Crypto Regulation News: US Fed to issue guidelines for granting master accounts to crypto banks, ECB addresses guidance on digital assets licensing, Colombia explores creating CBDC to combat tax evasion, UK crypto industry welcomes new stablecoin rules, Canadian bank regulator details crypto liquidity rules, Russia plans to roll out digital ruble in 2024, and more!

Paradigm

Published in

Paradigm

16 min readAug 22, 2022

Vol. 99, 8th August — 22d August

TL;DR

US Fed to issue long-awaited guidelines for granting master accounts to crypto banks. Furthermore, US Fed reminds banks to check for legal permissibility before offering crypto-related services
US regulators consider asking large hedge funds to disclose crypto exposure: The proposal involves adding a question about digital assets to reporting requirements that also cover private credit and equity and real estate
US tribal nation economic zone publishes draft rules for DAOs
FDIC orders crypto exchange FTX US, 4 others to cease ‘misleading’ claims
US lawmakers appeal directly to 4 mining firms, requesting info on energy consumption
European Central Bank addresses guidance on licensing of digital assets. While EU lawmakers seek to cap banks’ bitcoin holdings
UK crypto industry welcomes new stablecoin rules, awaits guidance. Furthermore, UK group to test stablecoin payments, provide data to Bank of England
Crypto.com secures UK registration for ‘cryptoasset activities’
Dutch authorities arrest suspected Tornado Cash developer
South Korea’s money laundering watchdog flags 16 crypto firms for operating without registration. Korean police seize crypto for unpaid traffic fines in trial
Chinese mining giant Canaan doubles profits despite the blanket crypto ban
Canadian Bank regulator details crypto liquidity, backing rules.Canadian pension giant caisse writes off $150m bet on bankrupt crypto lender Celsius
Ontario crypto exchanges impose $30K CAD annual limit on altcoin buys
Ukraine bought weapons, drones with crypto donations
Colombia explores creating a CBDC to combat tax evasion
Russia plans to roll out digital ruble across all banks in 2024
South Africa’s central bank greenlights financial institutions to serve crypto clients
Nigeria’s CBDC eNaira used for nearly 10M worth of transactions since October
Brazil’s largest investment bank launches crypto trading platform. While Ripple unveils crypto on-demand liquidity service in Brazil
Argentina Ethereum Conference highlights crypto’s growing reach in the country
Indian authorities freeze more crypto funds over money laundering allegations. Indian police launch probe into BitConnect founder wanted by US SEC
Binance obtains in-principle approval to operate in Kazakhstan
Binance among crypto exchanges blocked as Uzbekistan clamps down
Philippines central bank to halt applications for new digital asset firms for 3 years
Kenya’s crypto crowd hopes president-elect will be better than predecessor
SEC files complaint against Dragonchain for unregistered initial coin offering
California regulator orders Celsius to stop selling securities in the state
World Bank affiliate IFC backs blockchain-based platform for carbon offsets
Coinbase CEO suggests exchange won’t censor transactions on Ethereum
And more!

Opinions

World Bank Affiliate IFC Backs Blockchain-Based Platform for Carbon Offsets: The Carbon Opportunities Fund aims to push investments for tokenized trading of carbon credits.

Tornado Cash sanctions will undermine the US and strengthen crypto: Like any aging empire, America is reacting to its competition. But with Tornado Cash, its reaction is likely to backfire.

Tornado Cash shows that DeFi can’t escape regulation: DeFi developers seriously need to consider working with regulators on compliance issues if they want their projects to succeed.

Are Crypto Safe Harbors an Idea Whose Time Has Come? There are multiple proposals for giving young tokens more legal protection.

How ‘the Merge’ Will Change the Weird World of Ethereum Mempools: Maximal extracted value (MEV) is an expensive problem caused by Ethereum’s trustless architecture. It might even happen after the Merge turns off mining.

World’s Biggest Companies Invested $6B in Blockchain Firms September-June: Google parent Alphabet participated in four funding rounds that raised a total $1.5 billion, Blockdata found.

Bitcoin Plunges Most in 2 Months, Dashing Recovery Hopes: The leading cryptocurrency by market cap tumbles in sync with traditional markets after Germany reports record producer price inflation at 37%.

Crypto’s Downturn Makes Space for Education and Regulation: Investors can still become early adopters before crypto reaches full maturity.

Ethereum’s Merge Will Increase Its Use Cases and Drive Its Investment Narrative: More efficiencies and scalability solutions could make Ethereum a more attractive platform to build on and invest in.

Are Blockchain Bridges Safe? Why Bridges Are Targets of Hacks: Billions of dollars worth of digital assets have been lost to hackers of blockchain bridges. We explain why and how bridges can be exploited.

Are non-KYC crypto exchanges as safe as their KYC-compliant peers? While most crypto exchanges have begun implementing KYC mandates, investors still have the choice to opt for crypto exchanges that promote greater anonymity by not imposing KYC.

USA

Fed to issue long-awaited guidelines for granting master accounts to crypto banks: The U.S. Federal Reserve Board has finalized tiered guidelines for granting Federal Reserve accounts, with Wyoming’s crypto banks likely to fall under the most scrutiny.

The United States Federal Reserve Board announced Monday that it had finalized its guidelines for the factors reserve banks are to consider when reviewing requests for Federal Reserve accounts and payment services. The guidelines create a three-tiered review framework with the level of due diligence to be provided, depending on the applicant’s risk level. Guidelines were first proposed in May 2021, with a supplemental proposal released in March, and the final guidelines, which come into force after their publication in The Federal Register, are “substantially similar” to them. The Fed said in a statement that:

“Institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review.”

Nonetheless, it continued, the framework was refined “to provide more comparable treatment between non-federally-insured institutions chartered under state and federal law.” Non-federally-insured institutions that are chartered under federal law but do not have a holding company subject to Federal Reserve oversight will be subject to the most stringent review. Financial institutions need a Federal Reserve account to access the global payment systems.

The Fed’s slow approach to granting crypto banks access to Federal Reserve accounts, which are often referred to as “master accounts,” has long raised hackles among crypto bankers. Wyoming introduced rules to allow for “blockchain banks” in 2019. In June, Wyoming-based digital asset Custodia Bank sued the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, claiming that the 19 months it had been waiting to receive a master account exceeded the legally set limits on response time. The Lummis-Gillibrand Responsible Financial Innovation Act would create requirements for Fed responses to master account applications.

US Federal Reserve Minutes Show More Rate Hikes Coming, Concern About Stablecoin Risks: Bitcoin and other cryptocurrencies had little to no reaction to the central bank release.

US Fed Reminds Banks to Check for Legal Permissibility Before Offering Crypto-Related Services: The Federal Reserve’s open letter directs banks to contact their supervisor at the central bank prior to engaging with crypto.

US Regulators Consider Asking Large Hedge Funds to Disclose Crypto Exposure: The proposal involves adding a question about digital assets to reporting requirements that also cover private credit and equity and real estate.

US Tribal Nation Economic Zone Publishes Draft Rules for DAOs: The Catawba Digital Economic Zone proposes allowing DAOs to be organized as unincorporated non-profits or limited liability companies.

US Regulator ‘Improperly’ Pushing Banks to Avoid Serving Crypto Companies, Lawmaker Says: Sen. Pat Toomey said whistleblowers had informed him the FDIC was pressuring banks to stop providing services to crypto companies.

FDIC Orders Crypto Exchange FTX US, 4 Others to Cease ‘Misleading’ Claims: The five companies “made false representations” suggesting crypto products might be FDIC-insured.

House Lawmakers Send Letters to 4 US Crypto Miners Asking for Details on Environmental Impact: Core Scientific, Riot Blockchain, Marathon Digital and Stronghold Digital received the letters from members of the Committee on Energy and Commerce.

It Doesn’t Matter If They’re Wrong, Central Bankers Set Guidance for Crypto, Too: Central bankers seem to have no clue where inflation is headed in the longer term, but markets are taking every clue they get from the Federal Reserve.

US Treasury’s Tornado Cash Sanctions Are ‘Unprecedented,’ Warns Congressman: With just 28 legislative days left this year, “it’s unlikely that any crypto legislation is going to move,” Rep. Tom Emmer said on CoinDesk TV’s “First Mover” show.

After Fed Meeting Minutes, Is the ‘Peak Hawkishness’ Narrative Still On? Markets are fairly evenly split on whether the U.S. Federal Reserve will raise interest rates by 50 basis points or 75bps in September.

Crypto Lender Celsius’ Collapse Into Bankruptcy Should Be Probed, US Says: Some of the highest-profile and controversial bankruptcies in history, including Enron’s and Lehman Brothers’, have included the appointment of an independent examiner.

SEC Files Complaint Against Dragonchain for Unregistered Initial Coin Offering: The complaint alleges the blockchain startup failed to register more than $16 million in crypto asset securities.

As SEC Leans on Enforcement to Regulate, Crypto Lawyers Study Every Word: The industry’s legal advisers are trying to reverse-engineer the text of recent enforcement actions to divine the agency’s thinking.

US Crypto Regulation Bill Needs More Work to Define Boundaries, Former Prosecutor Says: Grant Fondo told CoinDesk TV’s “First Mover” that the bill doesn’t settle the issue of which government agency should regulate what.

CFTC Commissioner: Crypto Market Needs Clear Guidelines on Its Regulator: Kristin N. Johnson joined CoinDesk TV’s “First Mover” to discuss two bills in Congress that would make her agency the primary crypto watchdog.

California regulator orders Celsius to stop selling securities in the state: The Department of Financial Protection and Innovation previously ordered BlockFi and Voyager to stop their offerings in the state.

Europe & UK

European Central Bank addresses guidance on licensing of digital assets: Specifically, the ECB will consider crypto firms’ business models, internal governance, and “fit and proper” assessments which apply to licensing other companies.

The European Central Bank, or ECB, laid the foundation for the criteria it would be considering when harmonizing the licensing requirements for crypto in Europe. In a Wednesday statement, the ECB’s banking supervision division said it would be taking steps to regulate digital assets as “national frameworks governing crypto-assets diverge quite extensively” and given the seemingly differing approaches to harmonization following the passage of the Markets in Crypto-Assets (MiCA) regulation and the Basel Committee on Banking Supervision issuing guidelines for banks’ exposure to crypto. The ECB said it would apply criteria from the Capital Requirements Directive — in effect since 2013 — to assess licensing requests for crypto-related activities and services. Specifically, the central bank will consider crypto firms’ business models, internal governance, and “fit and proper” assessments which apply to licensing other companies. In addition, the ECB said it will rely on national Anti-Money Laundering (AML) authorities and the financial intelligence units of respective countries to provide data necessary to assess potential risks.

“The higher the complexity or relevance of the crypto business, the higher the level of knowledge and experience in the field of crypto should be,” the ECB said. “Senior managers or board members with relevant IT knowledge and chief risk officers with robust experience in this area are important safeguards.”

According to the ECB, there is “work ongoing” to analyze the role crypto may play in Europe, which will “remain an area of focus for European banking supervision in years to come.” With the passage of MiCA, global regulators may begin to standardize rules for crypto service providers within the European Union.

On Aug. 2, the ECB released the results of a study which identified a central bank digital currency as the top choice for cross-border payments over Bitcoin (BTC) and other options. Officials previously pointed to the crash of Terra as a possible example of a stablecoin threatening the financial system, recommending supervisory and regulatory measures to reduce risk.

EU Lawmakers Seek to Cap Banks’ Bitcoin Holdings: Lawmakers of the European Green Party want to anticipate international standards by legislating hefty capital requirements for lenders now.

CBDCs only solution to ‘smooth continuation’ of the monetary system: ECB: The European Central Bank working paper sought to identify issues and consensus regarding CBDCs, as well as to identify gaps in the research — such as what users want.

UK Group to Test Stablecoin Payments, Provide Data to Bank of England: The Digital FMI Consortium, a group of private-sector companies, will start a pilot scheme in October and run it for a minimum of a year.

UK Crypto Industry Welcomes New Stablecoin Rules, Awaits Guidance: A proposed bill could give U.K. regulators new powers over payments-focused crypto assets like stablecoins, but details on how the rules might be interpreted by financial watchdogs are pending.

Crypto.com secures UK registration for ‘cryptoasset activities’: As defined by the FCA, “cryptoasset activity” includes anything that involves exchanging one crypto for another or exchanging crypto for fiat and vice versa.

Dutch authorities arrest suspected Tornado Cash developer: The Dutch Fiscal Information and Investigation Service didn’t rule out multiple arrests in its ongoing criminal investigation against the Tornado Cash crypto mixer.

Asia

South Korea’s Money Laundering Watchdog Flags 16 Crypto Firms for Operating Without Registration: Crypto exchanges KuCoin and Poloniex are among the foreign firms accused of conducting “illegal business activities” without proper registration, and could face fines or imprisonment.

South Korea’s anti-money laundering authority is going after 16 foreign crypto firms it says have been operating in the country without proper regulatory approval, a statement published Thursday shows. The Korea Financial Intelligence Unit (KoFIU), part of South Korea’s Financial Services Commission (FSC), said the firms had advertised crypto and offered services to Koreans without obtaining the requisite registration. The firms it said were conducting “illegal business activities” are KuCoin, MEXC, Phemex, XT.com, Bitrue, ZB.com, Bitglobal, CoinW, CoinEX, AAX, ZoomEX, Poloniex, BTCEX, BTCC, DigiFinex and Pionex.

The country’s registration requirement for crypto firms took effect in September with the enactment of the Financial Transaction Reports Act. Efforts to crack down on the industry have intensified following May’s fall of Terraform Labs, founded by Korean native Do Kwon. Prosecutors have raided seven exchanges since Terra’s collapse. Earlier this month, the FSC said it will help expedite new rules to rein in the crypto industry. The KoFIU has notified authorities the 16 firms allegedly violated their “registration duties” and that it plans to alert financial authorities in the countries where the companies are based. Violation of the registration requirements carry a maximum sentence of five years in prison or a fine of up to 50 million South Korean won (US$38,000). The firms will also not be allowed to register as a virtual asset service provider (VASP) in the country for an unspecified period of time.

“The KoFIU has requested the Korea Communications Commission and the Korea Communications Standards Commission to block domestic access to the websites of unregistered VASPs to prevent the use of virtual asset services provided by unregistered entities,” the statement said.

Credit card transfers and transfers of crypto assets to and from the unregistered firms will be blocked “to disable their use in domestic market.” The agency also warned crypto users against engaging with unregistered platforms, which could leave users “vulnerable to risks of personal information breach and hacking.”

Korean financial watchdog to block tens of unregistered exchange websites: Korea’s Financial Intelligence Unit is cracking down on foreign-based cryptocurrency exchanges that are yet to register with relevant authorities in the country.

Korean police seize crypto for unpaid traffic fines in trial: Local police in a suburb of Seoul have the authority to seize crypto in order to clear the balance of delinquent fines from traffic violations.

Chinese mining giant Canaan doubles profits despite the blanket crypto ban: The Chinese crypto miner maker Canaan has been expanding its mining business, accumulating a total of 346.84 BTC by the end of June.

Rest of the World

Canadian Bank Regulator Details Crypto Liquidity, Backing Rules: Canada joins U.S., European central banks in explaining how their supervised entities can engage with crypto.

Canada’s Office of the Superintendent of Financial Institutions (OSFI), the nation’s primary bank and insurance company regulator, directed entities under its supervision to limit how much exposure they have to cryptocurrencies under interim guidance published Thursday. According to the guidance, OSFI categorizes cryptos as either Group 1 or Group 2 assets. Group 1 represents traditional assets that confer rights and obligations. Anything else is a Group 2 asset. Regulated entities need to notify OSFI if their total gross positions exceed 1% of their capital and if their total net short positions exceed 0.1% of their capital.

“The scope of this advisory is limited to the capital and liquidity treatment of a FRFI’s exposures to crypto assets. The advisory does not address other issues, including whether a FRFI is permitted under the Bank Act, Insurance Companies Act or Trust and Loan Companies Act to issue any particular crypto asset, or to acquire or hold a controlling or substantial investment in entities that engage in this activity,” the guidance said. “This advisory sets out OSFI’s expectations as to when FRFIs should notify their lead supervisor if they intend to have exposures to cryptoassets.”

If an entity does want to conduct other crypto-related activities, it needs to contact its supervisor at OSFI and share information as needed, the regulator said. Thursday’s publication marks the first major federal crypto rules for banks issued by a Canadian regulator. It comes the same week the U.S. Federal Reserve and the European Central Bank published similar guidance for regulated entities under their respective purviews. Like the OSFI’s guidance, the Fed and the ECB both directed supervised entities to notify the regulators in writing if the banks wished to engage with crypto.

Canadian Pension Giant Caisse Writes Off $150M Bet on Bankrupt Crypto Lender Celsius: Quebec-based Caisse said Wednesday it had acted “too soon” in entering the sector.

Ontario crypto exchanges impose $30K CAD annual limit on altcoin buys: The new buy limits are intended to better “protect crypto investors” and make them “more aware of the risks” associated with crypto assets, according to one of the exchanges.

Ukraine Bought Weapons, Drones With Crypto Donations: The wartorn nation also revealed it bought non-lethal equipment in a new report detailing its expenditures from crypto donations.

South Africa’s Central Bank Greenlights Financial Institutions to Serve Crypto Clients: The bank warned against the “wholesale” banning of customers who have digital assets.

Nigeria’s CBDC eNaira Used for Nearly $10M Worth of Transactions Since October: The eNaira app has been downloaded 840,000 times and has 270,000 active wallets.

Colombia Explores Creating a CBDC to Combat Tax Evasion: As part of a tax reform program, the government of the South American country also plans to impose limits on cash transactions.

Crypto Lender Hodlnaut Faces Singapore Police ‘Actions’ and Job Cuts: The firm, which is the latest in the crypto world to freeze withdrawals, said it is engaged in “proceedings” with authorities.

Ripple Unveils Crypto On-Demand Liquidity Service in Brazil: The company is teaming up with the digital bank Travelex to introduce the product, which will initially allow transactions between Brazil and Mexico.

Brazil’s Largest Investment Bank, BTG Pactual, Launches Crypto Trading Platform: Called Mynt, the product allows customers to trade BTC, ETH, SOL, DOT and ADA.

Argentina Ethereum Conference Highlights Crypto’s Growing Reach in the Country: The country continues to serve as a hotbed of crypto innovation even as it faces its latest financial crisis. ETHLatam drew more than 4,000 people.

Indian police launch probe into BitConnect founder wanted by US SEC: The Indian police launched an investigation into BitConnect co-founder Satish Kumbhani months after the U.S. SEC said he had relocated from India.

Indian authorities freeze more crypto funds over money laundering allegations: The Indian Directorate of Enforcement froze $46.4 million in the accounts of Vauld’s Indian branch until the exchange can account for the criminal proceeds it transferred out of the country.

Russia plans to roll out digital ruble across all banks in 2024: Bank of Russia started CBDC testing in 2022 and expects to implement an official banking rollout in the year of presidential elections in 2024.

Binance obtains in-principle approval to operate in Kazakhstan: The major crypto exchange has secured regulatory approval in 2022 to operate as a digital asset service provider in France, Bahrain, Spain and Dubai.

Binance Among Crypto Exchanges Blocked as Uzbekistan Clamps Down: FTX and Huobi are also inaccessible as the authorities restrict access to unlicensed centralized trading platforms.

Philippines Central Bank to Halt Applications for New Digital Asset Firms for 3 Years: The Bangko Sentral said it will conduct a reassessment based on market developments.

Kenya’s Crypto Crowd Hopes President-Elect Will Be Better Than Predecessor: Being the younger candidate and the one with a youth-friendly campaign, William Ruto is expected to be more crypto positive, locals hope.

MISC

Coinbase CEO Suggests Exchange Won’t Censor Transactions on Ethereum: Brian Armstrong expressed his preference not to censor transactions to and from sanctioned addresses after the blockchain’s transition to proof-of-stake.

#FreeAlexPertsev: Protests Planned for Amsterdam Following Tornado Cash Developer’s Arrest: The jailed Tornado Cash developer has sparked controversy in crypto. Should open source contributors be held accountable for what others do with their creations?

Many Bored Ape NFTs Are in Danger of Getting Liquidated as Borrowed Money Comes Back to Bite: The NFT lending platform BendDAO has collateralized almost 3% of the entire Bored Ape collection, and many NFTs have recently entered the “danger zone” of liquidation.

Bankrupt Crypto Lender Celsius Now Says It Likely Has Enough Cash to Last Through End of Year: The chief financial officer said during a bankruptcy hearing the company will receive additional funds via maturing loans, and sales and use tax savings.

HUSD Stablecoin Returns to $1 Peg After Liquidity Problems: The HUSD team explained that the de-peg was caused by a market maker account that was closed, causing liquidity issues.

Crypto Stocks Retreat on Bitcoin’s Dip as Macroeconomic Concerns Linger: Cryptocurrency mining equities were among the worst-hit in Friday’s trading session.

Blockchain Protocol Algorand Leads $22M Investment Round in Tokenization Firm Koibanx: The funds will be used by the Latin American firm to expand infrastructure and build payment rails.