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CIS Gazette 1/Feb/2021

A summary of the weeks news & events in the  Crypto/Blockchain world

The Future and the Regulation

Visa will add cryptocurrencies to its payment network

The card giant works with wallets and exchanges to enable crypto purchases, and could eventually use digital currencies over blockchain in the same way it processes traditional money. Visa CEO Al Kelly said the payments giant is in a position to make cryptocurrencies more “safe, useful and applicable” and may add them to the company’s payments network. Kelly described cryptocurrencies like bitcoin as “digital gold” which are “not used as a form of payment in a significant way at this point.” The payment executive also specified that stablecoins could be used for “global commerce” and that “digital currencies running on public blockchains as additional networks just like RTP or ACH networks.” Kelly underlined that 35 of the leading digital currency platforms and wallets have already chosen to issue Visa, including coin-based, BlockFi, Fold, and BitPanda. These wallet relationships represent the potential for more than 50 million Visa credentials.1

Bahrain Central Bank issues license to crypto exchange

A Middle Eastern crypto exchange company had obtained a license from the Central Bank of Bahrain (CBB). The exchange platform has been certified by the Shariyah Review Bureau and had met several technical, operational, and security requirements from the CBB. The license allows operating as a regulated and onshore platform, becoming one of only a few fully licensed and operating crypto exchanges in the Middle East and North Africa (Mena) region.

At launch, the platform plans to offer spot trading in five major crypto assets – bitcoin (BTC), ethereum (ETH), ripple (XRP), bitcoin cash (BCH), and litecoin (LTC) to both retail and institutional investors. It will also host an over-the-counter (OTC) desk for larger transactions and services will be available to investors in Bahrain, the United Arab Emirates, Saudi Arabia, Kuwait, and Oman.

Shariah compliance is a key customer need and regulatory requirements in most Muslim markets. With regards to Bitcoin, the technology has been viewed as “haram” – meaning that it is prohibited under Shariah laws on the basis that cryptocurrencies may be used for illegal activities such as money laundering and fraud, according to some experts. There is also concern over a lack of central authority and how that cryptocurrency strip governments and central banks of their power over national monetary systems.2

The Philippines issues crypto industry guidelines to guard against money laundering

The Philippines central bank, Bangko Sentral ng Pilipinas (BSP), has released new guidelines for virtual asset service providers (VASPs) in a bid to prevent money laundering. Under the framework, VASPs will need to apply for a license, a “certificate of authority,” in order to operate as money sending business. They will also need to align with the central banks existing rules for financial service providers in areas such as liquidity and operational risk, IT risk, internal controls, consumer protection, and anti-money laundering.

VASPs will now need a minimum capital requirement of 50 million Philippine pesos (just over $1 million) if they provide custody services or a lesser amount of 10 million pesos ($208,000) if not. While virtual assets “have the potential to revolutionise the delivery of financial services,” any benefits should be considered alongside any risks of use in money laundering.

VASPs will also be responsible for conducting their own customer due diligence and must treat cryptocurrency transactions as cross-border wire transfers, keeping participant data for those over 50,000 pesos ($1,000). Suspicious activity or single transactions of 50,000 pesos (US$10,000) will need extra due diligence and payout restrictions.3

President Biden's financial team will clarify Bitcoin and cryptocurrency regulations

President Biden is putting together a team of financial leaders that should clarify the tricky cryptocurrency market. Three of Biden's top-level financial staff picks have a proven understanding of how blockchain and cryptocurrency assets actually work. U.S. Treasury Secretary, Janet Yellen specified that cryptocurrencies offer both benefits and challenges to the American financial system and U.S.A. should consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system.

She pledged to do a deep review of cryptocurrency markets in collaboration with many other banking and finance regulators, hoping to establish an effective set of rules that limit "malign and illegal activities" while supporting powerful fintech innovations based on blockchain technologies.

Yellen's views on bitcoin have been nuanced and sophisticated for a while. At the height of the last bitcoin peak in 2017, when Yellen served as the chair of the Federal Reserve, she said that she wasn't a fan of the cryptocurrency while also acknowledging that the crypto market was in need of a stable framework of regulations and monitoring.

In short, it looks like Yellen will do her level best to come up with a reasonable legal framework for bitcoin and friends, accepting inputs and ideas from many different stakeholders.

At least two of Biden's top-level financial leadership picks come with serious backgrounds in blockchain and cryptocurrency technologies. Gary Gensler, who has been tapped to chair the Securities and Exchange Commission (SEC), is a Professor of the Practice of Global Economics and Management at MIT's Sloan School of Management. His research and teaching duties focus on financial technologies, blockchain technology, digital currencies, and public policy. That does not make him a single-minded cryptocurrency supporter. Gensler also has a direct experience with the legislative angle, having assisted Senator Paul Sarbanes in the writing of the important Sarbanes-Oxley Act of 2002. Gensler provides a unique balance of cryptocurrency knowledge and traditional finance experience that should help Yellen build an equally balanced regulatory model.

Over the weekend, Biden reportedly selected Georgetown University law professor Chris Brummer for another high-level financial post. As chairman of the Commodity Futures Trading Commission (CFTC), Brummer will advise Yellen and also develop a regulatory approach to treating some cryptocurrencies as commodities. Brummer also teaches cryptocurrency classes and is often called by Congress and global regulators as an expert witness on digital currencies. He is another deeply informed expert on the legal and financial aspects of cryptocurrencies, and another valuable resource for crafting an effective ruleset.

SEC ex-chairman Jay Clayton filed a lawsuit against the cross-border digital payments system Ripple on his last day of service, raising questions that would have made more sense five years ago and effectively halting Ripple's surging price growth. Former CFTC chairman Heath Tarber came with a stellar legal background and argued that the U.S. needs to remain a global leader in blockchain technology.

The new rules may not always favour the current players of the fintech market but regulatory stability will be good news for the market as a whole.4

Japan’s top brokers compete with crypto-native exchanges for market share

Japan’s biggest brokerages are looking to compete with the country’s crypto-native exchanges for digital asset market share. According to the research, the top three online brokerage firms in Japan are experiencing surging revenue from their cryptocurrency exchange services. The operating revenue and net worth of exchange platforms operated by Japan’s top securities brokers is quickly catching up to that of their crypto-native rivals. Japan’s three-largest brokers by customer deposits — SBI, Rakuten, and Monex — operate crypto exchange platforms. Furthermore, many large asset managers are lobbying Japanese lawmakers to allow them to offer expanded cryptocurrency services and products, such as custody solutions and exchange-traded funds.

Japan’s top financial regulator, the Financial Services Agency, or FSA, supports inclusive crypto regulations for many years, works for establishing the island nation as a regional hub for the digital asset industry. 26 licenses have been issued for digital currency exchanges since April 2017. BitFlyer is currently the largest Japanese exchange with over $1 billion in assets in custody and a net worth of $146 million, as of August 2020. Additionally, Japan’s institutional-grade Liquid exchange was listed in the top ten list of crypto unicorns by the end of 2019 — boasting a valuation exceeding $1 billion dollars.

A large number of high-profile mergers and investments as having taken place within Japan’s crypto industry. In April 2018, major exchange Coincheck was acquired by an online brokerage firm Monex Group. In October 2019, Financial Products Group, a publicly listed financial services provider, invested in Huobi Japan.5

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