Crypto Regulatory Moves: US, UK, UAE

Last week in regulatory updates, the Central Bank of UAE launched a Financial Infrastructure Transformation Programme (FIT), the UK’s Financial Conduct Authority announced that no crypto ATM within the country is registered with them, and the US Senate Banking Committee held a hearing on “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets”. Additionally, The Securities and Exchange Commission sent Paxos a Wells notice.

🇦🇪 UAE’s Central Bank (CBUAE) launched on February 12 a Financial Infrastructure Transformation Programme (FIT).

The aim of this release is to aid the jurisdiction’s financial system thrive by enhancing its digital transformation, thus “enabling the CBUAE to be among the top central banks globally.”. In this respect 9 key initiatives have been considered:

1. Card Domestic Scheme: a card payment platform aiming to facilitate the growth of e-commerce and digital transactions.

2. eKYC: a platform that would facilitate the onboarding of customers and on-going monitoring.

3. Central Bank Digital Currency (CBDC): a CBDC used for both cross-border and domestic payments would solve current issues with cross-border transactions and innovate UAE’s domestic payments system.

4. Open Finance: a system that would enhance the inter-connectivity and inter-operability

of financial players and institutions.

5. Supervisory Technology (SupTech): a system aiding the regulatory and supervisory processes.

6. Innovation Hub: a platform where FinTech services can collaborate, engage with each other, promote research and enhance their development.

7. Instant Payments Platform: a payment platform to steer the jurisdiction towards a cashless society.

8. Financial Cloud: aims at a sovereign financial infrastructure.

9. Excellence & Customer Experience: improve customer experience

The jurisdiction aims at fully developing and implementing the FIT programme by 2026.

🇬🇧 FCA to take action against crypto ATM operators.

The Financial Conduct Authority (FCA) announced on February 14 that no crypto ATM within the UK is registered with them.

An initial investigation was conducted by the Force Cyber Team at West Yorkshire Police resulting in issuing cease-and-desist letters to the identified ATM operators. The letter warned them that “any breach of regulations would result in an investigation under money-laundering regulations.”

All findings were shared with FCA who then stated that “Crypto ATM operators, in the UK must be registered with the FCA and comply with the UK Money Laundering Regulations”.

This information is not new, as on March 11, 2022, FCA announced that they have “[…] warned operators of crypto ATMs in the UK to shut their machines down or face enforcement action.”

Currently UK based crypto ATM operators are under scrutiny: “The FCA will review evidence gathered during these visits and consider further potential enforcement action.„

You check whether a UK based VASP is registered with the FCA here.

🇺🇸 SEC – regulatory

On February 14, the Senate Banking Committee held a 2-hour hearing named “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets”.

Its aim was to identify reasons for the crash of the crypto market and mitigation thereof. Speakers, such as Senator Tim Scot and Linda Jeng, chief global regulatory officer of Crypto Council for Innovation, targeted the SEC, calling them out for not taking preemptive measures to protect investors.

“The SEC has not initiated any formal rulemaking process to update securities laws that are decades old to account for the unique attributes of digital assets that are determined to be securities.”  – Linda Jeng

“To think the SEC has failed to take any meaningful preemptive action to ensure this type of catastrophic failure does not happen again,” – Senator Tim Scott

In the same hearing, Senator Elizabeth Warren discussed the lack of regulation for decentralised platforms (DeFi and DAO) and the need to regulate them. The bill she proposed in December 2022 (Digital Asset Anti-Money Laundering Act of 2022) was said to be brought forth once again for consideration, as it would require among other things, for financial market players to not use mixers; miners, validators and providers of un-hosted wallets to abide by AML law.

The Committee has publicized the video of the hearing and can be accessed here.

🇺🇸 SEC – enforcement action

On February 3rd, the SEC has sent Paxos, a Wells notice, as revealed by the entity in a February 13 statement.

The SEC notice targets Paxos’ offering of BUSD (Binance USD – a 1:1 USD-backed Binance stablecoin “approved by the New York State Department of Financial Services (NYDFS) and issued in partnership with Paxos” as described by Binance).

In the letter, the SEC claims that BUSD qualifies as a security under federal law, however Paxos failed to register it as such and intends to take legal action against the company.

The letter is not publicly available, however Paxos made the following statement on their website:

Paxos categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws. This SEC Wells notice pertains only to BUSD. To be clear, there are unequivocally no other allegations against Paxos. Paxos has always prioritized the safety of its customers’ assets. BUSD issued by Paxos is always backed 1:1 with US dollar-denominated reserves, fully segregated and held in bankruptcy remote accounts. We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary.„