Crypto regulation in the world: weekly digest #16

International scope

The Financial Stability Board, a G20 financial regulator, has issued two reports on regulation and supervision of crypto-assets and stablecoins:

• Regulation, Supervision and Oversight of Crypto-Asset Activities and Markets: Consultative report;
• Review of the FSB High-level Recommendations of the Regulation, Supervision and Oversight of «Global Stablecoin» Arrangements: Consultative report.

The first report is focused on high-level recommendations for crypto assets, and is going to be finalized by the FSB next year after a period of public comments that will be opened till December, 15. The other one is the Board’s assessment of how stablecoin issuers will meet the standards set by the FSB in 2020.

It is concluded by the Board that currently there are no stablecoins that are truly «stable». Stablecoins still don’t meet standards set for such kind of digital assets by the central banks of the world’s biggest economies and the majority of stablecoins, especially algorithmic ones, don’t have reliable mechanism to support their assurances of price stability.

The FSB in its study found out that due to restrictions on redemptions and the ability of stablecoin’s issuer to delay or decline redemption of an asset, most users have to sell stablecoins on crypto exchanges and the price can fall below the value of the currency to which the coin is pegged.

The Board states that there are doubts on how most of stablecoins would be able to maintain their fixed prices under market stress and how effective their stabilization mechanisms will always maintain their stable price. The FSB recommends that stablecoins be subject to regulations similar to those that currently are set for financial institutions. This approach has also been discussed in the US Congress.

The other Report on crypto-assets regulation and supervision also mandates «same activity, same risk, same regulation» to the approach to digital assets that should be like that applied by U.S. regulators, including the SEC and the CFTC. The Financial Stability Board does not set binding rules but issues high-level recommendations that will have implications for policy makers and financial institutions around the world.

The Organization for Economic Co-operation and Development presents new transparency framework for crypto-assets to G20.

The document called CARF (Crypto-asset Reporting Framework) is intended to formalize the exchange of information about cryptocurrency transactions between 38 member countries. The CARF will ensure transparency with respect to crypto-asset transactions, through automatically exchanging such information with the jurisdictions of residence of taxpayers on an annual basis, in a standardized manner similar to the Common Reporting Standard (CRS).

The CARF will be presented to G20 Finance Ministers and Central Bank Governors for discussion at their next meeting on 12-13 October in Washington D.C, as part of the latest OECD Secretary-General’s Tax Report.

According to the press-statement The CARF will target any digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions. Carve-outs are foreseen for assets that cannot be used for payment or investment purposes and for assets already fully covered by the CRS. Entities or individuals that provide services effectuating exchange transactions in crypto-assets for, or on behalf of customers would be obliged to report under the CARF. In addition to the exchange of information between countries, the system also contains model rules for the internal taxation of digital assets.

«The Common Reporting Standard has been very successful in the fight against international tax evasion. In 2021, over 100 jurisdictions exchanged information on 111 million financial accounts, covering total assets of EUR 11 trillion,» OECD Secretary-General Mathias Cormann said. «Today’s presentation of the new crypto-asset reporting framework and amendments to the Common Reporting Standard will ensure that the tax transparency architecture remains up-to-date and effective».

Brazil

The Brazilian SEC (the CVM) has issued a guidance note on the regulation of crypto-assets, including which digital asset is considered a security and disclosures to be made.

Under the new CVM rules, any tokens of shares, bonds, promissory notes, IOUs, etc., will be subject to the same laws that apply to tokenized assets. However, the regulator will not require issuers for a special permission for tokenization, which will simplify the transition for banks and companies to the blockchain, as well as for stock exchanges. Tokenization reduces underwriting costs and speeds up delivery settlements for shares.

CVM has separately removed “payment” cryptocurrencies such as Bitcoin from securities law, as well as utility tokens that give the right to access services or manage DAOs.

Stable tokens, NFTs and security tokens have entered the third asset class. All of them are recognized as securities by the regulator, but with an additional clause. CVM will make a decision for each type in a "manual mode". The regulator left the opportunity to change any of the above criteria, as well as supplement them with new rules.

News from other countries:

• The UK authorities intend to make it easier for law enforcement agencies to seize digital assets used to finance terrorism. The amendments were made as cryptocurrencies are increasingly used for malicious and terrorist purposes.
• Portugal introduces tax on income generated by digital assets in a rate if 28%. The new taxation will come into force in 2023. If the bill passes the parliament the country may face a flight of traders.

We continue to highlight the news of the world of crypto regulation worldwide. Stay tuned for the latest news!