Risk & Compliance Intelligence with Gen AI
Risk & Compliance Intelligence with Gen AI
UK Regulation
The Financial Conduct Authority (FCA) adopted the UK financial promotions regime for cryptoassets on 8 October 2023. Also, on 6 Nov 2023, as part of Phase-1 regulation, the FCA and the Bank of England issued consultation papers about stablecoins to regulate stablecoins by Q2 2024. In 2024, the UK government will set the timeline for Phase-2 cryptoasset regulation, affecting the remaining cryptoassets (stablecoins are Phase 1). This new regulation will force all crypto exchanges to apply for full FCA authorisation, and there will be more requirements for risk disclosure related to all cryptoassets, among other things. Also, the UK government plans to leverage IOSCO’s (The International Organization of Securities Commissions) recommendations for regulating decentralised finance (DeFi).
SupraFin has commented on many of these consultations and offers cryptoasset risk scores, risk analysis reports, and advice to help deal with the risk management required by the current and upcoming cryptoasset regulations. Contact us at [email protected] to learn about our products.
Below is more information on the current regulations related to the cryptoasset financial promotion regime, the future financial services regulatory regime for cryptoassets, and the consultations for stablecoins.
Financial Promotions Regime for Cryptoassets
The FCA’s Financial Promotion Regime for Cryptoassets took effect on 8 Oct 2023 and applies to all firms that market cryptoassets to UK consumers, regardless of whether the firm is based overseas. To ensure firms clearly understand the requirements for cryptoasset promotions, alongside the FCA final rules (PS23/6) for Cryptoasset Financial Promotions published on 8 Jun 2023, the FCA published the Final Guidance for Cryptoasset Promotions (FG23/3) on 2 Nov 2023.
Under the regime, cryptoasset financial promotions must be fair, clear, and not misleading. SupraFin offers crypto risk analysis reports that can help with the required due diligence and the actual financial promotions.
Future Financial Services Regulatory Regime for Cryptoassets
On Oct 2023, HM Treasury published the results of their consultation on cryptoassets (“Future Financial Services Regulatory Regime for Cryptoassets“). In summary, most regulations affecting cryptoassets will be implemented in Phase 2 (the timeline for Phase 2 will be introduced in 2024). In Phase 2, all cryptoasset exchanges must apply for full FCA authorisation, and investment management activities related to cryptoassets won’t be regulated in Phase 2 but in a later phase. The UK government plans to leverage the work of the Financial Stability Board (FSB) and the Organization of Securities Commissions (IOSCO) to regulate DeFi and set sustainability standards related to crypto.
Discussion Paper (DP23/4): Regulating cryptoassets Phase 1: Stablecoins
As part of the UK government’s regulation on stablecoins (Phase 1), the FCA launched a consultation on Nov 2023, which ended on 6 Feb 2024. The FCA’s regime will aim to address the risks of stablecoins that claim to maintain a stable value relative to a fiat currency by holding assets denominated in that currency when used as money-like instruments, i.e. for payments (and other uses) at a non-systemic scale. They will regulate, for prudential and conduct purposes, all non-systemic UK-based issuers of stablecoins. They will also regulate custodians of such stablecoins, including those providing custody services from the UK and those providing custody services to UK-based customers. HM Treasury is also exploring how stablecoins issued outside the UK can be safely used in UK payment chains.
Topics covered in the consultation paper included:
Regulatory Regime for Systemic Payment Systems Using Stablecoins and Related Service Providers
As part of the UK government’s regulation on stablecoins (Phase 1), the Bank of England (BoE) launched a consultation on Nov 2023, which ended on 6 Feb 2024. The Bank of England is responsible for creating a new regulatory framework for “systemic” payment systems using stablecoins and related service providers. The new regulatory framework will ensure that stablecoins can be utilised as a safe “payment” means in the UK. Below are the key items addressed in the paper:
EU Regulation
Markets in Crypto-assets Regulation (MiCAR or MiCA) regulates crypto-asset issuance and service provision in the EU.
MiCA came into force on 29 Jun 2023, with the provisions about asset-referenced tokens (ARTs) and electronic money tokens (EMTs) applicable from 30 Jun 2024. MiCA for the rest of the crypto-assets will apply starting 30 Dec 2024. As part of MiCA’s implementation, The European Banking Authority (EBA) and The European Securities and Market Authority (ESMA) have launched many consultations.
SupraFin has commented on many of these consultations and offers crypto-asset risk scores, risk analysis reports, and advice to help deal with the risk management required by the current and upcoming crypto-asset regulations. Contact us at [email protected] to learn about our products.
Below is more information on the consultations by ESMA and EBA.
Consultations related to MiCA by ESMA
During the implementation phase of MiCA, the European Securities and Markets Authority (ESMA) is consulting with the public on a range of technical standards that will be published sequentially in three packages. The date for the measures’ entry into application is subject to their adoption by the European Commission and approval by the European Parliament and the Council of the EU.
The first package, published in July 2023, included content of notification from selected entities to National Competent Authorities (NCAs), forms and templates for notification from entities to NCAs, content of the application for authorisation for Crypto-Asset Service Providers (CASPs), forms and templates for CASP authorisation application, complaint handling procedure, management and prevention, disclosure of conflict of interest, and intended acquisition information requirements.
The second package, published in October 2023, included sustainability indicators, business continuity requirements, trade transparency data and order book record-keeping, record-keeping requirements for CASPs, classification and templates and format of crypto-asset white papers, and public disclosure of inside information.
The third and final consultation package, published in two documents in January 2024 and one document in March 2024, covers all remaining mandates, including qualification of crypto-assets as financial instruments, monitoring, detection, and notification of market abuse, investor protection, reverse solicitation, suitability of advice and portfolio management services to the client, policies and procedures for crypto-asset transfer services (including clients’ rights), and system resilience and security access protocols.
Consultations related to MiCA by EBA
Under MiCA, The European Banking Authority EBA supervises “significant” ARTs and EMTs.
The EBA is also responsible for developing 17 technical standards and guidelines to specify further the requirements for any (significant and non-significant) ARTs and EMTs. As part of that, EBA has launched several consultations, five of which were due on 8 Feb 2024.
Below are the five consultations that were due on 8 Feb 2024:
1. Draft Guidelines on recovery plans under Articles 46 and 55 of the Regulation (EU) 2023/1114: set out an obligation for issuers of asset-reference tokens (ARTs) and issuers of e-money tokens (EMTs) to develop and maintain a recovery plan providing for measures to be taken by the issuer to restore compliance with the requirements applicable to the reserve of assets in cases where the issuer fails to comply with those requirements.
2. Draft Regulatory Technical Standards (RTS) to further specify the liquidity requirements of the reserve of assets under Article 36(4) of Regulation (EU) 2023/1114. Issuers of asset-referenced tokens, whether the asset-referenced tokens are classified as significant or not, are required to constitute and maintain a reserve of assets at all times.
3. Draft RTS to specify the highly liquid financial instruments with minimal market risk, credit risk and concentration risk under Article 38(5) of Regulation (EU) 2023/1114. Issuers of asset-referenced tokens, irrespective of whether they are significant or not, are required to decide to invest the proceeds they receive from the issuance of the tokens and form part of the reserve of assets, shall do it in financial instruments that are highly liquid and with minimal market risk, credit risk and concentration risk.
4. Draft RTS to specify the minimum contents of the liquidity management policy and procedures under Article 45(7)(b) of Regulation (EU) 2023/1114.
5. Draft RTS to specify the adjustment of own funds requirements and stress testing of issuers of asset-referenced tokens and of e-money tokens subject to the requirements in Article 35 of Regulation (EU) 2023/1114 on markets in crypto-assets.
Global Regulation
Final Report on DeFi by IOSCO
On Dec 19 2023, the International Organization of Securities Commissions (IOSCO) published its final report on DeFi, which includes nine recommendations for regulators worldwide. IOSCO is the international body that brings together the world’s securities regulators.
DeFi refers to the provision of financial products, services, arrangements and activities that use distributed ledger technology (DLT): decentralized exchanges (DEX), decentralized lending, DEX aggregators, yield aggregators, etc.
Below are IOSCO’s nine policy recommendations to address market integrity and investor protection concerns arising from DeFi.
1. Analyze DeFi products, services, activities, and arrangements in accordance with the principle of “same activity, same risk, same regulation/regulatory outcome.”
2. Identify responsible persons and entities of a purported DeFi arrangement that could be subject to its applicable regulatory framework. These responsible persons include those exercising control or sufficient influence related to the DeFi arrangement.
3. The regulatory approach should be functionally based to achieve regulatory outcomes for investor protection and market integrity that are the same as or consistent with those required in traditional financial markets.
4. Require responsible persons to identify and address conflicts of interest.
5. Require responsible persons to identify and address material risks, including operational and technology risks.
6. Require responsible persons to provide clear, accurate, and comprehensive disclosures to the DeFi products and services offered.
7. Enforce applicable laws on DeFi that are consistent with the principle of “same activity, same risk, same regulation/regulatory outcome.”
8. Promote cross-border cooperation and information sharing.
9. Understand and assess Interconnections among the DeFi market, the broader Crypto-Asset market, and traditional financial markets.
Below are our most recent news. To view selected past events, webinars, and news related to SupraFin, please click here: https://suprafin.io/news-events/
SupraFin successfully concluded the EY FinTech Growth Programme on June 6. The six-week program was full of great networking opportunities, presentations by EY expert consultants, investors and successful entrepreneurs, and interactions with other companies in the programme.
Founder & CEO
Liliana is an entrepreneur and visionary with 25 years of experience in FinTech (risk management and compliance software), AI, technology, digital assets, and capital markets at JP Morgan, Deutsche Bank, Bank of America, Morgan Stanley, and Moody’s Analytics. She has an MBA from UCLA Anderson and an MS in Computational Finance from Carnegie Mellon University.
Chief Quant Officer
Laurent is an expert in quantitative finance. Previously, he was the US Head of Quants for IHS Markit in New York. He has 12 years+ of experience in risk & pricing models, structuring, and hedging. He has expertise in machine learning, risk-neutral pricing models, computational algorithms, and optimization techniques. He has a Ph.D. in Stochastic Calculus & Math Finance from Pierre & Marie Curie University, France.
CTO
Vidya has over 20 years of experience in software development and leadership in information technology, including AI. He has four patents in the area of mobile connectivity and an AMIETE (Bachelor of Engineering) in Electronics & Telecommunications from the Institute of Electronics & Telecommunication Engineers in India.
Strategy
Joachim is the former Co-Head of EMEA Technology, Media, and Telecoms Investment Banking at JP Morgan. He has 20 years+ of experience in technology, media, and telecom investment banking at JP Morgan in London, New York, and Frankfurt.
Business Coach & Mentor
Colin is an entrepreneur and business coach with 25 years of experience. He currently provides business coaching through Vistage Worldwide, an organization designed exclusively for high-integrity CEOs and executive leaders. He was previously the CEO of Appleyards Ltd, a consultancy business.
FinTech Entrepreneurship
Craig is a FinTech serial entrepreneur and investor, and ex-investment banking professional. He co-founded Flex-e-card in 2000 before co-founding Global Processing Services. He was a former technology director in investment banking and front office systems within Salomon Brothers, JP Morgan, and CSFB.
Tech, AI, Product Dev.
Pinar was most recently the former Co-lead in AI in Market Operations and Global Head of Digital Client Services and Digital and Platform Services at JP Morgan. She is an operator and senior executive with a proven track record in identifying and building technology-driven businesses, products, and services. She has previously worked for State Street, the London Stock Exchange, Citi, and ICAP, among others.
Business Development
Tony is the Chairman of the Board at GRIP, an Investment Banking and Wealth Management firm established within the Dubai International Financial Centre. He is a Board Member of the Global Digital Asset & Cryptocurrency Association in Chicago and a Principal at TPLLC, a Chicago-based digital consulting/investing company. He was the former Global Head of Prediction Trading at UBS and a Technology Manager at JP Morgan.
Strategic Partner
Ashish is the founder of TribulusTech, a software development company. He is an entrepreneur with ten years of experience in FinTech, IoT, e-commerce, digital media, and media/entertainment businesses in India and globally. He is a financial partner to founders and CEOs, emphasizing strategic planning, investor relations, corporate development, business development, human resources, IT, business operations, and business analytics.
FinTech Advisor
Adolfo is a senior advisor at McKinsey & Company with 30+ years of experience in the financial services industry. He is a global transaction banking, payments, liquidity, sales, fixed income, and corporate relationship leader who worked as MD Regional Head of Products/Sales, EMEA Global Liquidity Cash Management at HSBC; MD Head of Cash and Trade, EMEA Global Transaction Services, at Royal Bank of Scotland, and MD and Head of Client Experience, Treasury and Trade Solutions, EMEA at Citi.
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