Given the frequent changes that the world of Digital Assets is undergoing, below is a short and consolidated overview of the latest and “hottest” Regulatory Updates by the leading regulators in the world; Maybe we will be able to sort out all the chaos.
1. ISRAEL
On November 2022, the Israeli Ministry of Finance published a broad framework for digital assets regulation in Israel and formulated policy recommendations.
Removing existing barriers under the current regulatory regime:
1. Completion of the licensing process for Digital Assets Services Providers (“DASP”);
2. Ensuring the full application of Banking Business Directive no. 411.
Expanding & improving the current regulatory regime:
1. Grant the DASP regulator the power to take DASP licenses granted in certain advanced economies (to be determined by the regulator) into account when considering licensing in Israel, including the total recognition of these licenses;
2. Clarify the tax regime concerning the taxing of digital asset activity;
3. Amend legislation to expand and clarify the mandate of the Israel Securities Authority to include the regulation of securities-related services when they are conducted through, or concerning, digital assets.
4. consolidation – as much as possible – of the regulatory power over various digital assets, services, and activities under a single financial regulator that reports to the Minister of Finance;
5. Disseminate a clarification notice to financial regulators regarding the regulatory mandates on Decentralized Finance (DeFi).
Forming new regulatory infrastructure – legislating regulatory mandate over the issuance of asset-backed digital tokens, including stablecoins, and setting relevant standards for the distribution of asset-backed digital tokens in law. Additionally, codifying the criteria and mechanism for transferring the regulation over the issuance of “significant” asset-backed digital tokens to the Bank of Israel.
Forming new regulatory infrastructure
legislating regulatory mandate over the issuance of asset-backed digital tokens, including stablecoins, and setting relevant standards for the distribution of asset-backed digital tokens in law. Additionally, codifying the criteria and mechanism for transferring the regulation over the issuance of “significant” asset-backed digital tokens to the Bank of Israel.
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2. BVI
On December 23, 2022, The Financial Services Commission (“the Commission”) introduced the Virtual Assets Service Providers Act, 2022 (“the VASP Act”), which comes into effect on February 1, 2023.
The VASP Act describes the activities that require registration through the definitions of key terms such as virtual assets, virtual assets service, and VASPs. For clarity, activities that do not qualify as virtual assets services have also been outlined in the VASP Act.
Key features of the VASP Act include:
[1] Details of the application and approval requirements for registration as a VASP, including additional specific requirements for VASPs seeking to provide virtual assets custody services or operate a virtual assets exchange;
[2] The requirement for VASPs to appoint authorized representatives;
[3] The requirement for VASPs to appoint an auditor approved by the Commission and the obligations of the auditor to the Commission;
[4] Details of the information that a registered VASP must report to the Commission on an ongoing basis;
[5] The process to be adopted for disposing or acquiring a significant or controlling interest in a VASP;
[6] The establishment of measures to protect clients’ assets;
[7] Prohibitions on making or issuing misleading advertisements;
[8] AML/CTF and other regulatory compliance matters; and
[9] The legal mechanism for a VASP to participate in the Regulatory Sandbox.
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3. DUBAI
On February 7, 2023, the Virtual Assets and Related Activities (“VARA”) published its Regulations for 2023.
VASPs who fulfill VARA’s licensing requirements will be required to comply with four Compulsory Rulebooks [Company, Compliance & Risk Management, Technology & Information, and Market Conduct]. In addition, seven activity-specific Rulebooks have been developed to cater to risks associated with the provision of each Virtual Asset activity [Advisory, Broker-Dealer, Custody, Exchange, Lending & Borrowing, Payments & Remittances, and Management & Investment]. VASPs will only be required to comply with each activity Rulebook if they are licensed by VARA to offer the activity. VARA has also established rules for the Issuance of all Virtual Assets, as well as Virtual Asset Marketing activities.
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4. USA
On January 3, 2023, The Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“FED”), and the Federal Deposit Insurance Corporation (“FDIC”) issued a joint statement highlighting key risks to banks associated with crypto-assets and crypto-asset sector participants.
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On February 7, 2023, the Board of Governors of the Federal Reserve System (“FED”) issued a Policy Statement on Section 9(13) of the Federal Reserve Act which the Supplementary Information section provides examples of how the policy statement would be applied to certain crypto-asset-related activities.
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On February 3, 2023, Paxos, a regulated blockchain and tokenization infrastructure platform, received a Wells notice from the SEC. The Wells notice states that the staff of the SEC is considering recommending an action alleging that BUSD is a security and that Paxos should have registered the offering of BUSD under the federal securities laws.
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5. ISDA
On January 30, 2023 ISDA addressed the digital Adsset market. Hence, it extended its reference to the derivative Market to the nascent digital asset derivatives market with the publication of ISDA’s Digital Asset Derivatives Definitions. These establish an unambiguous, standardized contractual framework for digital asset derivatives under the umbrella of the ISDA Master Agreement that, among other things, spells out the rights and obligations of both parties following a market disruption.
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The Financial Regulation practice at Shibolet accompanies and assists many enterprises in the world of Fintech and Finances in regulatory and operational processes in Israel and around the world.
Financial Regulation Practice,
Shibolet & Co.
This update is provided as general information only and may not be relied upon in any individual case without additional legal advice.
