive prices that reflect available market information and in a manner that conforms to acceptable standards of behavior. https://www.gdf.io/

The UK Government has floated proposals to bring cryptoassets into the same regulatory regime as traditional financial services. The consultation sets out key design features of the regime covering themes such as prudential requirements, data reporting, consumer protection, location policy and operational resilience. The paper also proposes regimes for a range of cross-cutting issues which apply across crypto-asset activities and business models, including market abuse and crypto-asset issuance and disclosures. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1133404/TR_Privacy_edits_Future_financial_services_regulatory_regime_for_cryptoassets_vP.pdf

"Hong Kong continues to refine the manner in which cryptoassets and activities are regulated. In 2019, the Hong Kong Securities and Futures Commission (SFC) commenced an opt-in licensing regime for virtual asset trading platforms (Opt-in Regime).[1] In 2020, the Financial Services and the Treasury Bureau (FSTB) of the Government of the Hong Kong Special Administrative Region launched a consultation (Consultation) on proposals to enhance anti-money laundering and counter-terrorist financing (AML/CTF) regulation in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).[2] One of the key proposals includes a new wide-ranging licensing regime for virtual asset services providers (VASPs), which will also be regulated by the SFC. The changes are amongst others intended to align Hong Kong's regulations with the latest requirements and recommendations of the Financial Action Task Force."

"If someone ever tries to tell you that an STO is just a fancy name for an ICO, or that security tokens have anything to do with crypto tokens, or that the real benefit of "cryptoassets" is that they allow you to skirt regulation, or that it's strange to have 133 companies headquartered in a 2-up-2-down in Manchester, you just tell them to stop acting the fool."

The U.K. government has drawn up an action plan aimed to combat financial crimes that it says will include "action on cryptoassets." The new Economic Crime Plan from H.M. Treasury and the Home Office is aimed to overhaul the the way economic crime is tackled, building better cooperation between government, law enforcement and the private sector.

Fresh from the Financial Conduct Authority on Wednesday: a proposal to ban the sale, marketing and distribution of derivatives and exchange traded notes linked to "cryptoassets" for retail consumers.