Pioneering the Future of Digital Assets in Compliance with Evolving EU Regulations

At JOIN, we’re not just witnesses to the transformative shift in the digital assets landscape; we’re actively shaping its future. In this article, we’ll delve into our journey, strategies, and how we’re navigating the ever-evolving European regulatory landscape.

Riding the Regulatory Wave

From the outset, we meticulously analyze shifts in European political and institutional sentiments, aligning our strategies with current and proposed legislative changes. Tokenization of financial instruments, highlighted by Andrea Enria (Chair of the Supervisory Board of the European Central Bank) during his speech at the conference on MiCAR on November 14, 2023, in Venice, has been a focal point for us.

“(…) Indeed, the tokenization of financial instruments is expected to make trading and post-trading processes more efficient. If coupled with the tokenization of deposits as a means to settle financial transactions, the cost savings and reduction in operational risk could be material. Moreover, the tokenization of deposits could also offer a competitive tool for banks to preserve their funding base and enable an efficient credit intermediation process. That is why it is of fundamental importance that the regulatory regime for tokenized deposits, both retail and wholesale, is absolutely clear, and any residual uncertainties are eliminated (…)”

“(…) Moreover, for reasons I would describe as ‘structural,’ MICAR explicitly excludes from its scope fully decentralized finance and native cryptocurrencies like Bitcoin, given the potential lack of addressees of the regulatory measures and the absence of an issuer (…)”

Andrea Enria emphasizes the efficiency and cost-saving potential of asset tokenization, recognizing the regulatory shift likely to exempt decentralized finance protocols and cryptocurrencies.

This enables us to navigate the regulatory landscape effectively.

Macro-Economic Shifts

The COVID crisis and the geopolitical situation have led to changes in the worldwide macroeconomic climate, accelerating digitalization and borderless communication. Technology advances, including AI and Blockchain-based asset transfers, outpace traditional systems. Lawmakers initially sought to depress these technologies but have shifted sentiment in a market no longer sustainable with unhedged fractional reserves and unsustainable government securities.

The European Union faces economic challenges, inseparable from technological opportunities, and citizens’ sentiment makes further bailouts of systemic failures impossible.

Twin Strategy: Green Economy and Digitalization

Macro-environmental factors in the EU have undergone significant changes since the COVID pandemic. The market is either stalling or experiencing a recession. Inflation is high, yet there is reluctance to raise interest rates on savings products. If consumers hoard their assets, the economy will face further stagnation.

For policymakers and Central Banks, the only viable solution is to encourage consumer spending in assets with high-risk/high-return expectations to reignite economic growth. The European Commission is banking on two strategies, namely the Green Economy and Digitalization, collectively referred to as the “twin strategy.”

To prevent falling behind in the race against unregulated cross-border payment routes, such as blockchain solutions or high-yield investment offers like DeFi, the push for digitalization must be regulated promptly and effectively.

MiCAR — A Game Changer

On April 20, 2023, the European Parliament adopted Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCAR). MiCAR’s goal is to establish a unified European regulatory framework for crypto-assets. This framework aims to encourage innovation, harness the potential of crypto-assets, and ensure financial stability and investor protection.

TFR3: AML Measures and Crypto Landscape Changes

The European Commission’s recent publication of the revised Transfer of Funds Regulation (TFR3) on June 9, 2023, has garnered less attention compared to MiCAR, despite its profound impact on the crypto industry.

TFR3 aims to implement the Financial Action Task Force’s (FATF) recommendations on virtual assets, particularly focusing on traceability to combat money laundering and terrorist financing. The adoption of TFR3 signifies the EU’s proactive stance, going beyond FATF’s suggestions.

The regulation introduces significant changes, especially with the implementation of the crypto Travel Rule for service providers by December 30, 2024. This mandates data provision for Anti-Money Laundering (AML) purposes, aligning with GDPR obligations for Virtual Asset Service Providers (VASPs) defined by MiCAR.

The obligations include:

• Record Keeping of User Data: CASPs must keep records of originator and beneficiary information for five years, with mandatory deletion afterward.
• Enhanced Security: Custodians are required to establish robust security measures to safeguard investor assets and segregate custodian and personal assets.
• Reserve Obligations: Custodians are accountable for any loss or damage to assets in custody and obligated to make a full return when required by the client.
• Identification of Transfers from Unhosted Wallets: Users of hosted or custodial wallets are restricted from transactions with unhosted or unverified wallets exceeding EUR 1000. VASPs must collect Travel Rule information when transactions surpass this threshold, including originator and beneficiary details.

This information will typically be requested from the user of the custodial solution before funds are credited. TFR3’s implementation underscores a significant shift towards robust AML measures and enhanced security in the evolving crypto landscape.

JOIN‘s Answer to MiCAR and TFR3 Compliance Challenges

• Self-Custodial Design: Our fully self-custodial approach ensures compliance with MiCAR’s distinction between custodial and non-custodial services.
• Exclusion from Reserve Requirements: Our self-custodial model exempts us from regulatory requirements related to reserve funds, providing a competitive advantage.
• Regulation of ARTs: We recognize the need for authorization and compliance with MiCAR for Asset-Referenced Tokens (ARTs).
• Record Keeping and Enhanced Security: As a non-custodial solution, we avoid obligations related to record-keeping, user data, and enhanced security imposed by MiCAR and TFR3 on custodial entities.

The JOIN Smart Wallet: A Bridge to the Future

In response to regulatory trends, we’ve developed the JOIN Smart Wallet. This Web3-powered, fully self-custodial environment ensures a seamless and user-friendly experience, acting as an incremental building block for a new digital economy. Our strategic move to self-custodial blockchain solutions aligns perfectly with the regulatory push for more secure and decentralized approaches, positioning JOIN as a key player in shaping the future of value creation in the digital asset space.

JOIN x Logion: Strengthening Regulatory Compliance

JOIN’s strategic partnership with Logion is a pivotal move towards enhancing compliance with evolving EU regulations. Leveraging Logion’s expertise in legal-grade digital assets and the innovative “Proof of Law” concept, JOIN ensures transparent and legitimate tokenization in alignment with regulatory standards. This collaboration positions JOIN to navigate key regulations like MiCAR effectively, offering users a secure and regulated investment environment. With a focus on combating money laundering and a commitment to transparent tokenization, the partnership reinforces JOIN’s dedication to regulatory compliance, shaping a future where digital assets meet and exceed EU standards for security and trust.

JOIN’s Unique Position

JOIN’s strategic alignment with regulatory shifts, innovative self-custodial solutions, and the Logion partnership position us as frontrunners in the dynamic world of digital assets. Our commitment to compliance and user empowerment sets the stage for a future where digitalization reshapes the financial landscape. As the EU races towards a digital future, JOIN stands ready to play a pivotal role in shaping a landscape of compliant and user-centric digital asset services. Together, let’s pioneer the future of digital assets.

JOIN — Unleashing the Best of Digital Assets, for All.

JOIN Smart Wallet (All users) | Wallet-as-a-Service infrastructure (Businesses) | Customizable platform (Institutions).

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