Selected Publications

Regulatory uncertainty in cryptofinance (April 2021)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: Globally, the cryptofinance regulatory landscape is fragmented, but developing and improving. Market participants taking exposures in cryptofinance by investing in crypto assets or operating related processes may face considerable regulatory uncertainty, depending on their chosen jurisdiction. Our own records show that over 100 jurisdictions and at least 15 supranational bodies have taken formal steps to regulate cryptofinance products and processes over the last few years. None of the supranational bodies have banned or prohibited cryptofinance, and the large majority of countries have embraced it by increasing regulatory certainty for market participants and promoting innovation in a risk-controlled way. Currently, Switzerland, Liechtenstein, and Singapore offer crypto market participants the highest degree of regulatory certainty. While the EU has just begun a regulatory process that will lead to a similar regulatory certainty in a few years, certain member states, such as France and Germany, have considerably lowered uncertainty in recent years. The same can be said of the UK and several states in the Asia-Pacific region. Other jurisdictions, such as India and Russia, have been sending mixed signals regarding their intended direction, while the US has been struggling, owing to its intricate federal and state-based regulatory system, as well as its directionally unsettled economic policy stance (Congress). At the other end of the spectrum, countries including China, South Korea, Laos, Burundi, and Qatar provide regulatory certainty by prohibiting some or all cryptofinance products and processes. Crypto asset investors and entrepreneurs wishing to develop cryptofinance businesses hedge the risk of undue exposure to regulatory uncertainty by doing business in jurisdictions that offer the highest degree of regulatory certainty. Overall, the trend clearly points to a steady and global reduction of regulatory uncertainty.

Illicit use of cryptocurrencies (March 2021)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: Two authoritative market intelligence reports on the illicit use of cryptocurrencies, released in February 2021 (by Chainalysis and CipherTrace), evidence a marked decrease in the phenomena during 2020 - compared to 2019 - but also new worrying trends in the areas of ransomware and Decentralised Finance (DeFi). Further regulatory action to combat the illicit use of cryptocurrencies is therefore expected. Progress in the implementation of existing regulatory Guidance and a further growth in overall cryptocurrencies transactions should lead to a further decline in the illicit use of cryptocurrencies in the coming years. Regulators have feared the illicit use of cryptocurrencies since bitcoin was born. Still in 2017 about one-quarter of global bitcoin users were involved in illicit activities, for a total transactional value of around USDbn 76. The authorities took concerted action in 2018 under the leadership of the G20. The resulting Guidance issued by the Financial Action Task Force (FATF) in June 2019 basically subjects virtual assets (VA) and their providers (VASP) to the same standard and procedure governing transactions in fiat currencies and their providers. Yet, as apparent from statements by US Treasury Secretary in February 2021, the illicit use of cryptocurrencies continues to worry regulators, who see it as growing.

The UK tackles stablecoins (February 2021)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: On 7 January 2021, the UK government released a consultation paper that examined recent developments in Distributed Ledger Technology (DLT) and proposed an authorisation regime for stablecoins. Stablecoins have the potential to bring efficiencies to (cross-border) payments, promote financial inclusion, and facilitate the implementation of retail Central Bank Digital Currency (CBDC). The UK emerged as the third jurisdiction to single out and address stablecoins. Switzerland issued guidelines in September 2019, the EU issued regulatory proposals in September 2020, and the Financial Stability Board (FSB) provided a fundamental endorsement of stablecoins in October 2020. The UK government proposes to include stablecoins that can be reliably used for retail or wholesale transactions and that achieve a stable peg to assets such as single currency, multi currencies, or gold within the scope of the regulation. It further proposes to exclude stablecoins that achieve a stable value through algorithms that control their supply. The regulatory requirements would extend to the organisation, operation, and governance of the stablecoin arrangement. Global stablecoins would be subject to additional requirements as well. Existing cryptoasset regulation would be leveraged and extended to cover stablecoins.

Regulatory Developments for 2021 (January 2021)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: In 2021 we expect the following digital regulatory developments: 1) A handful of Central Banks (CBs) will go live with their respective digital currencies; 2) The Financial Action Task Force (FATF) will continue to enforce the Travel Rule and expand its reach to Decentralised Finance (DeFi); 3) The Basel Committee on Banking Supervision (BCBS) will introduce a crypto prudential regulation; 4) GSC projects will box themselves through a challenging regulatory journey; 5) The U.S. Securities and Exchange Commission will approve the first crypto ETF; 6) The regulatory enforcement tool will materially shape sustainable cryptofinance; 7) The US will materially clarify and align its cryptofinance regulatory framework. We hold as certain that Switzerland will complete its comprehensive digital regulatory framework and that taxation frameworks will develop across the globe. These developments will support further mainstream adoption of cryptofinance, by providing certainty to the actors and a structure to the activities.

The Swiss DLT regulatory framework crosses the finishing line (December 2020)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: During the past few months, the Swiss Parliament endorsed the Federal Act adapting federal laws to distributed ledger technologies (DLTs). The project began in late 2018, and the Swiss Federal Council (FC) adopted the dispatch on the framework conditions for DLTs in November 2019. The FC initiated the consultation on adapting various ordinances on 19 October 2020. The consultation ends on 2 February 2021, as does the process of fundamental adaptation of the Swiss legal framework to DLTs. At that point, Switzerland will feature a comprehensive and articulated DLT regulatory framework. Realised through the adaptation of existing laws, as opposed to introducing a dedicated Act, this framework would offer entrepreneurs, investors, and consumers the highest regulatory certainty in the blockchain space, adding to the traditional attractiveness of Switzerland as an innovation and entrepreneurs-friendly jurisdiction in the global economy.

The EU pilot regime for DLT-based market infrastructure (November 2020)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: The European Commission’s (EC) Digital Finance Package (DFP), issued on 24 September 2020, includes a proposal for a pilot regime for market infrastructures based on the distributed ledger technology (DLT). The EC acknowledges that no sustainable and expanding primary crypto-asset market is possible without a secondary market that provides liquidity. The proposal for a pilot regime is, therefore, a logical complement to the recommended EU regulatory framework on crypto-assets reviewed in the October issue of the Digital Regulator. Despite recognising the mutual dependency of the two proposals, the EC takes a very cautious approach by proposing rules for a pilot regime with sandbox characteristics, as opposed to offering a regulation for a fully-fledged regime. The European Council and the European Parliament will decide the fate of the pilot regime, five years after it comes into force. Meanwhile, Switzerland has adopted a full-fledged and final crypto-asset regulation, also covering DLT-based market infrastructure, which comes into force next year after the ongoing consultation on implementing ordinances is over.

The proposed EU framework for crypto-assets (October 2020)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: The EU’s regulatory crypto-asset landscape has so far been characterised by fragmentation and uncertainty. This has hindered the scaling-up and development of crypto-asset products and services. The European Commission (EC) reacted to this situation on 24 September 2020, by issuing a Digital Finance Package (DFP) that includes a proposal for an EU regulatory framework on crypto-assets aimed at seizing related opportunities in a risk-controlled environment. The DFP also includes strategy papers for digital finance and retail payments, a proposals for a framework on digital operational resilience, as well as a proposal for a pilot regime for market infrastructures based on the distributed ledger technology (DLT). A closer look at the proposals for crypto-assets—which include stablecoins, significant stablecoins, and crypto-asset service providers—reveals an approach based on the principles of ‘same activity, same risk, same rule’, proportionality and complementarity. The proposals are comprehensive and would implement, de facto, the current financial regulatory framework for crypto-asset products and services. This would also create additional duties and accountabilities for all concerned national and regional regulatory bodies. While the intention is laudable and much needed, the timeline for implementation (2024) is too far off, and the nature and extent of the proposed requirements raise the issue of adequacy vis-à-vis the reality of an industry that is, at best, embryonic. The proposal risks the deterrence—instead of the promotion—of the industry if not implemented in a way that encourages and attracts entrepreneurs.

Which crypto-asset regulation for the European Union? (September 2020)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: Since 2018, several EU member states have developed and implemented more or less comprehensive regulations and regulatory frameworks for crypto-assets and cryptofinance, with the most prominent examples being France, Germany, and Malta. Since around the same time, the call for an EU-wide crypto-asset regulation has grown louder. The European Commission (EC) is now poised to issue the EU framework for markets in crypto-assets before the end of the year. It is unclear to what extent the crypto-asset regulation that the EU is about to finalise will interfere with the advanced frameworks set up by member states and whether it will require adaptations. On balance, however, an EU-wide crypto-asset regulation is the only way to harvest efficiently and in a risk-controlled way the benefits of crypto-assets and cryptofinance services and products in the context of the European single market.

The regulatory endorsement of global stablecoins (GSCs) (August 2020)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: International regulators reacted strongly to the announcement of the GSC project Libra in June 2019 by BigTech Facebook. The resultant debate on the merits and threats of GSCs created a fundamental regulatory uncertainty regarding the possibilities for GSCs to be issued in the first place, effectively putting such projects on hold. In July 2020, the Financial Stability Board (FSB), acting on behalf of the G20, concluded the public consultation on how to regulate GSCs. The joint consideration of the consultation paper and the comments received on it indicate a fundamental endorsement of GSCs by international regulators. The debate moves on to the implementation stage, wherein the manner of implementation of GSCs along with the application of the specific regulatory provisions need to be defined. As a consequence, GSC projects—including Libra—can resume full steam, and improved financial inclusion as well as cheaper and faster processing of (international) payments get closer. Overall, this fundamental endorsement of GSCs provides blockchain-based finance with a further boost.

The inexorable march of Central Bank Digital Currencies (July 2020)

Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: A growing number of Central banks around the globe are analysing, testing, and prototyping CBDCs. These initiatives are strongly backed by the Bank for International Settlements or the BIS (bank of the central banks). In this context, wholesale CBDCs emerge as low hanging fruit compared to retail CBDCs. The design and implementation of retail CBDCs (as compared to wholesale CBCDs) faces several additional challenges that need to be addressed before practical application is possible. The steadily growing CBDC initiatives from Central Banks globally, suggest that the official launch of the first wholesale CBDC may be near. It could be as soon as a matter of months, before the first official CBDC sees light. The concrete adoption of blockchain-based digital currencies by the official sector is expected to boost public trust in such technology and related monetary innovations.

Several other noticeable developments have characterised the digital regulatory space in recent weeks, such as the review by the FATF of the status of compliance to the “travel rules” by virtual asset providers (enacted 12 months ago), and the unanimous approval of the landmark Blockchain Act by the Swiss Parliament.

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