Crypto Regulatory Update

In the new Crypto Regulatory Update, we will explore some of the recent news in the crypto space, including Hong Kong’s stablecoin regulation plans, Hainan province’s increased oversight on non-fungible tokens (NFTs), Kazakhstan’s proposed enhancements to its crypto-trading framework, and Sberbank’s upcoming DeFi platform launch.

🇭🇰 Hong Kong – Stablecoins regulation.

In January 2022, the HKMA issued a consultation paper on crypto assets and stablecoins and one year later, in January 2023, released its conclusion based on the provided feedback. 

Respondents were mostly in favor of HKMA’s proposal to regulate stablecoins which “have the potential to develop into a widely acceptable means of payments”. 

The regulatory regime will include the following: 

– Stablecoins backed by fiat currencies will be regulated given their possible impact on the stability of the financial system

– Stablecoin-related activities to be regulated are: governance, issuance, stabilization and provision of wallets

– Entities that are active in Hong Kong will fall under the regulation’s spectrum: 

  • “Entities that conduct a regulated activity in Hong Kong; 
  • actively market a regulated activity to the public of Hong Kong; 
  • conduct a regulated activity which concerns a stablecoin that purports to reference to the value of the Hong Kong dollar; 
  • the authority is of the opinion that should be so regulated, having regard to matters of significant public interest.”

The Conclusions of the consultation paper which will be included in the upcoming framework (to be adopted by 2024) can be accessed here

🇨🇳 Hainan province to increase oversight on NFTs.

The Chinese Hainan province announced that it seeks to improve oversight of the NFT space, to promote a healthy development, given the rise of NFT-related fraud, copyright infringement, misleading information and money laundering. 

The promotion of NFTs as part of the digital economy would also seem lucrative to attract foreign investment in the Hainan Free Trade Port. 

Primarily, the authority seeks to educate the public on emerging NFT-related risks and legislation and target false propaganda which leads to copyright infringement and fraud. 

Chinese authorities are asked to review the crypto ban.

China currently is not in favor of its nationals to transact in crypto coins for fear of money laundering. A former adviser to the Central Bank of China, Huang Yiping, however, commented on the jurisdiction’s inflexibility on cryptocurrencies, remarking that it would be detrimental to the economy in the long run. 

In order to be in line with the international financial developments a regulatory regime for cryptoassets must be first developed within the jurisdiction. 

Huang Yiping mentioned that “[t]here is no particularly good way to ensure stability and function as to how cryptocurrencies should be regulated, especially for a developing country, but ultimately an effective approach may still need to be found”.

The full transcript of his interview was released at the end of January 2023 by a local media outlet. 

🇰🇿 Kazakhstan’s AFSA proposed enhancements to its crypto-trading framework

In a recently published consultation paper, Kazakhstan’s AFSA (Astana Financial Services Authority) proposed enhancements to its crypto-trading framework. 

This development was sought out due to “contradictions, inefficient provisions and uncertain definitions within the regime”. The regulator seeks to create a favorable environment for crypto exchanges and to encourage innovation.

The highlights are as follows: 

  • address contradictions and unclear provisions of the existing framework
  • risk mitigation measures regarding governance, illicit activity, safekeeping of clients’ funds and settlement
  • develop a standalone DATF framework
  • treat crypto exchanges as a multilateral trading facility

Feedback is accepted until February 25. 

The consultation paper can be accessed here

🇷🇺 Sberbank to launch DeFi platform by May 2023

Late 2022, Anatoly Aksakov, Chairman of the Russian State Duma committee on Russia’s financial markets, announced the adoption by February 2023, of a bill allowing cross-border transactions with cryptocurrencies. 

Given the sanctions that have been imposed throughout 2022 against Russian financial entities, in the interview, Aksakov was asked if there are “[…] any risks that as soon as such transactions with crypto are legalized, they will immediately try to limit their conduct through sanctions?” 

The transcript of his reply is as follows: 

“There are risks, and sanctions will certainly be imposed, but the digital market is more difficult to crush with sanctions. It is designed in such a way that if restrictions are introduced in one place, other options for economic interaction quickly appear. The miners and cryptocurrency experts I spoke with say that it is impossible to seriously influence such transactions.”

In view of these legislative developments, Sberbank, a sanctioned state-owned Russian bank, announced the launch of a decentralized finance platform by May 2023, its open testing commencing in March. 

Konstantin Klimenko, Product Director of the blockchain laboratory of Sberbank, stated that “[a]t the end of April, the platform will be fully open, and then it will be possible to carry out some commercial operations on it”.

The platform will be compatible with the Ethereum blockchain and will be available to users of MetaMask crypto wallets, allowing them to transfer various crypto assets from other platforms.