Regulatory outlook June 2023 fintech digital assets payments consumer credit

In June this year, representatives of the payment-systems-regulator announced the introduction of new requirements for fast revenue approaches. This is due to improved anti-fraud protocols. The majority of VASP residents, after consultations, supported the new actions to prevent fraudulent activities. But representatives of some companies have expressed mixed views. They worry about the unnecessary impact of unfavorable factors on market contest, certain consumers, and invention.

The regulator has amended its protocols to address the issues. In particular payment companies need to take steps to improve protocols and share costs equally between senders and receivers. New security measures will be introduced for vulnerable users.

The regulator is also still consulting on many documents and promises to publish them by the end of the year, to have them in place from 2024. Therefore, it is important to understand at what stage all the procedures are now and what to expect for fintech companies.

Financial promotion rules for cryptoassets

Many analysts see that the biggest changes await crypto. The published order will expand the scope of restrictions and ready-made crypto companies for sale should take into account all the changes when planning the promotion of certain crypto assets.

Many crypto companies for sale have reacted negatively to such changes because they believe that thanks to the new requirements they willn`t be able to more actively promote new cryptocurrencies. However, representatives of the regulator believe that they have made several targeted changes to reduce the possibility of promoting high-risk cryptocurrencies and allow more trading with more reliable currencies.

Nevertheless, the document has not yet been adopted and representatives of the regulator continue to consult with companies to find the best solution that will suit all parties.

UK government committee calls for consumer trading in unbacked crypto-assets to be regulated as gambling

In May this year, representatives of the British Treasury published a report on the issue of regulation of crypto-assets. It focused a lot on the Government’s actions regarding the operation of the business and its interactions with customers. However, little attention is paid to the investigation of the profile committee to the CB’s work with digital-currencies.

The report states that the committee:

• recognised the potential of certain crypto-assets and its representatives believe that such technologies will have a positive impact on the provision of financial services. To this end, it is advisable to establish an effective-regulatory-framework that will help to develop the technology and not increase risks to financial-markets. The commission accommodates suggestions to regulate crypto-assets;
• Note that the regulator has problems with the implementation of encryption rules. Need to provide modern protocols and develop this area more actively;
• Note that this market is more about the high-risk crypto company for sale of crypto-assets. Therefore, they express concern about the functioning of retail sales and investing primarily for buyers. Therefore, it is important to ensure that market parties are highly secure so that consumers can appreciate it;
• Suggests that crypto-assets should be regulated as gambling rather than the provision of financial services.

ESRB report on cryptoassets and DeFi

The EU’s SRC also conducted its research to note the importance of the new requirements. Based on their report, the organization points out that systemic-impacts did not materialize last year. At the same time, it is noted that the number of links between cryptocurrency exchanges and the services of traditional financial service-providers is low. Therefore, the risk of a negative impact on the economy in their opinion remains. Therefore, in their opinion, the risk of a negative impact on the economy remains.

To minimize its impact, the organization suggested introducing policies to help better understand the development of crypto-assets. This committee proposed to focus on:

• strengthening-monitoring-capacity;
• specifying and estimating the risks of conglomerates co-operating with crypto-assets and using credit to trade in this market;
• surveying the development of the crypto market to mitigate-risks by strengthening the operational resilience of this market.

The Committee is already consulting to obtain more information in the area of monitoring crypto-assets and changing the tax regime for crediting such transactions.

IOSCO consults on policy recommendations for crypto and digital asset markets

Representatives of the ISC also disseminated their report on the topic. Among their 18 recommendations, the organization notes 6 key areas that the regulator needs to pay attention to, namely:

• contentions of attraction between companies and the regulator;
• manipulation of markets through insider-trading and forgery;
• high-risks in transactions;
• safeguard of clients’ depositary assets;
• functioning and technological-risks;
• retail-sales.

The commission did not address its suggestions word-for-word to cryptocurrency companies but recommends that providers of such services take these recommendations into account.

EBA consults on changes to AML and CTF risk factors guidelines under MLD4 to include crypto asset service providers

In May this year, the EBA also published its response. This organization proposes to introduce transformations to the approaches on consumer due diligence. They propose that the new guidelines should also apply to cryptoassets. Among the recommendations:

• Allocation of risk factors taking into account the peculiarities of crypto-assets;
• consideration of such risks when conducting credit transactions;
• the need to use secure tools for remote adaptation;
• regular reviews of all credit institutions that are registered in third countries and work with cryptocurrency companies;
• providing organizations with industry guidance clarifying factors that may supplement or reduce fraud risks;
• providing recommendations for mitigation following the introduction of more scrupulous transaction checks.

In its accompanying press releases, the organization states that these recommendations will help reduce the misuse of cryptoassets for fraudulent activities.

European Commission amends list of high-risk third countries under MLD4

In addition to the above-mentioned recommendations from various commissions and institutions, the EC adopted a delegated-regulation. It amends the list of third countries that have deficiencies with anti-money-laundering and anti-fraud protocols. In particular:

• added Nigeria and South Africa to the list;
• removed Cambodia and Morocco from the list.

This regulation will be presented for consideration in the EU-Council and the European-Parliament. If the authorities do not object to these changes, they will take effect after 20 days from the date of publication in the Official Journal of the EU.