Crypto regulation in the world: weekly digest #98

USA

The US Treasury Department has published a report on the illicit finance risks associated with non-fungible tokens (NFTs). The report highlights the vulnerabilities of NFTs and NFT platforms to fraud, scams, and money laundering, emphasizing the need for regulatory measures to mitigate these risks.

The Report highlights that NFTs are highly susceptible to use in fraud and scams, with criminals exploiting vulnerabilities in NFT platforms and the hype surrounding NFTs to perpetrate theft and fraud. Illicit actors can use NFTs to launder proceeds from predicate crimes, often in combination with other methods to obfuscate the illicit source of funds.

This happens as NFT platforms lack appropriate controls to combat money laundering and sanctions evasion, making them vulnerable to illicit activities. NFT platforms in comparison with crypto exchanges and other financial service providers are not subject of AML/CFT regulations and are not covered by FATF standards.

Nevertheless while NFTs are frequently used for fraud and money laundering, they are not commonly used for terrorist financing or proliferation.

The Treasury encourages the private sector to raise awareness of existing regulatory obligations and to increase the number of compliant NFT platforms. Relevant authorities should also consider issuing rules or guidance specific to NFTs to provide clarity on existing obligations for NFT platforms.

Argentina

Argentina has been actively exploring the adoption of Bitcoin as a legal tender. The Argentine government are in discussions with El Salvador's National Commission of Digital Assets (CNAD) to learn from their pioneering experience in adopting Bitcoin as legal tender. This collaboration aims to explore regulatory and operational strategies for crypto adoption in both countries.

Additionally, President Javier Milei has been a strong advocate for the use of cryptocurrencies, including Bitcoin, and has expressed his support for the decentralized nature of digital assets. His administration has proposed a limited taxation environment for cryptocurrency holdings, which could further embolden the use of crypto in the country.

Argentina has made significant strides in its efforts to legalize Bitcoin and other cryptocurrencies for commercial transactions and contract settlements. This move is part of a broader economic reform and deregulation initiative aimed at addressing the country's economic challenges, including hyperinflation.

Earlier, on December 20, 2023, Argentina's government approved the «Bases for the Reconstruction of the Argentine Economy» decree, which includes provisions allowing the use of Bitcoin and other cryptocurrencies in commercial transactions and contract settlements. Diana Mondino, Argentina's Minister of Foreign Affairs, International Trade, and Worship, has publicly endorsed the use of Bitcoin and other cryptocurrencies, stating that contracts can be settled in Bitcoin and other cryptocurrencies.

The legalization of Bitcoin is seen as a strategic response to Argentina's economic challenges, offering alternative financial solutions and potentially positioning the country as a pioneer in crypto adoption in Latin America. Earlier this year, Argentina's Comisión Nacional de Valores (CNV) has announced a mandatory registration for individuals and businesses involved in Bitcoin-related services, aligning with FATF recommendations.

From the other side, Argentina's decision goes against the guidance issued by the International Monetary Fund as part of its loan to the country, which recommended restricting the use of crypto and devaluing the peso.

Hong Kong

Hong Kong's Securities and Futures Commission (SFC) plans to conduct on-site inspections of crypto trading platforms that have applied for a license to operate as VASPs within the region. The inspections will commence from June 1, 2024, and will be a crucial step in the licensing process. By this date, all crypto platforms providing trading services in Hong Kong must either secure an SFC license or be classified as «deemed-to-be-licensed», which is a transitional arrangement for those seeking full compliance.

The SFC aims to verify that these platforms comply with regulatory requirements, particularly in safeguarding client assets and know-your-client processes. The findings from these inspections will feed into the licensing process for these platforms, helping the SFC to make informed decisions about granting licenses.

The SFC will take swift action against any platforms found to be non-compliant with key regulatory requirements, including refusing license applications and taking other regulatory measures as necessary. These inspections are part of the SFC's efforts to regulate the crypto trading industry in Hong Kong and maintain investor confidence in the market.

News from other countries:

• President Joe Biden vetoed the resolution to repeal the U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 121. The resolution was passed by both the House of Representatives and the Senate with significant bipartisan support, but it required a two-thirds majority to override the veto.

• Turkey's crypto law has passed the parliament commission and will be presented to the Parliament this week. The bill is designed to increase the supervision of the Capital Markets Board (CMB) over crypto firms, introduce a licensing scheme for crypto service providers, and expand the scope of inspections to protect customers.

• Changpeng Zhao (CZ), the founder and former CEO of Binance, has been imprisoned in California. He began serving his four-month sentence at a low-security federal prison in Lompoc, California, on May 31, 2024.