FSB Finalises Global Crypto-Asset Regulatory Framework
The Financial Stability Board (FSB) recently published its global regulatory framework (Framework) for crypto-asset activities to promote the comprehensiveness and international consistency of regulatory and supervisory approaches.
This Framework consists of two sets of recommendations for:
- the regulation, supervision and oversight of crypto-asset activities and markets; and
- the regulation, supervision, and oversight of "global stablecoin" arrangements.
The Framework is based on the principle of "same activity, same risk, same regulation". This initially draws concerns, as it doesn't inherently recognise that "same regulation" may fail when decentralised technology is considered. At a recent conference in
While this may seem pedantic, the approach is critically important when there are calls by some for all of the crypto-asset industry to be dealt with under existing laws strictly, which would amount to a ban, should crypto-assets be declared financial products / securities without a workable licensing framework in place. Recently a project in the US which testified before
The FSB approach shows clear TradFi influence, drawing on experiences in different jurisdictions to seek to establish a high-level, flexible and technology neutral framework.
The FSB says the Framework will:
ensur[e] that crypto-asset activities and stablecoins are subject to consistent and comprehensive regulation, commensurate to the risks they pose, while supporting responsible innovations potentially brought by the technological change.
In formulating this Framework, the FSB highlighted that events in the crypto-asset industry last year (e.g. the collapse of FTX and meltdown of Terra/Luna) illustrate the failure of a key service provider in the crypto-asset ecosystem can quickly spread to other parts of the ecosystem.
In light of these events, the FSB's recommendations focus on three main areas:
- adequate safeguarding of client assets;
- addressing risks associated with conflicts of interest; and
- cross-border cooperation.
The safeguarding of client assets is a theme which will be familiar to many in the Australian blockchain scene as exchanges have been asking for regulation around crypto-custody for several years, well before the collapses of last year.
The FSB's mandate is to coordinate at the international level the work of national financial authorities and international standard-setting bodies in order to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. Last February, the
The Framework will provide input to a joint paper with the
The
But the prior "request" for
Armstrong told the
They came back to us, and they said?.?.?. we believe every asset other than bitcoin is a security.And, we said, well how are you coming to that conclusion, because that's not our interpretation of the law. And they said, we're not going to explain it to you, you need to delist every asset other than bitcoin.
This request by the
We really didn't have a choice at that point, delisting every asset other than bitcoin, which by the way is not what the law says, would have essentially meant the end of the crypto industry in the US
And that the
It kind of made it an easy choice?.?.?.?let's go to court and find out what the court says.
So far, the
This arises from the so-called "embodiment theory" under which, if an "investment contract" is offered in connection with the sale of tokens, most often seen by the issue of a Simple Agreement for Future Tokens, the
- In
July 2022 ,Coinbase applied for clarity and rulemaking to theSEC ; -
The same month the
SEC issuedCoinbase a Wells Notice indicating that it is considering enforcement action against the exchange; -
In
May 2023 , theSEC was ordered by the court to explain its failure to respond to a 2022 petition for rulemaking byCoinbase ; -
In
June 2023 , theSEC filed sweeping legal actions againstCoinbase for alleged breaches of securities law; -
Following the
SEC's complaint, the court made a rare decision urgently ordering theSEC to respond toCoinbase's previous petition; and -
On
13 June 2023 , theSEC responded to the order saying that it was considering the petition and needed 120 days to reply.
The
However, the
companies to delist crypto assets
and added:
In the course of an investigation, the staff may share its own view as to what conduct may raise questions for the commission under the securities laws
This latest instalment of the
Without clarity, users are exposed to the risks of exchanges which don't properly segregate assets or meet a minimum required standard, increasing the likelihood of further losses in avoidable collapses in future.
This week the
Staking usually involves crypto holders putting their digital assets 'to work' and earning a return (usually in the form of additional rewards denominated in the same cryptocurrency that the crypto holder placing at stake). Crypto holders 'lock up' their tokens in various ways, in order to participate in the running of the particular blockchain and assist in maintaining its security. Some staking will involve the provision of validator notes and crypto not leaving the customers wallet (known as 'non-custodial' staking) and some will require a transfer in to a smart-contract or other wallet ('custodial staking').
The ruling states that gross income which must be declared includes income realised in any form, whether that be money, property, or in this case, staking rewards. The value of the tokens received as staking rewards must be calculated as of the moment the taxpayer gains control (or could gain control) of the tokens (i.e. has the ability to sell the tokens):
The fair market value of the validation rewards receiving is included in the taxpayer's gross income in the taxable year in which the taxpayer gains dominion and control over the validation rewards
This principle holds true for investors staking tokens through a cryptocurrency exchange or on their own, and will create pricing headaches for do it yourself stakers unless they use specialised taxation software to calculate the price and tax payable.
The
The
The Australian
Crypto holders top 516M globally:
The report opines that drivers of the increase included the introduction of the Bitcoin Ordinals protocol which brought NFTs to the Bitcoin network for the first time as well as ongoing Ethereum upgrades. Interest in BTC ETFs has been growing as well as institutions consider Bitcoin to be an asset which deserves a (very small) allocation.
The report uses a methodology of on-chain analysis of deposit addresses to estimate the number of global users since any one user can have as many wallet addresses as they please, and users on exchanges don't necessarily need to have a separate wallet address.
On a pure wallet analysis view, Glass Node reports that daily active Bitcoin addresses continue to rise, with around 20M addresses active.
Glassnode see around 6M daily active wallets for Ethereum:
The amount of data available on-chain for analysis only increases, with greater transparency around how crypto-assets move, and providing unprecedented opportunities for businesses like Chainalysis and Elliptic to also report on the growth of crypto-adoption as well as the prevalence (or lack thereof) of crime in crypto systems.
The sharing of this kind of information is useful for regulators and policymakers to consider when determining how this industry will impact our digital economy in the future.
On
- Setting definitions of digital assets
- Exempting transactions in digital assets from certain taxes
-
Registration requirements for digital asset intermediaries with the
Securities and Exchange Commission (SEC ) -
Registration requirements for digital asset intermediaries with the
Commodity Futures Trading Commission (CFTC) -
Proposed codification of the SEC Hub for Innovation and
Financial Technology and LabCFTC Proposed CFTC-SEC Joint Advisory Committee on Digital Assets -
Modernisation of the
SEC's mission
The Bill would establish a regulatory structure for digital assets within the existing authorities of the
The bill is said to have taken into account feedback from stakeholders and industry participants and reflect the draft legislation's intention to:
Provide for a system of regulation of digital assets by the CFTC and the
Sponsor Rep.
The digital asset space is muddled with regulatory uncertainty, lack of authority, and a lacking framework for core operating principles.
The bill is said to recognize the power of digital assets and blockchain technology to 'revolutionize [the] financial system'. It has been introduced at a critical time where other jurisdictions are advancing with developing regulatory frameworks for digital assets. The US, by contrast, has mostly lagged behind, with regulators often resorting to regulation by enforcement in the absence of clear guidance.
In relation to how the bill will address this issue, Johnson explained:
Our collaborative bill gives both the CFTC and
Following debate in both the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Piper Alderman
Level 23
2000
Tel: 29253 9999
Fax: 29253 9900
URL: piperalderman.com.au
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